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Rising rents and stiff competition: What you need to know about Germany’s housing market

Long queues at apartment viewings, extensive application documents and lots of rejections. Let’s face it: good apartments that aren’t too expensive are difficult to secure in Germany.

Published: 20 September 2018 10:50 CEST
Rising rents and stiff competition: What you need to know about Germany's housing market
A demonstrator carrying an 'apartments for all' placard at a demonstration against rising rents in Hamburg. Photo: DPA

But now the federal government has recognized the problem and has called a housing summit.

At the residential summit happening this Friday in Berlin, different housing and building organizations will join politicians to discuss these problems together. On Thursday a meeting is also taking place between trade unions, social associations and tenants’ federations.

Why is it so difficult in the housing market?

It’s hard because there is a huge regional demand – and not just in metropolitan areas. Living space is now lacking in one-third of all German districts and cities, according to the evaluation institute Prognos which carried out an investigation in June 2017.

Due to that, the situation in 138 of 402 German cities and districts is problematic. The housing market in Berlin, Düsseldorf, Frankfurt am Main, Hamburg, Cologne, Munich and Stuttgart is particularly tense.

The bottom line, and perhaps surprisingly, is that there are even more apartments than a few years ago: in 2010, there were 495 apartments per 1,000 inhabitants, while last year there were 12 apartments more.

At the same time, the apartments are getting bigger: the average area per person has increased by 1.5 square meters in seven years. Although it should be noted that many people, especially in cities, are having to accept smaller apartments due to costs. 

How are rents in Germany developing?

They are only going in one direction and that is up: In 2017, rents for new contracts rose by 4.5 percent compared to the same period in the previous year. The price increase slowed slightly compared to 2016 (from 4.9 percent).

On average, tenants paid €7.99 per square meter, according to the Federal Institute for Building, Urban and Spatial Research (BSSR). However, it was not the hard-to-find actual rental prices that were evaluated, but asking rents, for example the prices landlords require for advertisements.

Construction work on housing in Hamburg. Photo: DPA

Where is the situation particularly bad?

The most expensive apartments were advertised in Munich, with an average of €16.65 per square meter. It was followed in second place by Frankfurt am Main (€13.09) and Stuttgart (€12.62).

If you are looking for a cheap apartment, you have to move into the country: in the regions of Wunsiedel (Bavaria), Vogtlandkreis (Saxony), Holzminden and Lüchow-Dannenberg (Lower Saxony), apartments were offered for less than €4.50 per square meter.

View of housing in Berlin. Photo: DPA

And do people go to the countryside?

It seems people would like to. “If the Germans had a choice regardless of their financial situation, they would most like to live in a small rural community,” notes the Federal Foundation for Building Culture in a study published at the end of 2016.

However, very few people follow the call of the country. Above all, “artists, designers and cultural workers” deliberately opted for a move. On a large scale, people do not move to the countryside.

According to an evaluation by the BBSR, between 2010 and 2016 large cities and their surrounding areas grew. In contrast, sparsely populated districts away from metropolitan areas lost inhabitants.

What is the Federal Government doing to alleviate the housing shortage?

There is a whole range of projects: The Baukindergeld is intended to make it easier for families with one or more children in the household to build their first new home or buy real estate. Through the programme, families can receive a subsidy of €12 per child per year over ten years.

The brake on rental prices prohibits landlords from re-letting a property at more than ten percent above the local comparable rental demand. The SPD wants to go further and says that existing rents should only be allowed to rise for a period of five years in parallel with inflation.

An extra tax bonus should lead investors to build affordable housing. In addition, two billion euros in federal funds for social housing are planned. The CDU/CSU and SPD have set a target of 1.5 million new homes in the next few years.

Does that help?

Trade unions, social organizations and tenants' association say “that the federal government is unwilling or unable to seriously redirect and make a policy for tenants and apartment seekers”.

The alliance behind the Alternative Residential Summit which is taking place this Thursday in Berlin says there is a housing crisis in Germany. Under the banner and hashtag 'Mietenwahnsinn' – rent madness – they are calling for, among other things, sharper brakes put on rental prices and to lower regular rent increases “drastically”.

They also want to “stop forced evictions” and improve the protection of residents against evictions. The group is also demanding regulated land prices and land use, and that public land should no longer simply be sold to the highest bidder.

Scaffolding on an apartment building in Prenzlauer Berg, Berlin. Photo: DPA

What does the industry say?

Associations often criticize that many incentives for the construction industry are only planned for a few years and not in the long term. It's too early to tell if a a serious increase in investment will take place.

“Increasing land prices and tax rates, strict usage requirements, lengthy planning permission and planning procedures are the big enemy of affordable new building,” says Andreas Mattner, president of the Central Real Estate Committee. The association calls for simplified construction law, with type approvals for houses at the federal level and tax relief.

Should you be buying an apartment or a house now?

Anyone taking out a loan can benefit from favourable interest rates. On the other hand, there is a strong demand for apartments, which drives up prices.

In the end, buying a property depends above all on personal factors. Buyers should divide the purchase price by the annual ‘cold rent’ (without bills added on) and calculate how many years the purchase pays off.

Buying can be better than renting, says Jörg Sahr, editor of the journal Finanztest. That's provided that buyers bring to their project at least 20 percent equity, and pay back their loan over 30 years with more than two percent, he says.

SEE ALSO: Renting in Germany – what you need to know

See ALSO: Where in Germany it now pays to buy a home instead of renting

A potential risk factor: at the moment, loans are cheap, but usually buyers rarely finance the entire price of a single loan. In the case of a follow-up loan, higher interest rates could be due in the future. Consumer advocates therefore recommend loans with a long-term fixed interest rate.

'Affordable rent instead of fat returns'. A demonstration against rising rents in Berlin. Photo: DPA

Who actually rents apartments in Germany?

At the end of last year, there were just under 42 million homes in Germany according to the Federal Statistical Office. There are no details on how these are used exactly.

However, certain indications are provided in surveys by the Federal Office from 2014, when there were just under three million fewer apartments. At that time, about 42 percent of the apartments in residential buildings were occupied by the owners, 50 percent were rented, and the rest were uninhabited at the time of the survey.

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READER INSIGHTS

How foreign residents in Germany are winning rent reductions

Rent is often the biggest expense for foreign residents in Germany. Even though there are rent controls in some cities, tenants can still be charged too much. Readers shared how they managed to get a rent reduction.

Published: 2 May 2024 14:57 CEST
How foreign residents in Germany are winning rent reductions

The Local asked readers whether they have tried to reduce their rents in Germany, and to what end. 

Of the readers who responded, nearly half said they had never tried to reduce their rent. Among the other half of respondents, many said they either wanted to reduce their rent or were currently in the process of trying to have it reduced. 

About 18 percent of respondents to our survey said they had successfully reduced their rents in Germany before.

Why do residents want rent reductions?

Germany notoriously has the lowest rate of home ownership in Europe, which has long been attributed to being a country with high real estate prices and relatively low rents.

But this means that a large number of German residents are directly affected by rising rents. Low-income individuals living in urban hubs where rents have been rising rapidly in recent years are particularly vulnerable.

According to Germany’s statistical office (Destatis), 11.8 percent of the population was overburdened by housing costs as of 2022 – meaning these households spent more than 40 percent of their income on housing.

Unsurprisingly, a number of readers cited inflation and cost-of-living increases as the primary reason they wanted to try for a rent reduction.

READ ALSO: How to grow your savings in Germany during high inflation

A couple of readers noted that their current rent prices are making their living costs too high.

Rothe, 29, who lives in Aachen, says she can’t bear her current rent but is stuck in a contract.

Similarly, Lucas, 35, who lives in Horb am Neckar said he wants to reduce his rent to balance his expenses following the recent cost-of-living hikes. He says he’s tried to negotiate with his landlord, who doesn’t care to do so.

While landlords are unlikely to grant a rent reduction based on inflation or cost-of-living increases, there are a few reasons you can legitimately demand a rent reduction in Germany.

Make sure your rent isn’t exceeding the price brake limit

The rent price brake (Mietpreisbremse) isn’t perfect, but it’s arguably Germany’s strongest protection for tenants against rising rents. 

It’s designed to prevent landlords from raising rents to ‘unreasonable’ levels, but with no central agency for enforcement, the burden falls on tenants to demand legal rents.

READ ALSO: German rent brake to be extended until 2029: What you need to know

Andrew, 62, successfully reduced the rent he pays for his flat in Berlin’s Gesundbrunnen area with the rent brake rule. After he realised the “rent was high for the location”,  he contacted his tenant’s association.

He thought that his landlord responded in a reasonable manner: “They thought the condition of the flat justified the higher rent and paid a friendly visit to point out the features,” Andrew said.

“We countered that the features were all quite old and that the previous tenants had been on a lower rate.”

Mieten runter "rents down"

The words “Rents down” are graffitied on the wall of a rental building. About 75% of Berlin rents are set illegally high, a legal expert told The Local. Photo: picture alliance/dpa | Monika Skolimowska

The rent brake prohibits landlords from setting rents more than 10 percent above a local average value, which is recorded in a local rent price index. You can find your local rent price index by searching for the German term “Mietspiegel”, along with the name of your city or region.

Here is one for Berlin, which allows you to calculate your rent index based on your current address and a few factors such as the area of your flat and how old the building is etc.

Andrew recommends joining a tenants’ union and using an online calculator to check if your rent is reasonable. He also says you should be prepared to negotiate and to compromise where necessary.

Gerson, 50, who lives in North Rhine-Westphalia, also found that his current rent was too high for his location. He says he is currently looking for a company that can assist him with the process to demand a rent reduction.

David, 57, in Berlin said he believes his rent is “illegally high” compared to other and he has hired a lawyer to go through the process of trying to get a rent reduction. 

There are also legal service providers that can help with renters’ issues in Germany, and some that even specialise in winning rent reductions with the rent price brake. You can find some of them through an online search. You may want to look for one that will initiate the process at no cost to you. Some will even complete the service with no cost to tenants, applying their fees instead to the landlords at fault in the event that they win a rent reduction.

READ ALSO: Why are Berlin rents soaring by 20 percent when there’s a rent brake?

It’s also worth noting that the rent price brake only applies to rental markets that are considered highly competitive. So it applies to most of Germany’s big cities, but may not apply in suburban or rural regions.

Overcharged by faulty measurements

Rents prices in Germany are usually calculated according to a price per metre of living space. Therefore, in some cases, it may be worth double checking that your living space has been calculated accurately.

One reader, who didn’t wish to be named, told The Local that he had previously reduced his rent for an apartment in Düsseldorf in this way.

“We had a small attic apartment with slanted walls,” the reader said. “The total square metres of the apartment were based on measurement from wall to wall. However, walls had to be straight to a height of at least 1.2 metres before the slanted side can begin [or else] the total square metres start from the point where the vertical height of 1.2 metres is available.”

After he learned about this requirement he measured the apartment, and found that his own rent had been based on a measurement of the floor plan, not the legally defined living space. Then he contacted his tenants’ association, which sent an architect to confirm the measurements.

Initially sceptical, his landlord sent another architect to check the measurements. But when it was confirmed, his rent was lowered accordingly. “Turned out that we had to pay for about 10 square metres less all in all,” the reader said.

This incident was 15 years ago, and these types of regulations can vary from region to region.

His advice to readers is to check up on the local regulations that may apply to your situation. 

In other cases, some renters have been able to negotiate rent reductions for other inconveniences – such as excessive noise, for example.

READ ALSO: How to get a rent reduction for problems in your German flat

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