Rising Rents Amid Stagnant Property Prices

In a challenging housing market, new rental contracts in many German cities have surged significantly, with Berlin experiencing a dramatic increase of over 22% in just two years. This trend is driven by an acute housing shortage, particularly in urban and desirable areas. The Institute of the German Economy (IW) reports that rental prices rose by 4.7% nationwide compared to the previous year, despite stable property purchase prices.

Potential property buyers face diminished affordability, even as interest rates have slightly decreased. This has led many to delay purchases, increasing demand for rental properties and further straining the rental market. The IW anticipates no relief in sight, with projections indicating continued insufficient housing construction through 2025.

The shortage of new housing units, with only 260,000 completions in 2022 against a target of 400,000, underscores the severity of the issue. The forecast for 2025 is a mere 230,000 new units, exacerbating the situation. Consequently, rental prices are expected to climb further, particularly in cities like Düsseldorf, Essen, and Frankfurt.

Amidst this backdrop, there is growing support for measures to stabilize rents. A survey indicates that nearly three-quarters of Germans support freezing rents for six years, reflecting widespread concern over escalating living costs. Meanwhile, experts suggest that deregulating building practices and supporting self-users with financial hurdles could foster innovation and alleviate some market pressures. However, as the demand for rental housing continues to outstrip supply, renters are likely to bear the brunt of this imbalance.