First-time buyers crowded out of German housing market
James Jackson
April 19, 2019
With rising prices, a crowded rental market and low interest rates, it now makes sense to buy rather than rent a property. First-time home ownership is, however, falling because young people can't afford it.
Advertisement
Germany’s Frankfurter Allgemeine Zeitung newspaper published two headlines side by side: "48% of households in Germany are now property owners," said one, while the other announced that "Property Prices Climb Higher."
The Federal Bureau for Statistics published figures on Tuesday that, at the start of 2018, "nearly half of households can call their house their own." After years of economic stability, weathering storms that sunk other countries, you might expect the German homeownership "ship" to finally be setting sail, but the opposite is true.
"It’s striking — Germany is one of Europe’s wealthiest nations, but we have very low homeownership rates," housing specialist Pekka Sanger from the German Economic Institute, told DW, pointing to a strong social net and pension system that meant there was little need to buy housing in the past.
Other factors that have historically fueled rental demand include high interest rates, demands for huge deposits from banks and a cultural stigma against debt (there is no word for mortgage in the German language) linked to historical events like hyperinflation in the 1920s and the postwar rebuilding of the country.
Sanger thinks that "housing might become as important as in other countries because of changing demographics like an aging population" but points out that homeownership is actually falling by some measures in Germany, despite conditions that make it sensible in some cities.
In Germany, private companies own huge numbers of properties and rent them out. This worked well for a long time but, as the country urbanized, rental prices in desirable locations have rocketed. Rental prices have risen by more than 50% in nine cities since 2005, according to the Central Real Estate Committee (ZIA).
Deutsche Bank, meanwhile, said in a recent report that "we expect that, during the coming years, house prices will continue to rise in all metropolitan areas covered" while the ZIA warned that the construction of new housing is being "totally neglected."
The lack of affordable housing has had a terrible effect on those on the lowest incomes. Germany is now one of Europe’s worst offenders for so-called housing cost overburden — where people spend more than 40% of their income on housing.
Some 16% of the population fits this category, the fourth highest in the EU and worse than Turkey. Although tenants’ rights meant that the large rental sector has been protected from the worst effects of high prices in comparison to other countries, who knows how long that will last.
"We are seeing a decline in first-time home buyers. Low-interest rates are beneficial to property buyers because they make mortgages more attractive, but this doesn’t affect the cost of a downpayment, which is also linked to property prices," said Sanger.
"We saw an increase in the number of first-time homebuyers in 2011 when there was a similarly-low interest rate, but this time, the cost of a deposit has risen and taken ownership out of the range of what most younger people can afford," he told DW.
What to know before renting an apartment in Germany
In Germany, renting is more common than in most other European countries, with 48 percent of residents living in rental accommodations. Here are some particularities about renting in Germany.
Image: picture-alliance/Wolfram Steinberg
Rental barracks
Berlin's endless rows of tenements were once horribly overcrowded, with large families often living in one- or two-room flats. But in recent years, these so-called Altbau, or old buildings, have enjoyed a rapid renaissance. These blocks in the Prenzlauer Berg district of Berlin were, until the early 1990s, often empty and in a state of severe disrepair. Now everyone wants to rent an Altbau.
Image: picture alliance/ZB
Plattenbau
In former East Germany, where nearly all accommodation was rented from the government, prefab concrete housing blocks known as Plattenbau rose up across the communist nation. Not only were they cheap, but they were often preferred to Altbau apartments because they offered all modern conveniences like new plumbing that didn't leak, reliable electricity and hot water.
Image: picture-alliance/dpa/A. Burgi
Balconies
According to the most recent statistics from Statista (2015), 48 percent of Germans rent and 52 percent are home-owners. Most renters live in apartments - and make the most of their balconies. Some barbeque or lounge, while others grow overflowing gardens that utilize every last inch of precious outdoor space. Balconies can be veritable ecosystems that become rather bleak in the winter months.
In some Germans cities, particularly Berlin, rental houses are made up of front and back buildings separated by an inner courtyard through which the life of these rental communities ebb and flow. They are unique communal spaces across which people view each other's lives, and where they interact as they park their bicycles or access their numerous garbage bins.
Image: picture-alliance/ZB/M. Krause
Names instead of numbers
Only the names of residents are used to identify the flats inside a building in Germany. These names on the intercom of a Hamburg apartment building typically have no corresponding flat number. That means you have to address letters to Germany clearly because the mail carrier only has the name to go by.
Image: picture-alliance/dpa/M. Scholz
Flat sharing
Known as WGs, or Wohngemeinschaften, shared apartments are popular in big cities where apartment prices are rising and availability is shrinking. People who share flats often also rent out the living area to bring prices down as much as possible. This is especially so in Berlin, a city full of artists, students and people on low budgets.
Image: picture-alliance/dpa/J. Kalaene
Paint when you leave
Painting the apartment before you leave is another German rental tradition. Leaving the walls shiny white for the next residents isn't such a bad thing - but it means you have to spend days preparing walls and climbing ladders before you move out. Not all rental contracts force tenants to paint the apartment - however they are obliged to leave it as they found it.
Image: picture alliance/Denkou Images
BYO kitchen
In some German cities, kitchens and appliances are not included in rental properties. That means the tenant has to purchase their own and have it installed at their expense. Alternatively, some people buy the previous tenant's kitchen at a discount if they aren't planning on taking it with them to their next living space.
Image: DW/S. Braun
Small bathrooms in old rental buildings
Among the quirks of Altbau apartments is that many didn't use to include facilities, which were sometimes shared communally. That means that you'll find bathrooms today that are wedged into the smallest - and oddest - spaces. Or, in some cases, they might be huge and replace an entire former room. This shower in a Berlin flat was built in the kitchen cupboard.
Image: DW/S. Braun
Not all rooms are bedrooms
When scanning apartment listings in Germany, you'll generally find the sizes given in square meters and the number of rooms. The latter includes not just bedrooms, but also living space. The kitchen and bathroom(s) are listed separately. Apartments are most expensive in Munich, Frankfurt and Stuttgart, where new tentants pay on average 16.55, 13.37 and 12.95 euros per square meter respectively.