Real estate prices are rising: Living is becoming an expensive luxury in Germany!

Real estate prices are rising: Living is becoming an expensive luxury in Germany!

The housing market in Germany remains tense and signs point to a difficult future for tenants and buyers. While real estate prices are rising again, the demand for affordable housing remains unbroken. Current data from the German Economic Institute (IW) show that purchase prices for condominiums have increased by 1.1% compared to the previous year. For single-family homes the increase is even 2.9%.

The price increases are particularly noticeable in cities like Essen and Leipzig. In Essen, for example, 6.3% and in Leipzig 5.8% more were paid for real estate than in the previous year. This contributes to the ongoing discussion about the housing situation in Germany, as new contract rents have increased by an average of 4.7%.

Strong demand meets limited supply

The high rent increases are due to a combination of high demand and limited supply. Experts warn that despite the forecast of just 230,000 new homes being built in 2025, around 300,000 will be needed to ease the housing crisis. Rental prices have risen particularly alarmingly in large cities: in Leipzig they rose by 7.7%, in Essen by 6.1% and in Frankfurt and Düsseldorf by 6.1% each.

The conditions are particularly challenging for construction companies. The sector situation is poor and many projects have been stopped. The real estate group Vonovia has stopped tens of thousands of construction projects due to increased construction and financing costs. Only 21,000 homes were approved in July 2023, a decline of 31.5% year-on-year, while the first seven months saw an overall decline of 27.8% to 156,200 approvals.

Political action urgently needed

The experts are now demanding that the new federal government take measures to counteract this crisis. The coalition agreement between the Union and the SPD outlines possible impulses for improving housing construction. This includes speeding up building permits and reducing bureaucratic hurdles.

There are also concerns about the impact of the trade dispute with the USA, which could potentially weigh on the construction industry. Tariffs on building materials and supply chain problems could make construction projects more expensive and delay them. In this context, experts emphasize that too little new and affordable housing is being created while real estate prices in large cities continue to rise.

Munich offers a sad record for the expensive rental market at 22.25 euros per square meter. According to the Eduard Pestel Institute, there is a shortage of over 700,000 apartments in Germany. Rental prices in large cities rose by an average of 6.7% in the first half of the year, and in Berlin by as much as 16.7%.

There are proposals to stimulate housing construction, such as reducing property transfer tax, less strict requirements and better depreciation options. In view of current developments and the ongoing housing shortage, the challenge is clear: action must be taken quickly and sustainably.

The situation on the German real estate market remains tense. Profitability for developers is falling while demand for housing continues to grow. It remains to be seen which political measures could finally alleviate the housing shortage.