High demand and rising costs keep pushing up Berlin residential prices
As with its office market (see article elsewhere in this issue – “Berlin office market outperforms its German counterparts”), Berlin continues to be the pacemaker for investors in Germany’s residential housing market, with transaction volumes doubling between 2008 and 2017 to €4.84bn. This year the volume is expected to be more than €5bn.
The figures come from a new study on the city’s residential market carried out by researchers BulwienGesa on behalf of Berlin residential investor Mähren AG.
Interestingly, the study shows that the actual number of transactions for second-hand properties has actually fallen by a third over the past four years – indicating the extent to which higher prices have contributed to the transacted volume.
The average multiplier for multi-family housing units has doubled over the past ten years. In 2017 the median multiple (= times annual ‘cold’ rental income) was about a factor 26, and for attractive buildings in ‘good’ and ‘very good’ locations it was about 31.
Jakob Mähren, CEO of Mähren AG, commented: “Further yield compression from this level is almost unimaginable, and yet appears absolutely possible.” He said he sees further price increases ahead even for ordinary rental housing units, currently averaging about €2,325 per sqm or €3,700 per sqm for condominiums or properties with integrated commercial units.
At a recent discussion on rising house prices at the Expo REAL in Munich, Peter Jorzick, managing partner at developer HTP Hamburg Team addressed the issue of affordable housing. Mainly to blame, he said, were the rising costs of construction, which he said had helped push prices up by 10% in the past year.
Referring to the big recent housing conference in government buildings in Berlin, attended by many senior cabinet ministers including Angela Merkel (which we reported on in the September issue of REFIRE), Jorzick said, “The problems in the housing market have been building up for many years. The demand for housing hasn’t changed – it’s just that the ability to meet the demand has been getting further and further out of control.”
Figures from the Statistischer Bundesamt, Germany’s official provider of statistics, show that the increase in construction prices for conventionally-built apartments rose between August 2017 and August 2018 by 4.6%, the highest rate since November 2007, when they rose at an annual rate of 5.7%. Between May and August 2018 alone the prices rose by 1.3%.
It’s not just residential housing, according to the official figures. Prices for construction of office buildings have risen 4.7%, industrial buildings by 4.8% and road and street construction by 6.7%, while repair and maintenance costs of residential buildings rose 4.1% in the twelve months to August 2018.
The statistics are broken down into further elements, such as the cost for cement, plaster, insulation and other materials, as well as carpentry, metalworking, heating and water installation, nearly all of which have risen by 3.7% and upwards, often a lot more. The Statistischer Bundesamt puts the rise in prices down to the heightened demand, further fueled by the government’s Baukindergeld plan, along with yet further stricter regulations regarding acoustics, fire protection, energy reduction and elderly-friendliness – the amount of regulations to be complied with by builders has now quadrupled since 1990.
Separately, the Berlin CDU political party held their annual conference on October 13thand, while describing affordable housing as “the biggest social question of our time”, committed to a “Masterplan Wohnen”, or a new blueprint for Homes and Living in the city. The Berlin Senate sees a shortage of at least 194,000 new dwellings by 2030, while the CDU, who are not in power in the local Berlin government, puts it at more like 250,000 units.
The CDU is demanding that the Senate approve much more building land from the surrounding farmland, issue many more permits for building taller residential buildings and to re-open the debate about building new housing on the huge Tempelhofer Feld in central Berlin, which citizens had voted against doing in a referendum four years ago. The hard-core Linke party, which deeply distrusts private investors, are a key factor in the holdup of resolving the housing shortage in the city, claim the CDU, who accuse the red-red-green ruling coalition in the city of grossly mismanaging housing policy, leading directly to higher prices and rents.
Incidentally, Mähren of Mahren AG published an article in the German trade press recently warning that German residential investors are missing the boat that investors in the US, the UK and Israel have been piling into – Co-Living – where young 20-to 30-year-olds have taken to sharing living and working accommodation, and are looking for a heightened form of communal living, working and playing. German developers are still fixated on an older model of two- and three-room apartments for single or dual living, with their higher margins, he believes.
Mähren, whose company owns more than 1,500 residential units in Berlin and eastern Germany, is convinced that the demand for singles apartments in the coming years is heading for a big fall.