Demographics are re-writing Germany’s housing market

As the way we live changes, the need to rethink the housing market has never been higher

By Sarah Seddon Kilbinger, Senior Reporter, REFIRE

As demographics and population trends evolve in Germany, how will this have an impact on how we live?

By 2030, it is forecast that Germany will be home to almost 86 million people, according to the latest Germany Monitor by Deutsche Bank Research. Germany is currently experiencing a record influx of people, with Deutsche Bank Research expecting around 1.3 million refugees from Ukraine due to the ongoing war with Russia. In 2021, 329,000 people came to Germany, many of whom were mainly refugees from Syria and Afghanistan. This year, analysts expect around 260, 000 Ukrainians to make their way to Germany. According to the study, the recent influx of people is higher than the European migrant crisis in 2015. Moreover, only the immigration levels after the Second World War were higher than the current influx.

Single person households driving market

One of the biggest housing trends in Germany in recent years is the number of people living alone. Today, one in four people lives alone. With a share of 40.9%, single households are currently the most common type of household, followed by multi-adult households without children (30.5%) and multi-adult households with children (28.6%), according to a survey by GfK. Single households are most popular in the cities. Regensburg (Bavaria) is the city district with the highest proportion of single households in Germany, according to GfK, accounting for 52.7% of the market – 29% higher than the national average. The districts of Erlangen (52.5%) in Bavaria and Leipzig (52%) in Saxony take second and third place.

‘The regional distribution of demographic characteristics is constantly changing as people move or have children, for example,’ said Denise Zubak, GfK expert in geo-marketing. With an average of 2.11 people, the average household size is largest in Baden-Württemberg, while Berlin is in last place with 1.8 people. In percentage terms, the highest number of multi-adult households with children is currently in the district of Cloppenburg (Lower Saxony). There are also the fewest single households there: only one in three (29.3%) households is occupied by one person alone.

According to GfK, rural regions are in the lead when it comes to multi-person households with children. A look at the Top 10 ranking shows that all places are occupied by rural districts. The leader among the German districts is once again the district of Cloppenburg. With a share of 40.8%, there are 42.3% more family households here than in the national average. The districts of Eichstätt (39.6%) and Straubing-Bogen (39.1%), both located in Bavaria, come in second and third.

Federal support for refugees deemed ‘not enough’

One big bone of contention in Germany is how to finance the country’s growing number of refugees. Finance Minister Christian Lindner (FDP) has rejected demands by the municipalities for additional financial aid. ‘The possibilities of the federal government are limited,’ he told Handelsblatt. He referred to the relief already provided to the Länder - for example, that refugees from Ukraine receive citizen's allowance and not benefits under the Asylum Seekers' Benefits Act.

Around 1.1 million people with Ukrainian citizenship had fled to Germany by the autumn of last year, and by the end of this year, this figure could be as high as 1.7 million, according to Empirica. Subsequently, there will be around 600,000 more households looking for housing. According to Empirica, Ukranian refugees are mainly moving to medium-sized cities such as Baden-Baden, Hof, Schwerin, Gera, Chemnitz, Bremerhaven and Halle (Saale), where the housing markets are typically not as tight as in larger cities.

In light of the influx, Germany municipalities are appealing to both federal and regional governments for aid. The CEO of the German Association of Towns and Municipalities, Gerd Landsberg, has been vocal in saying that the existing support is not enough. Currently, the federal government is providing €1.5 billion for Ukrainian refugees and a general lump sum of €1.25 billion for other refugees. ‘This is to be acknowledged, but unfortunately it does not change the fact that the considerable expenditure of the cities and municipalities is currently not covered by the federal and state governments,’ Landsberg told Handelsblatt.

For heavily indebted municipalities, it would be a particular struggle, causing concerns that they will not be able to finance the necessary measures sustainably and in the long term. Last year, a total of 244,132 asylum applications were filed in Germany, according to numbers provided by the Federal Office for Migration and Refugees (BAMF). The previous year, there were only 190,816 applications, marking an increase of almost 28%. Additional funds were made available last year for the Länder to pass on to the municipalities, as well as federal properties as accommodation. The federal government claims it has already ‘relieved the Länder and the municipalities financially to a considerable extent through additional turnover tax funds in order to cushion the additional burdens’.

For Danyal Bayaz (Greens), Minister of Finance in Baden-Württemberg, the accommodation and integration of refugees is ‘our humanitarian obligation, but it is also an enormous challenge for the states and municipalities’: ‘If we want to cope well with this task for society as a whole, then the federal government must also become more involved,’ she warned.

Micro apartments are out, bigger apartments are in

And as the way we live changes, so does the type of apartment we want to live in. Prior to the COVID pandemic, there had been a big uptick in the popularity of micro apartments but multiple lockdowns and home schooling have changed what people look for in a home. John Bothe, founder of Silberlake Real Estate notes that particularly in the case of high-end apartments, people are now looking for more space. In the past, people tended to look for apartments of 90 to 100 square metres spread across four rooms. Today, there is increased interest in apartments of around 150 square metres across six rooms. Buyers are suddenly less bothered by the noisy street out front, providing that there is a garden or a balcony to the rear. Subsequently, many project developers are now combining smaller flats again. Previously, they may have developed four flats of 75 square metres on each floor, whereas now there are just two. This will exacerbate the housing crisis, because even fewer units will be brought to market and building plots and floor plans cannot be increased overnight. The question now is how long this will last, particularly given high inflation and interest rates.

Housing shortage shows no sign of easing

Last year, just 293,393 new homes were built in Germany, a y-on-y decline of 4.2%, and well below the government’s target of 400,000 homes, according to Destatis and IW economist Michael Voigtländer doesn’t believe that such a target can be met: ‘We can be happy if we complete 300,000 flats each this year and next year,’ he said, pointing out that in addition to the current complex challenges, structural problems remain such as the friction between the building and economic ministries: ‘Robert Habeck is managing the money,’ he said.

There is also an increasing shortage of affordable housing. Last October, Chancellor Olaf Scholz unveiled a raft of measures to tackle the country’s housing and energy shortage, and reaffirmed the government’s target of building 400,000 new homes per year. He presented the housing strategy for the next few years alongside his Minister of Construction, Klara Geywitz. In conjunction with The Affordable Housing Alliance, or Bündnis für bezahlbares Wohnen, they have drafted a 67-page draft paper with 187 individual points, which is intended to go some way towards solving ‘the social question of our time’, according to Scholz.

Scholz reiterated that the goal is to build 400,000 flats in Germany per year, 100,000 of which will be subsidized through social funding: ‘We want to make it clear that we are committed to achieving our stated goals,’ he said. ‘Our goal is to increase the number of domestic housing units to this level,’ he added, noting that he is well aware of the effort it would take to achieve the ambitious housing targets. Scholz said that the conditions for the construction industry had become even more difficult following Russia’s illegal invasion of Ukraine, which is why the German government is putting a ‘protective economic shield’ in place to ensure that energy and housing remain affordable.

The ‘protective shield’ would make up to €200 billion available to cushion the consequences of high prices for consumers and businesses, according to Scholz. The government has already introduced an electricity price brake, and is working intensively on ways to keep gas prices down. The additional sum of almost €100 billion is designed to ease the burden on both the general public and businesses.

Nonetheless, Germany’s high inflation – at around 8.7% last month – is still crippling consumers and it is unclear at this point just how far-reaching this protective shield will be. Despite the current gloomy economic data, the German economy is expected to grow slightly this year, according to the European Commission, which has revised upwards its previous forecast for a 0.6% contraction.

In its winter forecasts, the European Commission envisages modest GDP growth of 0.2% for Europe's biggest economy in 2023, more than it expected in autumn due to the easing of energy prices and policy support to households and firms.

However, producer costs are still rising and expected to keep inflation high, at a projected 6.3% in 2023, the Commission said. In 2024, German inflation is expected to decline to 2.4%. The cost of living and lack of affordable housing also feeds into demographics and influences how people are able to live. And how we live can change very quickly. Climate change, demographics, water, food, energy and global health - these issues are all intertwined, we cannot look at one strand in isolation. Instead, we must examine how these strands are woven together because that’s what ultimately shapes the society in which we live.