Residential housing prices continue steady rise

New figures released last week by the Statistische Bundesamt, Germany’s Federal Statistics Office, confirm that prices for houses and apartments in Germany continued to rise throughout the early part of the year, with areas outside the bigger cities seeing price rises in sympathy with their urban cousins.

On average, housing prices rose across the country by 5% year-on-year, the Wiesbaden-based institute confirmed. The figure for private apartments in the Big 7 cities was 8.6%, while houses in the big cities rose 6.9%. This was not quite matched in more rural areas, with apartment prices rising 1.7% and houses by 4.5%.

The figures show that apartments and houses have risen in price since 2015 by 22% on average, while prices in the Big 7 cities have risen by 41% (apartments) and 36% (houses). In rural areas, house prices have risen over the period by 21.4% on average, while apartments have risen 16%.

High demand from private and institutional investors is helping to push up prices. A recent study by consultants Ernst & Young (EY) shows that the proportion of real estate held in their investments by insurance companies has reached over 10% for the first time, with 70% of firms surveyed by EY saying they planned to increase that level further. That includes offices, but also residential, for many respondents, faced with stricter regulatory hurdles to investing in riskier assets like stocks and shares.

Fintech platform Europace, which tracks market prices closely based on actual transactions, says that prices for residential housing rose particularly strongly in May, up 9.01% year on year after the strongest monthly price rise in over a year, and the biggest overall increase in two and a half years.

According to Europace board member Stefan Kennerknecht, “Yes, house prices are currently really rising again. Supply is simply insufficient to satisfy the demand. However, in terms of affordability, that’s not the only factor. Financing conditions and the rise in incomes also play a role. And interest rates have never been lower.”

Europace’s sister company Dr. Klein (both members of the Hypoport Group), recently published a study “Property Financing 2007 versus 2017”, which examined across ten metropolitan markets how much of a typical household’s monthly income would be required to service a property loan. 

Although the data is two years old (newer data is not available yet from the Statistics Office), Europace’s Kennerknecht says that with incomes rising and interest rates 30% below what they were two years, the figures can legitimately be extrapolated to today’s situation. The result was that, in real terms, only in Munich would the buyer be required to dig deeper into his pockets today than ten years ago. In four cases, the monthly commitment would be about the same, while in five cities the current buyer is better off today than a decade ago.

The Statistische Bundesamt also published figures this month showing that the amount of building permits issued in the first four months of this year was for 105,800 residential units, a fall of 1.3% on the corresponding period last year. Both politicians and the building industry reckon that there’s an annual need for 350,000 to 400,000 new units to meet demand. The total number of permits issued last year was for 302,000 units.

At the same time, estimates show that there are more than 300,000 residential units standing vacant outside the big cities and conurbations. Hence the widespread industry calls for improved infrastructure and rural amenities to entice people away from the big cities while the housing shortage gets (hopefully) narrowed.