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Rathen village in eastern Germany straddles the river Elbe
Eastern Germany’s housing market continues to be a study in contrasts. While urban areas are experiencing growth and stability, driven by economic and demographic shifts, rural regions continue to struggle. Bridging this divide through strategic investments and tailored policy measures will be crucial for ensuring sustainable growth and prosperity across the region.
Thankfully, a fair amount of this, propelled by significant inward foreign investment, is already happening. Even in real estate, sometimes the grass is greener where the investments are.
A useful recent study by Wüest Partner highlights the evolving dynamics of the housing market in the eastern German states, revealing a complex landscape of opportunities and challenges.
The divide between eastern and western Germany remains evident in property prices. The west continues to command higher prices, but the east is gradually catching up in certain urban areas. According to Wüest Partner, property prices in the east have shown moderate increases, with urban centers like Berlin, Leipzig, and Dresden leading the way.
Urban vs. rural: a tale of two markets
These cities, along with Jena, are performing particularly well. Leipzig, for instance, has seen substantial price increases due to its growing population and robust economy. Dresden, known for its cultural heritage and academic presence, also shows strong demand for housing. Jena, with its thriving technology sector, attracts young professionals and families, contributing to its positive market dynamics.
Conversely, rural districts struggle with depopulation and economic stagnation. The difference between urban and rural markets is stark. Urban areas benefit from better infrastructure, more job opportunities, and greater public investment, while rural districts face ongoing problems such as declining populations and limited economic prospects. This urban-rural divide is more pronounced in the east than in the west, where urban and rural disparities are less severe.
Complementing the Wüest analysis, insights from Dirk Assmann of the Friedrich Naumann Foundation and Oliver Rottmann of the Competence Center for Public Economy, Infrastructure and Services of General Interest at the University of Leipzig, in a recent article in the Frankfurter Allgemeine Zeitung, provide a deeper understanding of the economic and demographic factors at play.
Their research highlights how eastern Germany's economic landscape is marked by high unemployment rates, lower income levels, and slower industrial development compared to the west. These economic challenges are exacerbated by demographic trends, with many young people migrating to western Germany or urban centers within the east, leaving behind an aging population in rural areas.
Public funding for infrastructure and urban development projects does offer some relief. But there is still a big need for initiatives aimed at improving transport links, supporting local businesses, and enhancing the quality of life, and these will remain crucial in driving growth and attracting residents to the region.
Key takeaways
Urban growth: Leipzig, Dresden, and Jena are thriving, with rising property prices and strong demand for housing. For instance, median asking rents rose sharply in the first quarter of 2024, particularly in Potsdam (up 9.9%), Berlin (up 8.7%), and Leipzig (up 7.6%). If rents keep rising, soon a 'Leipzig penthouse' might be the next must-have status symbol.
Rural challenges: Conversely, rural districts struggle with depopulation and economic stagnation. The difference between urban and rural markets is stark. Urban areas benefit from better infrastructure, more job opportunities, and greater public investment, while rural districts face ongoing problems such as declining populations and limited economic prospects. The average price per square metre in rural eastern districts is around €1,954, compared to €2,974 in rural western districts—a substantial difference illustrating the persistent east-west divide. It's almost like the urban-rural divide is playing a very unbalanced game of tug-of-war.
Economic and demographic pressures: Assmann and Neumann highlight how eastern Germany's economic landscape is marked by high unemployment rates, lower income levels, and slower industrial development compared to the west. These economic challenges are exacerbated by demographic trends, with many young people migrating to western Germany or urban centers within the east, leaving behind an aging population in rural areas. It seems like the motto for many is 'Go West, young man,' leaving the east to wonder where all the young folks have gone.
Potential for revitalisation: According to Assman and Rottmann, the key to revitalizing rural areas lies in market-based solutions, better digital infrastructure, reduced bureaucracy, modern transport infrastructure, and supportive policies for home ownership. They argue that differentiated solutions tailored to local challenges are essential for sustainable development. After all, there's only so much one can do with good intentions and a dial-up internet connection.
Forecasts and trends: Wüest Partner forecasts continued rent increases in most eastern German locations due to low supply and high demand. Despite recent price declines in many areas, long-term trends indicate that median asking prices have doubled in cities like Berlin, Frankfurt/Oder, and Leipzig over the past decade.
