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REFIRE rarely ventures into the territory of individual buying and renting decisions. Our readers are, by and large, not in the market for a 70-square-metre flat in Munich. But the latest wave of affordability research coming out of Germany's housing market carries a message that reaches well beyond the retail consumer — and institutional investors in residential real estate would do well to pay attention.
The data suggests that home ownership in Germany's major cities is increasingly becoming the preserve of higher-income households. When ownership moves out of reach for a growing share of the population, the consequences extend beyond household finances. They shape rental demand, occupancy trends, and ultimately the long-term investment case for Germany's residential sector.
Buying gets easier, but not affordable
A detailed analysis published this week by property consultancy Wüest Partner, covering all 400 German municipalities, paints a clear picture. In the rental market, housing costs account for between 14 and 19% of disposable household income in most municipalities — broadly manageable and well below the generally accepted affordability threshold of 30%. The burden exceeds 30% only in exceptional cases.
Home ownership tells a different story. In around 90% of German municipalities, ownership costs already exceed 20% of household income. In roughly one in twenty municipalities, they breach the 30% threshold entirely. As Sophie Nieder, Senior Economic Market Analyst at Wüest Partner, puts it, property prices alone no longer determine affordability. The decisive factor is the interplay of purchase price, financing costs, maintenance and income.
In Germany's Top 7 cities — Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart — the picture is particularly stark. Average rental burden across the seven cities stands at 27.7%. Berlin is the only city to breach the 30% rental threshold, at 30.9%, followed by Frankfurt at 29.7% and Munich at 29.3%.
For home ownership, all seven cities exceed 30%. Munich leads at 36.5%, driven by purchase prices of around €8,000 per square metre that even above-average incomes cannot easily absorb. Berlin stands at 35.8% and Hamburg at 35.1%. Beyond the major cities, premium leisure and commuter markets around Lake Tegernsee, the North Frisian Islands and the wider Munich catchment area face similar pressures, with purchase prices in some municipalities exceeding €13,000 per square metre.
At the other end of the spectrum, rural eastern Germany and parts of Rhineland-Palatinate remain significantly more affordable, with rent-to-income ratios often between 14 and 16%.
A study published by the Association of German Pfandbrief Banks (VdP) offers a partial counterpoint. Since the peak of the interest-rate shock in 2022, conditions for buyers have eased. Average financing rates fell from 3.96% to 3.50% between 2023 and 2025. Loan terms extended modestly from 26.6 to 28.1 years, while some income groups that had withdrawn from the market entirely have since returned.
The VdP also renews its call for a reduction in Grunderwerbsteuer for owner-occupiers, arguing that transaction costs remain a meaningful barrier to entry.
Yet the structural affordability gap in Germany's largest markets has not closed. Easier financing conditions help at the margins, but they do not fundamentally alter the arithmetic facing a median-income household seeking to buy in Berlin, Hamburg or Munich. The gap between what financing markets can offer and what city prices demand remains, for most households, simply too wide to bridge.
The institutional read-through
For residential investors, the implications are straightforward, even if the politics around them are not. A population that cannot afford to buy is likely to remain in the rental market for longer. Sustained ownership unaffordability in Germany's economically active major cities therefore supports demand for rental housing and, by extension, the income streams underpinning residential investment assets.
This does not make the German residential market uncomplicated. Rent regulation, political pressure on landlords and elevated construction costs remain significant considerations. But the demand side of the equation looks firmly anchored. Wüest Partner's conclusion points in the same direction: expanding housing supply remains the key lever for improving affordability, yet meaningful progress on that front is likely to take years rather than months.
The findings also echo a broader debate taking place in Germany's consumer finance world. Gerd Kommer, fund manager and author of the widely read Souverän investieren series, has long argued that renting combined with disciplined capital-market investment often compares favourably with owner-occupation as a wealth-building strategy. Analysing historical data between 1970 and 2024, he concludes that a combination of renting and long-term equity investment has frequently outperformed residential property ownership.
Kommer's argument is aimed at private households rather than institutional investors. Yet it reinforces a broader point. The financial case for ownership is less compelling than many Germans assume, particularly in markets where purchase prices, financing costs and transaction expenses remain so high. In such an environment, renting increasingly appears less like a temporary stage of life and more like a long-term housing solution.
REFIRE: The latest affordability data sends a consistent message. Home ownership has become more attainable than it was at the height of the interest-rate shock, but remains beyond the reach of many households in Germany's most economically important cities. For residential investors, that translates into a large and resilient tenant base. In a market still struggling to expand housing supply, the structural foundations of rental demand remain firmly intact.