Many Germans dream of large, detached or semi-detached homes with a garden.
It's long been the story in Germany that single-family homes were the much-lauded dream of potential property owners. But as we've reported throughout this year in REFIRE, the single-family home has been much maligned, with many municipal authorities imposing restrictions on new-builds.
Increasing restrictions on the designation of building land and poorer climate balance are frequently cited as reasons for the unpopularity of the single-family home as a new-build project, with the result that the numbers being built - quite apart from the overall shrinkage in the home construction sector - have been declining sharply.
Perhaps this is all the more reason why the demand for buying existing single-family homes has increased massively since the interest rate turnaround. Colliers has just reported that the number of purchase offers to buy single-family homes has doubled in the period, with about 100,000 purchase offers in autumn this year, up more than 102% since spring 2022.
With the European Central Bank raising interest rates ten times since July 2022 to its current level of 4.5%, purchase prices for German residential property are thought to have fallen by up to 20% (with wide variations). Colliers say that these falls haven't led to a reduction in purchase offers - on the contrary, the number of single-family homes, condominiums and apartment blocks on offer has risen hugely, offering more opportunities for private and institutional investors.
Felix von Saucken, Head of Residential Germany, Colliers
According to Felix von Saucken, head of residential at Colliers in Germany, "The increase in purchase offers coupled with lower purchase prices may come as a surprise at first, but there are clearly identifiable reasons for this. Owners who have owned their property for a long time are still benefiting from the high increase in property values over the last few years when selling. In addition, a growing number of owners are afraid of stricter regulations on energy optimisation in buildings and upcoming changes in property tax. The sum of these three influences explains the current increase in purchase offers."
The increase in the supply of existing single-family homes is most pronounced. It has doubled since the turnaround in interest rates: from around 50,000 offers in spring 2022 to over 100,000 purchase offers in the third quarter of 2023. In the same period, there has been a 61% increase in offers for new-build single-family homes. The number of purchase offers for existing German condominiums is up by 70%: from around 92,000 apartment units to around 145,000 units in the third quarter of 2023. In new construction, the increase in this category is 60%.
Another category consists of apartment blocks and so-called residential and commercial buildings, which include smaller commercial spaces in addition to residential space. Here, purchase offers have risen by 44 per cent without differentiating between existing and new builds.
"The German residential market now offers private and institutional investors significantly more supply in all residential categories again. At the same time, we are observing how buyers and sellers are increasingly finding each other, even if the sales processes generally take a little longer than before the interest rate turnaround. At the end of the day, if both sides are interested in a transaction, solutions can be found," said von Saucken.
The actual building of new single-family homes has, however, been shrinking. In the past ten years, around 85,000 single-family homes were built per year in Germany. However, due to the pandemic, sharply rising material and energy costs, more expensive financing and a lack of construction and craft capacities, the numbers are now falling. According to the Federal Statistical Office, 77,000 single-family houses were completed in 2022, a drop of 1.5% compared to the previous year, and this year, that figure is likely to fall yet further.
Several German cities have had vocal public debate about the desirability of new single-family homes. In the north of Hamburg, for example, no more new building sites for detached single-family houses have been allocated since 2021, and other urban areas could follow. The districts of Fuhlsbüttel and Langenhorn in Hamburg also imposed more stringent restrictions in 2020, which limited the number of permits that were granted to build single-family homes.
In several cities, local governments are pushing ahead with building land resolutions which would essentially prevent any new building of single-family homes and also semi-detached and terraced houses. This is because the strict rules on housing density – specifying 80 dwellings per hectare of land - can only be met if apartments are built.
But for a lot of Germans, the likely path ahead of smaller, energy-efficient homes doesn't sit easily with their dreams of large, detached or semi-detached homes with a good piece of garden. And, until the recent interest rate rise, they have been looking for ever more space to live in.
Around 30 years ago, the average living space per inhabitant was 34.9 square metres - today, that has swelled to 47.7 square metres. Countering that, there is an ever-increasing number of single households, so smaller apartments make demographic sense - which is why so many permit-issuing authorities are shunning the further promotion of large single-family homes.
