Climbing interest rates, increasingly expensive building materials and rising inflation are only worsening the unaffordability of housing in Germany. And according to a recently released study by property company Jones Lang LaSalle (JLL) there has been a historic switch-up, the cost of rent in Germany is now rising faster than property prices.

German rental costs rising faster than house prices 

A new study has found that increasingly unaffordable property prices are driving those who would have previously bought a house, to rent property instead. As a consequence, the cost of renting a home in Germany is now rising faster than the cost of buying. According to JLL, this switch-up is heavily tied to Germany’s snail’s-pace progress in building more affordable homes to house the growing population.

Unsurprisingly, the change is most pronounced in German cities. In the eight major cities; Berlin, Hamburg, Munich, Cologne, Frankfurt, Düsseldorf, Leipzig and Stuttgart, asking rents rose by an average of 6,3 percent during the second half of 2022, compared to the same period in 2021. Despite rental costs starting to fall in the second half of the year, renting property in one of the major German cities remains a pricy prospect.

At the same time, the years-long trend in the housing market - of property prices rising faster than rental costs - has reached its end. Due to a sharp increase in interest rates, the cost of property has fallen in many places across Germany.

Unfortunately, the switch-up doesn’t mean that buying a house has become affordable, as property price rates have only marginally fallen from the already high figures. In the past five years, property asking prices have risen by an average of 9,1 percent each year.

In another recent property study, Immowelt calculated that the average family of three requires an income of 5.000 euros per month before tax in order to afford a 90 square metre house or flat in Germany’s cities.

The home office effect on house prices

While rental costs and property prices remain on an equal balance in Germany’s rural areas, the cost of renting has superseded property costs in independent cities. Germany has 106 independent cities, which are defined as such based on their high population and administrative capacity to organise at both city and district level, making them independent of a district. Excluding the eight aforementioned cities, rents in independent cities rose by 4,4 percent in the second half of 2022, and for property, by only 0,6 percent.

JLL ascribes this increase in prices and consequential population shift as being down to low to medium-income families being priced out of cities, moving further out of the centre and into independent cities. People who would have previously been bound to living in the city and can now work from home are seeking more affordable rents further away.

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