“Shock for everyone affected”
Tenants’ association sees drastic increase in rents
January 13, 2024, 1:35 p.m
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High prices, many regulations and a lack of building land – housing construction in Germany is in crisis. For tenants, this means that rental prices are going up – even in places where it is already expensive. The tenants’ association sees an urgent need for action on the part of politicians.
The German Tenants’ Association fears a further drastic increase in rents due to the construction crisis and hundreds of thousands of missing apartments. Even in high-price regions like Munich, rents have risen more sharply than ever before in the past two years, even for existing contracts, said Tenants Association President Lukas Siebenkotten to the “Augsburger Allgemeine”. “The current rent index for Munich showed average rent increases of a horrendous 21 percent compared to the previous rent index, a shock for all affected tenants.”
Tenants’ associations nationwide were receiving more and more requests for advice about massive rent increases, Siebenkotten reported. “Tenants are increasingly worried about how they can manage their rent and the ever-increasing energy costs.” The federal government must finally act and put the creation of affordable housing at the top of its priority list, demanded the tenants’ association president. What is also necessary is a rent freeze in existing properties, a strict rent cap for new rentals, the punishment of exorbitant rents and the ban on index rents.
“Increasingly serious social problem”
The leading association of the German real estate industry, ZIA, emphasized that construction costs in Germany are higher than in any other European country due to government regulations. “Rents inevitably have to rise because the costs of providing living space are exploding,” ZIA President Andreas Mattner told the newspaper.
There is currently a shortage of over half a million apartments in Germany, and by 2027 there could be up to 830,000. “This is becoming an increasingly serious social problem,” said Mattner. In view of the high financing costs, he called for a government funding program with an interest rate of no more than two percent.
Housing construction in Germany has been stalling for a long time. The Munich Ifo Institute estimates that only 225,000 apartments will be completed in 2024, compared to an estimated 270,000 last year. By 2025, the number of annual completions could fall even further to 200,000 apartments, believes DZ Bank. That would only be half as much as the traffic light coalition had planned. Construction Minister Klara Geywitz (SPD) was recently optimistic. The housing market will probably brighten in late 2024 and early 2025, she said.
Housing shortage, especially in cities
The German Economic Institute (IW) recently proposed a package of measures to reduce costs in housing construction. Many savings are possible if there is a consensus in politics, administration and business about the importance of housing construction, according to an IW report.
Specifically, the IW sees opportunities for cost savings in equipment, especially since simple equipment in new buildings often exceeds the typical standards in existing buildings. Avoiding underground car parks or cellars could also help. In addition, smaller apartments could reduce new construction costs. The public sector could also do something, such as selling public land more cheaply. Another lever is tax relief. “A suspension of the property transfer tax for new buildings would be compatible with EU law and appropriate in order to strengthen new residential construction.”
Since 2020, both the actual construction costs and the loan interest rates have increased significantly. In addition, there has been the back and forth over the past few years regarding the federal funding programs and the current budget cuts by the traffic light coalition. Excessive bureaucracy and the constant tightening of building regulations are also repeatedly cited by construction companies and experts.
Many people are desperately looking for apartments, especially in cities. Real estate prices fell last year, but rents continued to rise in many places. “We assume that rents will continue to rise in the medium and long term, as demand in most regions of Germany will continue to significantly exceed the shrinking supply of new apartments in the next few years,” said Roman Heidrich, an expert in residential property valuations at the major broker Jones Lang LaSalle (JLL), at the turn of the year. Excess demand will worsen, particularly on the rental market.