Real-estate inflation

German housing prices: boom time over?

  • Why it matters

    Why it matters

    A slowdown in German real-estate price increases may spell an end, or a partial reversal, to the sector’s long-time boom.

  • Facts


    • Housing prices in Germany have been rising for years, especially in its biggest cities. In Berlin and Munich alone, they more than doubled in 12 years.
    • For the first time since the housing boom began, price inflation may soon begin to cool.
    • The main reasons for the shift include falling demand, fewer refugees, and more Germans moving to affordable, smaller cities.
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In Germany's competitive housing market, beauty lies in the wallet of the beholder – for now. Source: Reuters

When double-income, no-kids couples can’t afford a mortgage, and high school graduates have to look for colleges based on available living space, there’s something very amiss with the German real estate market. Yet that’s reality in many German cities, where housing prices have kept rising over the past year. With more and more Germans flocking to the country’s biggest cities, affordable housing is increasingly hard to find. But for prospective buyers and renters, there’s light at the end of the tunnel: Prices could soon level off.

That’s according to real-estate analysis firm VDP Research, which in an exclusive study for Handelsblatt, tracked the costs over time of buying or renting a home. It comes on the heels of another respected report saying a German housing-price bubble was unlikely.

In the study, VDP’s analysts evaluated real purchase prices in 16 German cities for owner-occupied apartments and one-family homes, as well as monthly rents. And they identified the most popular neighborhoods in each city, which they defined as areas where average housing prices rose most quickly over a four-year period.

The statisticians found that while housing prices in Germany continued to surge over the past year – especially in big cities like Berlin, Munich and Hanover – a reversal of that trend is in sight. In Berlin and Munich, inflation in these housing prices was in double digits compared with a year ago. In Hanover, the price of an owner-occupied apartment jumped 7 percent on the year. But even in these popular cities, VDP’s research suggests the price increases would soon begin to slow, or even stop.

Many teens and twenty-somethings are discovering they can be just as happy living in a smaller, cheaper city.

Luckily, the slowdown VDP forecasts isn’t the same thing as a housing market bubble that’s about to burst. It’s more like the air seeping out of a balloon which, for years, was bloated by inflation. According to the analysts, the reason is slowing population growth, at least in Berlin and Munich. Much has to do with young people’s decisions to look beyond these two big cities for a place to live. Many teens and twenty-somethings, it seems, are discovering they can be just as happy living in a smaller, cheaper city.

“Young people no longer feel obligated to move to Berlin or Munich. A lot of them find Leipzig or Regensburg just as cool – and living there is a whole lot cheaper,” said Harald Simons, a board member at the Berlin-based research institute Empirica. Mr. Simons is also one of Germany’s four so-called Real Estate Wise Men who every spring, publish a forecast of the country’s housing market.

According to Mr. Simons, the German cities that historically attracted people from all over the country have lost their drawing power, simply because fewer people can afford to live there. For instance, a buyer who moved to Berlin in 2004 paid less than half of what he paid in 2016. In the space of 12 years, housing prices surged by 115 percent in the German capital, according to JLL, a real estate management company. In Munich, prices jumped 105 percent over the same period.

Mr. Simons explains why young Germans’ geographic preferences have a lasting effect on the housing market. “People decide where they want to settle between the ages of 20 and 35. Even among 35 to 45-year-olds, the dynamics of migration go down,” he said. “A person might move from the city into the suburbs, but they don’t change their minds as often as they do in their 20s and move to a completely different region.”

The stabilization the VDP predicts is merely a reflection of market economics. As prices go up, consumers change their preferences and demand falls, or the increases become less robust. All the same, real estate prices in many German cities remain higher than they ought to be, according to German financial experts. “Price increases in large and medium-sized German cities have been exaggerated,” said Andreas Dombret, an executive board member at the Bundesbank, Germany’s central bank.

That view is in line with a recent German parliamentary report on financial stability. Based on Bundesbank estimates from 2016, housing in 127 German cities was overvalued by 15 to 30 percent. The worst housing inflation was in the country’s seven largest cities – Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf.

According to Michael Neumann, a board member at Dr. Klein, a real-estate credit firm, there is scarcely room for housing prices to increase in the big cities. “The fast upward dynamics will not continue,” he said.

“Price increases in large and medium-sized German cities have been exaggerated.”

Andreas Dombret, Executive board member, German Bundesbank

In addition, the number of new housing starts has already begun to slow, according to Franz Eilers, VDP’s head of research. The number of new building permits dropped by nearly 7 percent between January and March this year, compared with the same three months in 2016. Only 79,000 residential building applications landed on the desks of municipal building authorities – the first quarterly decline in five years, according to Germany’s federal statistics office.

Normally, fewer new apartments would lead to a spike in housing prices, reflecting basic supply and demand. But that doesn’t apply in this case, Mr. Eilers said. One big reason? The influx of foreigners into Germany has been less than expected after Europe cut a refugee deal last year with Turkey, stanching refugee flows into Europe – dramatically. Immigration from other EU countries is also falling, Mr. Simons noted, while the jobs outlook in many European countries is improving.

As a result, only 240,000 EU citizens moved to Germany in the whole of 2016. That’s sharply down from 2015, when that number hit 320,000 in the first three quarters alone.

In their spring report, the property Wise Men concluded that a flattening out or decrease in housing prices was a certainty in Berlin; a probability in Munich; and in the realm of possibility in Frankfurt and Hamburg. However, it was still not clear what prices would do in other German hubs including Hamburg, Cologne, Düsseldorf or Stuttgart.



Matthias Streit is a correspondent for Handelsblatt. Anne Wiktorin is an editor at Handelsblatt, reporting on finance and real estate from Düsseldorf. To contact the authors: and


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