sky high

Surging rents are driving a wedge through German society

housing costs germany inequality, rents
Housing costs are shocking. Source: DPA

Rising rents have exacerbated the gap between the rich and poor in Germany since the mid-1990s, according to a major new study.

The study released on Monday by researchers from University College London and Berlin’s Humboldt University found that income inequality in Germany increased between 1993 and 2013. That was largely because of housing costs that have squeezed lower-income groups and in spite of the steep rise in salaries during those 20 years.

The bottom quintile of earners paid 40 percent of their net income for housing in 2013, almost a third more than they did in 1993, when it was 27 percent.  By contrast, the top quintile of earners saw housing expenses drop from 15 percent of their net income in 1993 to 14 percent in 2013.

To some extent, those differences are because people with big salaries tend to own rather than rent their homes and have been benefiting from low mortgage interest rates. Meanwhile, people who can’t afford to buy have been hit by sharp increases in rent which tends to be the largest household expenditure.

The study, the most comprehensive so far to analyze the connection between housing expenditure and income inequality in Germany, will likely fan an ongoing political debate over the social impact of surging rents, especially considering that it’s based on five-year-old data and housing costs have skyrocketed since then.

“I wouldn’t be surprised if the imbalances had gotten bigger,” said Bernd Fitzenberger, an economics professor at Humboldt University and one of the authors of the study.

rising rents causing income inequality in germany

Research firm Empirica calculated that rents in Germany have risen by 20 percent between 2013 and 2018, far outpacing the 12 percent increase in the previous five years. And there’s no sign of respite, according to the rent index published Monday by IVD, a real estate association, that showed rent cost increases, in some cases exceeding 10 percent, in 380 German cities in 2017.

But there are major regional differences, with rents for well-appointed homes in desirable locations in some major cities such as Cologne, Frankfurt and Düsseldorf showing no or little rent increases more recently, while small and medium-sized towns have seen drastic jumps in rent for new and existing homes.

“The majority of tenants in the big cities appear to be unable to afford the prices anymore,” said IVD President Jürgen Michael Schick. And those people are either opting for lower-quality housing or moving out to the suburbs or nearby towns. “After the period of urbanization, we’re seeing a migration towards small towns,“ he said.

Younger people have been hit hard — they saved less in 2013 than the comparable age group 20 years ago. The rise in housing costs has led to a decline in the savings rate to negative 1 percent in 2013 from a meager 2 percent in 1993 for the bottom quintile of earners, the research found.

“That lessens the ability to create wealth by acquiring real estate,” Mr. Fitzenberger said. “One can expect the rising inequality in the creation of savings to lead to higher income inequality in the future.”

housing costs german cities, rents

Anne Wiktorin is an editor on Handelsblatt’s finance desk in Düsseldorf, focusing on real estate. To contact the author: wiktorin@handelsblatt.com

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