Berlin, May 26, 2020 – Buying a residential property in Germany remains significantly cheaper nationwide than renting one. In 2019, the cost advantage of owning a condominium compared to renting a comparable apartment was 48.5 percent across Germany—that is the finding of this year’s ACCENTRO Housing Cost Report. According to the study, homeowners live more affordably than renters in nearly all German counties, including major cities. The gap between the costs for homeowners and those for renters has actually widened further since last year.
For the Housing Cost Report, now in its fifth edition, the German Economic Institute (IW) compares housing costs between homeowners and renters; rents and housing costs for all 401 counties and independent cities nationwide were analyzed. The calculations are based on net rent (excluding utilities) and the costs for homeowners, which consist of the purchase price, incidental purchase costs, mortgage interest, and lost interest on equity, as well as maintenance and depreciation. “Given that real estate prices remain high and interest rates are staying low, home ownership continues to be the best form of private retirement planning. Furthermore, our ACCENTRO Housing Costs Report demonstrates once again this year that it is cheaper to buy than to rent almost everywhere in Germany. At the same time, the study underscores that private landlords come from all walks of life,” explains Lars Schriewer, CEO of ACCENTRO Real Estate AG.
No Overvaluation in the Real Estate Market
Given the significant cost advantage that homeowners have over renters, the IW concludes that the housing market in Germany is not overvalued. “Even the COVID-19 crisis poses only a limited risk of a downturn. I consider a sharp decline in prices of 20 percent or more—as has been predicted in some quarters—to be unlikely. Instead, I expect housing prices to stagnate overall this year,” explains Prof. Dr. Michael Voigtländer, head of the Financial and Real Estate Markets division at the IW. “However, the economic implications of the coronavirus crisis and the associated risks for the housing market are unevenly distributed across regions. In southern Germany in particular, the risks of adjustments in residential real estate prices appear higher, whereas the situation is quite different in eastern Germany, where rent increases—and thus price increases—seem possible,” adds Voigtländer.
According to the ACCENTRO Housing Costs Report, one of the reasons for the stable housing market is the trend in interest rates, as falling rather than rising rates are expected. This assessment can be justified, among other things, by the measures taken by the ECB, which—as experience from the financial crisis and the sovereign debt crisis shows—push down interest rates for both short- and long-term fixed-rate loans. Added to this is the growing imbalance between savings and investment, which also has a downward effect on interest rates. Furthermore, earlier studies have shown that pandemics generally result in a decline in real interest rates.
Owner-occupiers Have an Advantage Even in Major Cities
As in previous years, the cost advantage for owner-occupiers is not limited to rural areas or regions with low purchase prices, but can also be observed nationwide in major cities characterized by higher prices. In the top seven cities, the cost advantage for owner-occupiers over renters ranges from 35.1 percent (Berlin), 43.1 percent (Hamburg), 45.9 percent (Munich), 51.0 percent (Stuttgart), 55.6 percent (Frankfurt am Main), 58.7 percent (Düsseldorf), and 59.5 percent (Cologne).
Supporting Homeownership Is Advisable
In its latest report, the IW has identified several reasons why homeowners have lower living costs than renters. Due to the sharp drop in mortgage interest rates, the running costs for homeowners—which were already very low—have fallen even further. Although purchase prices have continued to rise, they have not done so to such an extent that they could outweigh the savings resulting from lower interest rates. Renters do not enjoy this interest rate advantage.
“We therefore once again conclude that policymakers should continue to support access to homeownership. Since the necessary down payment is the main hurdle to homeownership for most people, we propose policy measures such as government-guaranteed subordinated loans and a reform of the real estate transfer tax. This would primarily improve access for households with low and middle incomes,” says Voigtländer.
“A significant hurdle linked to rising real estate prices is the increasing requirement for down payment. The government should urgently step in here, both by providing down payment assistance and by reducing ancillary purchase costs. A tax exemption or waiver of the real estate transfer tax would be sensible options,” adds Schriewer.
Landlords and Investors from All Walks of Life
According to the IW, 93 percent of private landlords had a positive income from renting and leasing in 2017, meaning that gross rental income exceeded the costs of maintenance and modernization. For just under 20 percent of households that rent out property, income from renting and leasing ranged from zero to 2,500 euros; for another 20 percent, it ranged from 2,500 to 5,000 euros; and for about 17 percent, it ranged from 5,000 to 7,500 euros. One in ten landlord households even earned more than 20,000 euros.
In 2018, 44 percent of private landlords belonged to the top 20 percent of households by income. Twenty-five percent belonged to the fourth quintile of the highest-income households in Germany. However, a significant proportion of private landlords also belong to lower-income households: 15 percent are in the third income quintile, 10 percent are in the second, and 6 percent are among the lowest-income 20 percent of households in Germany.
Homeownership as an Investment Pays Off
The number of private landlords increased by approximately 750,000 households between 2010 and 2018, which the IW interprets as a sign that many private households took advantage of the attractive conditions for purchasing home ownership as an investment. Particularly in major cities, the number of private landlords rose by about one-third during this period. The ACCENTRO Housing Costs Report also shows that owning a home for rental purposes is worthwhile—for the report, the IW compared the housing costs of renters with those of owner-occupiers of condominiums and found a cost advantage for owner-occupiers of just under 50 percent. As the IW explains in the study, this advantage can also be applied to landlords, since it means that rental income exceeds the monthly mortgage payments.
About ACCENTRO Real Estate AG
ACCENTRO Real Estate AG is a residential real estate investor and the market leader in housing privatization in Germany. As of December 31, 2020, its real estate portfolio comprised approximately 5,200 units. In addition to Berlin, its regional focus includes major East German cities and metropolitan areas, as well as the Rhine-Ruhr metropolitan region and Bavaria. ACCENTRO’s business activities encompass four core areas. These include the sale of apartments to owner-occupiers and private investors at rent-like prices, the sale of real estate portfolios to institutional investors, the development and management of its own real estate portfolio, and the marketing of apartments for property owners, investors, and project developers. The shares of ACCENTRO Real Estate AG are listed on the Prime Standard of the Frankfurt Stock Exchange (WKN: A0KFKB, ISIN: DE000A0KFKB3). investors.accentro.de
About the Cologne Institute for Economic Research
The Cologne Institute for Economic Research is a private economic research institute committed to a free-market economic and social order. The Cologne Institute for Economic Research is a registered association. Our members include approximately 110 business and employer associations in Germany, as well as individual companies. Our project partners primarily include foundations, associations, and public institutions.
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