ACCENTRO Housing Costs Report 2022: Homeownership Is Over 59 Percent Cheaper Than Renting

• Costs for Owner-Occupiers Remain Steady

• Sharing of real estate agent commissions has supported cost advantages for homeownership

• Significant price declines are not expected

Berlin, June 8, 2022 – On a nationwide average,purchasing a residential property in Germany in 2021 was 59.2 percent cheaper than renting one. This means the cost advantage of owning a condominium over renting a comparable apartment has risen by about three percent compared to 2020—that is the finding of this year’s ACCENTRO Housing Cost Report, now in its seventh edition and compiled in collaboration with the German Economic Institute (IW). According to the study, homeowners live more affordably than renters in 399 of Germany’s 401 districts and independent cities, including in major metropolitan areas. They pay an average of 4.21 euros per square meter, compared to new-lease rents for comparable apartments of 10.30 euros per square meter. The IW attributes the fact that owner-occupier costs fell by 0.11 euros compared to the previous year, while prices for condominiums rose by 10 percent, to the simultaneous sharp increase in rents for new leases and the moderate trend in interest rates in 2021—as a result, the opportunity cost of capital actually declined. If the opportunity cost of capital had remained unchanged, buyers would have had to expect owner-occupier costs of 4.76 euros per square meter—an increase of 11 percent. The split in real estate agent commissions, which was decided in 2021, also provided relief for homeowners. For the Housing Costs Report, now in its seventh edition, the IW compares the housing costs of homeowners and renters; nationwide, rents and owner-occupier costs were analyzed for all 401 counties and independent cities. The calculations are based on net basic rents as well as the costs for owner-occupiers, which result from the purchase price, incidental purchase costs, mortgage interest, and opportunity cost on equity, as well as from repairs and depreciation. In its latest report, the IW has identified several reasons why homeowners have lower housing costs than renters. Thanks to continued low interest rates on mortgage loans, the 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 from lower interest rates. Renters do not enjoy this interest rate advantage. “According to our ACCENTRO Housing Cost Report 2022, last year was a very good one for homebuyers. The cost advantages for owner-occupiers have continued to rise, albeit moderately, and now stand at nearly 60 percent—which is enormous. Given high real estate prices and rising rents, homeownership is still the best form of private retirement planning,” explains Lars Schriewer, CEO of ACCENTRO Real Estate AG. Owner-occupiers Have an Advantage Even in Major Cities

Significant cost advantages for owner-occupiers continued to be observed in 2021, particularly in rural areas and regions with low or moderate purchase prices. For example, the cost advantages were greatest in the Sömmerda district of Thuringia, at 82.9 percent. But even in high-priced metropolitan areas—which traditionally offer smaller cost advantages for homeowners than rural areas—significant cost advantages continued to be observed. There, the cost advantage for homeowners over renters ranges from 47.3 percent in Berlin (2020: 40.8 percent) to 53.7 percent in Hamburg (2020: 50 percent), 54.9 percent in Munich (2020: 53.4 percent), 59.3 percent in Stuttgart (2020: 57.9 percent), 63.7 percent in Frankfurt am Main (2020: 60.4 percent), 65.7 percent in Düsseldorf (2020: 64.1 percent), and up to 66.2 percent in Cologne (2020: 65 percent). “Even in major cities, the cost advantages for homeowners over renters have increased even further. It has also been worthwhile to buy in major cities. Homeowners end up with more money in their wallets than renters,” explains Schriewer.

Sources: German Economic Institute; vdp Research (2022)

The Shift in Interest Rates Is Impacting the Residential Real Estate Market

In the wake of the COVID-19 pandemic, the war in Ukraine is shaping the real estate market. In addition to the sharp rise in energy prices and inflation, the ECB is expected to take its first interest rate hikes as early as this summer. The interest rate turnaround has already reached the real estate market—borrowing costs have risen sharply. According to the study’s authors, this will be reflected in the market in 2022 in the form of rising costs for owner-occupiers. Price declines, however, are not expected in the short term. “The market is coping well with the interest rate hikes so far. Rising construction costs and continued growth in demand for the scarce commodity of condominiums are stabilizing the market,” explains Prof. Dr. Michael Voigtländer of the German Economic Institute. “Rising interest rates will, however, significantly reduce the cost advantage for owner-occupiers.” Depending on how the war in Ukraine unfolds and the course of the COVID-19 pandemic (particularly in Asia), the German Economic Institute expects inflation to decline, which would also lower interest rates. In addition, rising real wages are expected, at least in the medium term, which will also improve the affordability of homeownership. The ACCENTRO Housing Costs Report compares three different interest rate scenarios. According to the report, a construction interest rate of two percent would lead to an increase in owner-occupier costs from 66 percent to 6.97 euros per square meter. At an interest rate of 2.5 percent, owner-occupier costs would more than double to 8.55 euros, and at an interest rate of three percent, they would rise to 10.12 euros—an increase of 141 percentage points. It should be noted that this assumes purchase prices remain constant—given the looming increases in purchase prices, further increases in owner-occupier costs of an additional 8 percent to 7.32 euros (2-percent interest rate scenario), a further 10 percent (2.5 percent interest rate) to 8.97 euros, or by an additional 12 percent (3 percent interest rate) to 10.63 euros. “Owner-occupier costs will most likely rise as a result of the interest rate turnaround, thereby reducing the owner-occupier cost advantage. Over the past 20 years, average interest rates stood at 4 percent—significantly higher than today—yet the real estate market remained attractive. What matters when buying real estate is the long-term outlook, and that outlook remains extremely favorable in many parts of Germany given the population growth,” explains Lars Schriewer. “However, even in the most ambitious interest rate scenario, owner-occupier costs remain below expected rents for new leases—buying remains cheaper than renting.” Owner-Occupier Cost Advantages Persist in Most of Germany Even with Rising Interest Rates

In its analysis, the IW assumes that even with an interest rate increase from the current 2 percent to as high as 3 percent, cost advantages for owner-occupiers will continue to be observed in the outskirts of metropolitan areas and major cities, as well as in the rest of Germany. The top 7 locations themselves are less resilient; their neutral interest rate (the rate at which new lease rents equal owner-occupier costs) stands at 2.8 percent, which is just below the IW’s most ambitious interest rate scenario of 3 percent.

Source: German Economic Institute

“In addition to the shortage of supply, the shift in interest rates now presents another bottleneck for prospective buyers. The federal government should make homeownership more affordable by reducing ancillary purchase costs,” Schriewer urges. “Revenue from real estate transfer tax has been rising sharply for years due solely to price increases, and local governments are even raising it further. This presents significant potential for relief. A tax exemption or other form of relief on these ancillary costs would be conceivable.” “We reiterate our call for policymakers to support access to homeownership. There are numerous examples from European countries such as the United Kingdom and Belgium that provide relief for homebuyers, for instance with regard to real estate transfer tax. Since the necessary down payment is the most common barrier to homeownership, government-guaranteed subordinated loans and a reform of the real estate transfer tax could improve access to homeownership for households with low or moderate incomes,” says Voigtländer.

About ACCENTRO Real Estate AG

ACCENTRO Real Estate AG is the market leader in residential privatization in Germany. In addition to its home market of Berlin, the company focuses on promising metropolitan regions such as Hamburg, the Rhine-Ruhr region, and Leipzig. In its Privatization division, ACCENTRO sells apartments from its own portfolio to owner-occupiers and capital investors or—bundled as portfolios—to institutional investors. In its Services & Ventures division, ACCENTRO markets apartments for investors and project developers—including through participation in joint ventures. ACCENTRO Real Estate AG is listed on the Prime Standard segment of the Frankfurt Stock Exchange (WKN: A0KFKB, ISIN: DE000A0KFKB3). www.accentro.ag About the German Economic Institute (IW) The German Economic Institute is a private economic research institute that advocates for a free-market economic and social order. Members of the registered association include approximately 110 business and employer associations in Germany, as well as individual companies. Project partners primarily include foundations, associations, and public institutions.

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