Berlin, April 29, 2019 – The 2019 ACCENTRO-IW Housing Costs Report shows that buying a residential property in Germany remains significantly more affordable nationwide than renting one. However, two trends are taking hold that run counter to this finding: The number of first-time homebuyers continues to decline, and the median age of first-time homebuyers is rising. When viewed from a nationwide perspective, buying a home is, on average, about 40 percent cheaper than renting. In 2017, that advantage stood at 45 percent. For the 2019 Housing Costs Report, rents and housing costs were analyzed nationwide across all 401 counties and independent cities. The study was conducted by the Cologne Institute for Economic Research (IW) on behalf of ACCENTRO Real Estate AG, under the scientific direction of Prof. Dr. Voigtländer.
“In light of rising real estate prices and interest rates that remain at low levels, home ownership continues to be the best form of private retirement planning. Furthermore, the ACCENTRO-IW Housing Cost Report confirms that it is cheaper to buy than to rent almost everywhere in Germany. At the same time, the study shows that first-time homebuyer households are becoming older and wealthier. Young families with children, in particular, are not taking advantage of the still very favorable conditions for purchasing a home. The reason for this lies in the growing requirement for equity capital as real estate prices rise. The government should urgently step in here, both by providing equity support and by reducing ancillary purchase costs. “An exemption or waiver of the real estate transfer tax would be a first step,” explains Jacopo Mingazzini, CEO of ACCENTRO Real Estate AG.
Owner-occupiers Often Have the Advantage in Major Cities
In all seven major German cities, the costs for owner-occupiers are lower than rental costs for a new lease. The advantage in terms of owner-occupier costs is below the population-weighted average for Germany in Berlin (27 percent), Hamburg (35 percent), and Munich (38 percent), but exceeds it in Düsseldorf (54 percent), Frankfurt am Main (50 percent), Cologne (54 percent), and Stuttgart (44 percent), they are above it. In all seven major cities, strong increases in purchase prices relative to rental trends are leading to convergence between owner-occupier costs and rental costs. This effect is evident when comparing owner-occupier costs with existing rental rates. In three of the seven metropolitan areas, owner-occupier costs exceed existing rental rates. The cost disadvantage stands at 21 percent in Berlin, 10 percent in Hamburg, and 3 percent in Munich. “The striking finding for Berlin stems not least from the very large rental housing market—the proportion of renters in Berlin is around 82 percent. Accordingly, existing rents there are rising significantly more slowly,” explains Prof. Dr. Michael Voigtländer, head of the Financial and Real Estate Markets Research Group at the IW Cologne. The calculation is based on net base rents as well as the costs for owner-occupiers, which consist of the purchase price, incidental purchase costs, mortgage interest, and lost interest on equity, as well as maintenance and depreciation.
Homeownership Is Attractive in Nearly All Districts
A comparison of owner-occupier costs and rents across all German districts and independent cities reveals a similar picture. In 94 percent of the districts, owner-occupier costs are lower than rental costs for new leases. The districts where homeownership offers the least advantage are predominantly located in the Ruhr region, the Sauerland, and parts of eastern Germany. Most of the 26 districts where owner-occupancy costs exceed rental costs are also located there. “This situation can be explained by the weak and, in some cases, negative price trends for owner-occupied properties, as well as the projected weak future development in these districts,” says Voigtländer.
A nationwide analysis shows that the cost advantages of homeownership are distributed very unevenly. For example, the districts in Brandenburg that are part of the Berlin metropolitan area offer particularly significant cost advantages for homeownership compared to renting. For example, homeowners in the Oder-Spree district or the Oberhavel district pay about 60 percent less than renters. In contrast, homeownership in Hagen is 38 percent more expensive than renting.
The Housing Cost Report also examines interest rate sensitivity across the districts. The results paint a robust picture: In 346 districts, homeownership would still be more advantageous than renting even if interest rates rose to 3 percent per annum (currently: 1.96 percent).
Homeownership Remains Affordable
According to the report, conditions for purchasing a home remain very favorable. While home prices nationwide are approaching record highs, interest rates on long-term mortgage loans remain at historically very low levels. On a population-weighted average, just under 11,000 euros would need to be spent annually on interest and principal payments to fully pay off a 100-square-meter apartment in 25 years. In major cities and areas experiencing population growth, home ownership is in some cases significantly more expensive due to strong price dynamics driven by demand and rising construction costs. In Berlin, Frankfurt, and Stuttgart, the cost is 1.8 times higher; in Hamburg, it is 210 percent; and in Munich, as much as 280 percent. Cologne and Düsseldorf are the most affordable major cities, at just 130 percent of the national average.
Buyer Analysis: First-time Homebuyers Are More Likely to Be Urban, Older, and Wealthier
Despite favorable financing conditions, the number of first-time homebuyers is declining. This trend is primarily driven by rural regions. This can be explained, among other things, by the negative net migration from smaller municipalities to larger independent cities. In major cities, the absolute number of first-time homebuyers remains constant. Nevertheless, homeownership in Germany continues to be a predominantly small-town phenomenon. In 2017, the homeownership rate in metropolitan areas with more than 500,000 residents stood at 28 percent, and in municipalities with 100,000 to 500,000 residents, it was 35 percent. In medium-sized municipalities, the rate was around 50 percent, and in the smallest municipalities and villages, it was around two-thirds.
First-time homebuyers are also getting older. In 2017, the median age in cities with more than 100,000 residents was just under 48 years (2010: 46 years), and in Germany as a whole, it was just under 44 years (2010: 42.5 years). First-time homebuyers also have higher average incomes than in the past. The median household income in 2017 was around 3,100 euros net (2010: 2,900 euros net).
“The fact that so few households are purchasing homes despite this is certainly also due to societal changes. More unstable careers, smaller households, and the desire for urban living are reducing the appeal of homeownership. Added to this is the lack of housing supply in general and owner-occupied properties in particular, especially in major cities. Nevertheless, one would expect more people overall to purchase their own homes, but the barriers to entry—in the form of high capital requirements—prevent many average-income earners without assets or parents with strong creditworthiness from becoming homeowners. As a result, not only do these households bear a heavier financial burden than comparable renters and are unable to build up their retirement savings, but a sense of injustice also arises, since only a minority of the population can benefit from the ongoing real estate price boom. “Policymakers are urgently called upon to critically examine all barriers to access and remove identified obstacles,” says Voigtländer.
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 tenant-oriented sale of apartments to owner-occupiers and private investors, 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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