ACCENTRO-IW Housing Cost Report 2018

An Analysis of Rents versus Owner-Occupiers' Housing Costs for 401 German Counties

Homeownership remains an attractive proposition in Germany. The cost advantage that owner-occupiers have over tenants equalled about one third as of Q4 2017. Even in the country’s “Big Seven” cities, the cost advantage stays within this bracket, ranging from 26.4 percent in Munich to 38.6 percent in Frankfurt am Main. Generally speaking, homeownership is currently more affordable than renting in every German county.

The underlying cause is the interest rate development. During the period of 2010 through 2017, the decline in interest rates clearly outpaced the price growth. As a result, the appeal of homeownership has gained tremendously compared to renting.

Another fact alleviating fears over a speculative bubble is the wide gap between owner-occupancy costs and rents. A typical sign of an overheating market would be owner-occupier costs that exceed rental costs, because in that case the market equilibrium would possibly be restored by a drop in prices. But the current scenario makes continued price growth more likely. Neither do the developments in real estate financing, which are characterised by high repayment rates, stable gearing ratios and moderate increases in lending volumes, indicate an overheating market.

In addition, developments on the global capital market suggest that the low-interest cycle is here to stay, not least because large-scale savings are matched by a negative trend in investments. All of this means that an attractive window of opportunity to buy a home remains open for private households.

Not only is it easy to obtain financing at the moment but the loan may also be paid off without burdening the household budget during your working life more than you would by renting a comparable abode. This sort of asset building involves virtually no additional costs. However, it all depends on how quickly the property is to be paid off. The more time a given household has to do so, the easier it is to obtain a financing arrangement. But this is precisely where the big challenge lies, because young households rarely have the financial wherewithal to cover the incidental acquisition costs and the equity stake. It is arguably the government’s job to lower the threshold to homeownership.

You may read the complete analysis as PDF here.