Buying a home remains a dream for Germans

Buying a home remains a dream for Germans

Real estate prices in Germany have been rising for years, making it difficult even for higher-income families to purchase their own homes, and the end of the uptrend is nowhere in sight.

ECONOMY MARCH 13. 2023 15:32

Instead of owning their homes, most Germans live in rentals, as they can’t afford to finance the procurement of a privately owned property. Eight out of ten Germans dream of owning a home, polls have shown for years with unchanging results, and Germans are acutely aware that the cost of living is lower for home owners than for those who rent.

In fifty years, from 1960 to 2010, the dream of owning a home came true for many. Those with a permanent job and able to pay the usual 20-percent own contribution were able to secure a mortgage loan with the bank. If they worked hard and kept their expenses under control, they repaid their loans (in 27 years, on average) and gained full ownership of the property. However, those happy times have gone and will not return, according to experts.

Today, average earners cannot afford to purchase an apartment, and even those with a higher incomes would find it difficult to buy one.

Currently, an apartment in a residential block costs 3300 euros per square metre on average in Germany, with the price rising to 5000 euros in sought-after cities. In Munich, for example, one square metre costs 8000 euros. A newly-built 100sqm apartment costs at least 430,000 euros. The current interest rates on the mortgage, along with a two-percent repayment, add up to create around a 2,000-euro monthly installment.

The key reason lies in the low interest rate policy pursued by the European Central Bank (ECB), Markus Brandstetter says. Between 2008 and 2009, the ECB decreased its key interest rate from 4 to 1 per cent, apparently to save the euro zone’s economy, currency and banks after the 2007/2008 global financial crisis.

The reason why it did that was to finance the debts of the southern member states of the EU and to prevent the EU from falling apart. With that, however, it opened Pandora’s box, and between 2010 and 2021, real estate prices have doubled in Germany. Property prices grew by 50 per cent between 2016 and 2021 only, when the ECB’s key interest rate was 0 per cent.

Of course, there are other reasons too, as V4NA has highlighted earlier. Between 2010 and 2021, some 5.6 million people immigrated to Germany, but most of these people have never bought a flat or a house, but live in rentals instead. Migrants’ needs represent a considerable demand on the real estate market, where they bear a partial responsibity for rising rental fees in cities and the staggering real estate price hikes. The general price hikes experienced by the construction industry is an equally significant factor. Between 2015 and 2022, construction costs rose by 50 per cent.

For years, the German housing market has been inaccessible for families and average wage earners, and the situation was made even worse recently, thanks to the federal constitutional court and Robert Habeck, the Greens’ economy minister. The constitutional court ordered a reform of the housing tax, which is currently in progress and will lead to significantly higher prices everywhere from 2025, while Mr Habeck approved a bill on the ban of oil and gas heating systems from 2024, and ordering that all heating systems must be switched to rely on climate-neutral fuels by 2045.

ECONOMY

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dream, germany, house