Renting an apartment: where the prices are increasingly (inexpensive)

Rents have risen sharply in recent years, and so have wages. Just a comparison between both developments shows where housing remains affordable and how that affordability has changed. For 2018-2021, affordability fell in nearly 75 percent of counties — a worrying result given the energy crisis.

For most renters, income from work represents a large portion of income, which is why net wages also determine the ability to pay for rented housing. In order to compare the situation in the provinces, the IW has already specified in previous publications how many square meters of living space a single household in the respective provinces can afford if it wants to spend a maximum of 25 percent of its net wages on tax-free rent (Sagner/Voigtländer, 2018). The assumed percentage corresponds roughly to the national average. Wage data for this study are based on assessments made by the Federal Employment Agency on employment subject to Social Security contributions, and rents were determined on the basis of the Value AG database. This database contains all rental advertisements from major real estate portals. In the first step, the number of square meters one family could afford at average wage income was calculated if they were spending 25 per cent of their net income and the price per square meter also corresponded to the average. It is important that new contract rents are considered here, that is, it is assumed that a new contract will be concluded due to the move. This calculation was made for the end of 2018 and the end of 2021. In addition, the situation of low-income families was also taken into account this time by making the same calculations for the first quintile. Here it was assumed that one-person households, whose income exceeds 80 percent of wage workers, also choose correspondingly cheaper apartments (more than 80 percent of rent per square meter).

Munich is the most expensive location

By far the most expensive location for wage workers is Munich. There, one family can afford only 36.2 square meters, despite the higher wages compared to other countries. The distance to the second most expensive site, the Munich district, is over seven square metres. In general, the greater Munich area stands out: five more from the Munich metropolitan area are among the ten most expensive in terms of wage income. Freiburg im Breisgau in third, Frankfurt am Main and Offenbach in sixth and seventh. On the other hand, it is significantly cheaper to live in Höxter, Südwestpfalz or Holzminden – in these areas a single-person family can afford an apartment of 98 to 102 square meters for 25 percent of their net wage. The average size in all counties is 70.3 square metres. The ranking of sites for low-income people (first quintile) is similar to that of average wage. Here, too, is Munich at the top. On the other hand, Holzminden is the most convenient location. This indicates that the distribution of wages and rents in cities is relatively symmetric. However, square meter levels are generally lower, in Munich the calculated square meter is only 30.7 square metres, and in Holzminden 90.2 square metres. Even if low-paid employees subject to Social Security contributions orient themselves toward the cheaper part of the apartment rental market, they have to limit themselves even more in terms of square meter sizes. The median across all circles for this group is 64.8 square metres.

Unequal situation in big cities

The seven largest German cities (Fig.) are in particular public focus. In these cities, prices and rents have risen especially sharply in the past ten years, but the average income situation is very heterogeneous. Whereas the average wage in Munich can only afford 36.2 square metres, according to the assumptions made, in Düsseldorf it is 57.3 square metres. It is followed by Berlin with 54.8 and Cologne with about 50 square metres. This difference also applies to low-income earners (first quintile); Berlin stands out here in particular with its 56.5 square metres. The figure also shows the change compared to 2018 – with a somewhat surprising finding: in five of seven cities, average wage earners can afford more square meters in 2021 than in 2018, only in Cologne and Stuttgart it became slightly less. Berlin values ​​are distorted by the rent cap. Due to the rental rate regulations passed in 2020, which were declared invalid by the Federal Constitutional Court in 2021, many apartments had to be rented cheaper (Sagner/Voigtländer, 2022). However, rents are now gradually being adjusted again, so that calculated affordability can drop quickly again.

General development since 2018

A look at development nationwide shows that in nearly 75 percent of counties, the affordability of middle-income earners has fallen; In the case of low-income people, this is the case in 70 percent of the counties. Affordability fell particularly sharply in the regions of southern Germany and Brandenburg, while housing became affordable in some regions of East Germany. Basically, there are bottlenecks in both the labor market and the housing market, which is why rents and wages are rising. In large parts of eastern Germany, the supply of housing is still relatively large relative to the demand, which is why rents are rising more slowly. On the other hand, wage increases are sometimes too high in order to retain or hire skilled workers. In southern Germany, on the other hand, production figures for residential construction are sometimes well below demand, so rent increases are higher than wage increases (cf. Henger/Voigtländer, 2021). Big cities are in a special situation. Rents there have risen less sharply in some cases, firstly because many families have already exhausted their ability to pay and because the Corona epidemic has increasingly led to evasive reactions, for example through the increased search for apartments in the surrounding area – rents have increased in particular . In the past three years sharply. At the same time, wages in the big cities have risen disproportionately due to above-average economic development in the big cities.

Changes caused by the energy crisis

The data reflect the development until the end of 2021. Since then, the world has changed dramatically, mainly due to the Russian war of aggression against Ukraine. One of the main economic consequences is the increase in inflation and, in particular, the sharp increase in energy costs. Preliminary estimates assume that heating costs for gas customers could increase by about 65 cents per square meter in 2022, although large variations may exist depending on the energy efficiency standard (see Rürup, 2022). More significant increases can be expected for 2023 due to contract modifications. At the same time, the purchasing power of households declines because wages grow more slowly than general consumer prices. This development affects tenants with valid lease contracts who are looking for a new apartment. The increase in heating costs has a direct impact on the affordability of living space, because tenants are guided by the total costs of the apartment. So maybe apartment seekers would prefer to order smaller apartments, because energy costs are generally cheaper here. In residential markets where the situation is more relaxed, rents for smaller apartments are likely to rise as a result, while larger apartments and non-refurbished single-family homes are likely to become less attractive. There will also be demand shifts in major cities with particularly tight markets, but many families there will hardly be able to switch to smaller apartments, and rental dynamics are likely to increase again, as preliminary data from vdpResearch (2022) already shows. Thus the social consequence will be that many people will not be able to move, and this is especially true of young workers and students as well as families with young children. As a result, overcrowding in apartments is likely to increase significantly, a trend that has also intensified in recent years.

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