High interest rates in Germany push more people into renting

Corinna moved into the small one bedroom apartment her husband was renting right after they married. But now that two are three, they have been looking for a bigger place.

"Our son is almost ten years old. He needs his own room" Corinna explains to CGTN.

They are hoping to stay near his school and their places of work in central Munich - but after three years of searching for something they can afford, they are now having to reconsider. The rental market across Germany has been experiencing what many are calling an "unprecedented" surge in demand, with prices soaring in most major cities.

For instance, rental prices in the country's most expensive city Munich, hovered around $18 per square meter at the end of 2020. Today the average is $22 per square meter. The same is true for the capital Berlin where apartments go for roughly $15 per square meter, up from $11 just three years ago.

This is hitting people like pensioner Regina Lehmann hard. She is living in the suburbs of Berlin paying around $650 for rent a month. But a recent letter from her landlord tells her that her rent will increase by $14.50 monthly.

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"Everyone I've spoken to has had their rent increased," she says. "Some by 20 euros ($22), some by 40 ($44). But I doubt they (landlords, developers) will be satisfied with that price for long and if we pay, the rent will soon go up again."

Back in Munich, tenant Anupama Jopara has been paying an additional $55.50 per month since the start of 2023.

"Rents are going up, up, up, but salaries are not," says Anupama.

According to Stephan Kippes, Professor of Real Estate at Nurtingen-Geislingen University, the reason for these dramatic increases is two fold, "about two years ago we had a strong market for the sellers of real estate. The prices for buying flats went up. And then the interest rates changed."

This is when the conflict in Ukraine began - driving inflation and Germany's central bank to drive up interest rates by some 400% to combat that inflation.

"This led to problems" Kippes continues. "Many buyers are no longer able to afford buying properties at the moment and go to rentals and so the market for rentals is even more difficult."

"Difficult" not only for the prices but for the supply. Experts say that some 700,000 more homes are needed in order to meet current demands.

Despite both state and federal governments initiating new development targets, those high interest rates and inflationary raw material costs have caused some developers to claim bankruptcy.

Kippes suggests "increasing flats for employees" of the big companies as was done in "former times would be very helpful. The government could also increase social housing and a tax break for those developers who are building new houses."

But he warns that "there is no quick fix. We have to use a number of different measures to get this under control."

Therefore, the rental market across Germany is likely to remain high for some time, while supply is short and demand is increasing.

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