Housing: DIW: Rents will rise sharply in 2024 – hardly any vacancies

Rents in many German cities have also risen sharply this year. On average, they rose by around four percent in both existing and new buildings, as shown by an analysis by the German Institute for Economic Research (DIW), which is available to the German Press Agency. Since 2010, net rents have increased by a total of 64 percent.

According to DIW, purchase prices continued to fall on average in 2024. Building plots, homes and condominiums are on average five percent cheaper than in 2023. However, there are signs of a change here, wrote the institute, which evaluated data on purchase and rental transactions from the real estate association IVD in more than 150 German cities. Small towns with a few thousand inhabitants up to metropolises were analyzed.

Purchase prices have been rising again since the middle of the year, as DIW economists Konstantin Kholodilin and Malte Rieth write. The reason for this is probably the recent fall in loan interest rates and the high demand for living space from a growing population, while supply remains tight.

This was also shown by the “historically low vacancy rates”. They have fallen sharply since 2022 and are on average 2.5 percent. In large cities they are even lower: in Berlin, for example, the vacancy rate is one percent. Even if the rate is below three percent, a housing market is considered tense.

As interest rates rose, the long real estate boom in Germany came to a standstill in 2022. According to the Federal Statistical Office, purchase prices fell by around eight percent last year.

Purchase prices have fallen, especially in large cities

Compared to their peak in 2022, prices for single-family homes fell particularly sharply (by a good eight percent), followed by building plots and condominiums, wrote the DIW. The declines in real estate and building land were greatest in large cities: here prices fell by an average of 13 percent, and for single-family homes in medium locations by as much as 16 percent. Despite the declines, building land, single-family houses and terraced houses are still around twice as expensive as the national average before the boom began in 2010, according to the DIW. For condominiums it is 117 percent.

“The falling prices in the meantime cannot hide the fact that the real problem of the housing shortage continues,” wrote economist Rieth. Fewer than 300,000 new apartments were built in 2023 and forecasts for this year offer little hope. “The new federal government must therefore urgently put it on its agenda to counteract this through public construction and by simplifying procedures and regulations.”