New housing estate near Munich ©Peter Kneffel

Sharp rise in housing prices in 2018

According to Bundesbank data, housing prices in Germany showed a further sharp rise last year. The Bundesbank’s experts find that this was increasingly affecting housing outside the urban conurbations. “While there was something of an easing of the still very strong upward pressure on the prices of housing in German towns and cities, property prices outside the urban areas were going up at a faster pace than in the years before,” the authors write in the latest Monthly Report.

Demand driven by positive outlook for jobs and incomes

Last year, too, much of the ongoing strong housing demand was, according to the Bundesbank, due to households’ positive outlook for incomes and the extremely favourable conditions on the labour market. By contrast, the fact that 2018 saw hardly any increase in rates of interest on loans for house purchases meant that no additional price-driving impulse was generated through relief for households when purchasing residential property.

Although the additional supply of housing last year grew to a considerable scale, it was still unable to keep pace with the ongoing strong demand, the Bundesbank finds. This was evidently also due in part to a growing interest in housing outside towns and cities.

Some of the demand for housing is shifting to the surrounding areas

According to the Monthly Report, in both the cities overall and the sub-sector of the seven big cities, owner-occupied apartments continued to generate the strongest impulses, even though price dynamics in this hitherto extremely attractive segment were weakening slightly. Housing prices in urban areas increased noticeably more strongly than in previous years, however. As the Bundesbank’s experts explain, in view of what is now the extremely high price level for owner-occupied apartments and houses in towns and cities, the fact that part of the demand for housing shifted to the surrounding areas and that prices were tending to increase more strongly there is consistent with the overall picture.

According to the Monthly Report, the Bundesbank also observed a regional broadening of developments in housing rents. For example, the rise in rents for new tenancies in both the big cities and in towns and cities as a whole was more moderate than in 2017. Outside the urban areas, however, rents went up noticeably more strongly than in the previous year.

Residential property prices in German towns and cities

The Bundesbank’s experts identify continuing price exaggerations in urban areas. “While price dynamics, from a macroeconomic perspective, were largely consistent with developments in the supply and demand-side variables, housing prices in towns and cities were still well above the level that appears justified by the longer-term economic and demographic determinants,” write the economists. They estimate upward price deviations for towns and cities at between 15% and 30%. Standard indicators such as the ratio of property purchase prices to annual rents point to continuing marked price exaggerations on the urban housing markets.

According to Bundesbank figures based on bulwiengesa AG data, prices for urban residential real estate in 2018 went up by 8½%, which was an increase on much the same scale as on an average of the previous three years.  The same goes for the price dynamics of housing in Berlin, Cologne, Düsseldorf, Hamburg, Frankfurt am Main, Munich and Stuttgart. Prices in these seven big cities rose by 9½% in 2018.