German rents aren't the real problem

A closer look at the data reveals something surprising about German housing costs

The notion that rising rents are the great social problem facing Germany today has become so cemented in the public consciousness that it is no longer even questioned. 

After the Constitutional Court overturned Berlin’s rental cap last week thousands of people took to the capital’s streets to demand an end to the Mietenwahnsinn. Meanwhile political commentators demanded that the federal government now act to halt spiralling rents.

The claim that rents have gone up by up to 50 percent in some cities is repeated like a mantra throughout the national press.

Look a little closer at the data though and you see a rather different story. 

Germany’s problem is not out-of-control living costs - in fact they’ve stayed boringly stable over the past decade - the real problem is a shortage of housing in the big cities.

Data published by Destatis, the national statistics agency, shows that housing costs as a percentage of household income have actually dropped steadily over the past decade.

This decrease has disproportionately benefited the middle classes, whose living costs have slipped from 27 percent of household income in 2009 to just 22 percent today. Among the poor, the benefits have been much more marginal, with living costs dropping from 51 percent to 49 percent of income.

An analysis by the Institut für Wirtschaft (IW) has come to much the same conclusion.

It found that living costs increased considerably in the 1990s but have remained more or less constant ever since.

What accounts for this wide gap between public perception and reality?

According to the IW, the media’s stubborn gaze at online rental adverts obscures several key factors. Most importantly, real wages have risen strongly and unemployment has hit historic lows during tens years that saw the most sustained economic growth since the Wirtschaftswunder.

Like what you’re reading? Sign up for news into your inbox every Tuesday and Friday!

Additionally, the focus on new lets disguises the fact that most Germans are sitting on contracts that were signed before the recent rise in prices.

While the report did find evidence that people moving into a new property now have to make do with less space, this merely represents a return to a level last seen in 2006, hardly a descent into Dickensian squalor.

A Destatis survey actually shows that people feel less stressed about the impact of living costs on their finances today than they did ten years ago.

“Is housing the social issue of our time? A review of the numerous statistics and analyse shows the answer to be negative,” the IW report concluded. 

“It is true that there are households that are experiencing a noticeable increase in housing costs. But, in terms of numbers, this group is too small to derive a social issue for society as a whole from it.”

For those struggling, a simple adjustment of the level at which the entitlement to housing benefits kicks in could make a big difference, the report concludes.

Where the problem really lies is in a shortage of housing stock in the big cities.

In one sense, German officialdom can’t be blamed for this. Fifteen years ago the country’s aged population was supposed to shrink. Headlines at the time focused on the allegedly dire consequences of an over supply of housing.

But then several unexpected events took place. Germany’s economic boom attracted young people from the struggling European south. Then the refugee crisis put further pressure on the housing market. Meanwhile the hype around Berlin in particular meant that young Germans and international hipsters flocked to the capital.

Planning processes couldn’t keep up with the surge in demand. This issue was exacerbated by the fact that cities had cut back on city planners in the previous decade, meaning it took ages before projects received approval.

Add to that the long list of requirements that modern buildings need to meet, both in terms of environmental standards and access - and construction is considerably more complicated than it used to be.

While experts warn about a lack of solid data, the strain on housing stock seems to have pushed up homelessness. In North Rhine-Westphalia for example, the number of people who are counted as homeless has doubled over the past decade.

There are signs that this problem may solve itself - to an extent. In 2020, for the first time in over ten years, Berlin and other major cities stopped growing. While it is too early to tell whether this was just a corona-blip or the start of a new trend, the urban dream seems to be over; a simple life in the provinces is back in fashion.

In its report, the IW urges the government to relax its strict building regulations for what it calls “simple apartments”. These are structures that are not built to last. They can pick up the slack when there is a sudden surge of people towards particular cities but won’t leave empty ghosts towns behind when fashions change, à la East German Plattenbau.

At any rate, the solution to the real housing crisis doesn’t seem to lie in capping rents.


Like what you’re reading? Sign up for news into your inbox every Tuesday and Friday!

Who we are:

Jörg Luyken: Journalist based in Berlin since 2014. His work has been published by German and English outlets including der Spiegel, die Welt, the Daily Telegraph. Formerly in the Middle East. Classicist; Masters in International Politics & Arabic from St Andrews.

Axel Bard Bringéus: Started his career as a journalist for the leading Swedish daily Svenska Dagbladet and has spent the last decade in senior roles at Spotify and as a venture capital investor. In Berlin since 2011.