Unlike property-obsessed Britons, Germans have traditionally preferred to rent rather than buy. But in recent years they have been making up for lost time.
In the past five years, prices for flats in Berlin, Hamburg and Munich have jumped by 40%-50%, according to one index. In Germany as a whole, the average house price has risen by 31% in five years. So what’s going on?
Jitters over the future of the euro in the past few years have spurred a rush into ‘real’ assets, such as housing. There have also been fears, so far unjustified, of a surge in inflation following the European Central Bank’s liquidity injections into the European economy.
Historically low interest rates have also been a factor in the “concrete gold rush”, as the Germans refer to the trend, says Claire Jones in the FT.
Investors from other European countries have also poured money into the eurozone’s largest country. German demographic trends have played a part too, with more singletons wanting flats in cities and families staying in town rather than face thickening traffic on a commute.
But talk of a bubble looks overdone. Outside the cities, the pace of price rises remains sedate, with nationwide prices expected to rise by 3% this year and next. German housing also remains undervalued measured against both rents and household income, notes Economist.com.
Supply is rising rapidly in response to demand in Berlin, adds Olaf Storbeck on Breakingviews, as the German market is unfettered by the UK’s “ultra-tight planning restrictions”.
Finally, the Bundesbank is also far less complacent than the Bank of England about rising property prices.