The rent price spiral is turning – and apparently at an increasing speed. According to a study by the German Economic Institute (IW Cologne), new contract rents across Germany have recently risen sharply. Anyone looking for a rental apartment in the fourth quarter of 2023 had to pay 5.3 percent more than a year before. This emerges from the IW residential index, for which the authors say they evaluated millions of residential advertisements
Inflation has even accelerated recently. Compared to the previous quarter alone, the increase in rental prices was 1.6 percent. Compared to the beginning of 2022, new contract rents have increased by 8.7 percent. “Since the beginning of the high inflation phase in the first quarter of 2022 and the rise in interest rates for real estate loans, there has been an increased dynamic in new contract rents,” write the IW economists. “This appears to have increased again at the end of 2023.”
Rents rose particularly sharply in some metropolises. In Berlin, new contract rents exploded and rose by 9.2 percent within a year, in Leipzig it was 7.8 percent more and in Munich 7.3 percent. The increase in Hamburg is comparatively moderate at 4.7 percent.
The sharp price increases are not limited to the metropolises. According to IW, rents also rose by an average of 5.5 percent in the areas surrounding the seven largest cities. And in rural areas far away from big cities, rent increases averaged 5.2 percent.
Source: German Economic Institute; *New contract rents Q4 2023 compared to Q4 2022
What economists write about the development of real estate prices is also noteworthy. While rents have been rising for two years, property purchase prices have fallen slightly since the interest rate turnaround at the beginning of 2022. According to the IW analysis, this phase has now come to an end. The purchase prices for one- and two-family homes and condominiums in the fourth quarter of 2023 were lower than a year earlier, but slightly higher than in the third quarter. “The results of the IW residential index indicate that purchase prices are bottoming out and the moderate price adjustments have ended.”
Regardless of this, the IW experts expect the situation for rents to worsen further in 2024. Finding affordable housing remains a challenge both in urban centers and in less central, rural regions. “The shortages on the rental housing market will not be alleviated in 2024, on the contrary, lower completion figures are to be expected.”
