The combination of a lack of housing and high construction costs is causing rents in Germany to continue to rise despite falling property prices.

In the first quarter, residential properties in Germany were 4.3 percent cheaper than a year earlier, as the Association of German Pfandbrief Banks (vdp) announced in Berlin. Rents in apartment buildings, on the other hand, rose by 5.6 percent – this number refers to newly concluded rental agreements, not existing rents.

There is therefore no end in sight to the unpleasant trend for tenants: “There is immense pressure on the rental housing market,” said Managing Director Jens Tolckmitt. “Demand far exceeds supply.”

Purchase prices fell the most in Munich

Housing construction has become very expensive in recent years because both loan interest rates and the actual construction costs rose sharply. As a result, both housing construction figures and demand from potential property buyers collapsed, resulting in lower purchase prices.

According to the Pfandbrief Bank Association, the biggest decline occurred in Munich, Germany’s most expensive city: in the Bavarian capital, purchase prices fell by 5.3 percent within a year.

However, as the slump in construction activity is exacerbating the housing shortage, rents are continuing to rise. The Pfandbrief banks do not expect any improvement for the time being: residential properties would remain in short supply for a long time, with the corresponding consequences for the further development of rents. However, the association does not expect any further major declines in the purchase prices for residential properties, but rather a gradual stabilization.

Business data from over 700 banks

The commercial real estate market for offices, shops and the like is different: year-on-year prices fell by almost ten percent. Tolckmitt still does not see the “bottoming out” that many companies active in the commercial real estate market are hoping for, but rather expects further declines.

According to the association, the calculations are based on business data from over 700 banks for real estate financing, not on purchase and rental offers, which are otherwise frequently evaluated.