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Blog | 29. Juli 2016

TREND: LIVING IN THE CITY

Life in the city continues to attract more and more people. The lively, big city atmosphere is just outside the front door – an abundance of culture, countless shops, and a public transport system that makes it possible to live without a car. And that’s not to mention the extended career opportunities that also serve to make life in a big city so attractive. While small towns and rural areas are grappling with the serious issue of depopulation, which has left so many apartments empty, big cities can’t seem to stop growing, including Germany’s capital and biggest city, Berlin. In just two years, from 2012 to 2014, Berlin gained some 135,000 new residents; by 2030 the population is expected to add another 266,000 as it climbs to 3.8 million. This development has consequences for the residential property market. This large-scale flight to the city means that living space is becoming scarce. Over the last five years there have been some enormous price increases for apartments, both for renters and buyers. A major factor behind these developments is the fact that Germany’s biggest cities have not been building anywhere enough apartments. It has become increasingly difficult to find available properties in metropolitan areas – yet that has not taken any gloss off the attractiveness of big city life.

 

LIVING IN THE CITY HAS BECOME CHEAPER, EVEN FOR HIGHER EARNERS

In principle, it is more expensive to live in a big city, simply because housing costs are higher. Although, in real terms, rents and purchase prices have actually become more affordable in most big German cities since 2010. Net cold rents have fallen in relation to purchasing power in almost all of Germany’s big cities – only Berlin and Stuttgart stand out as exceptions. In these two cities, rents have risen faster than incomes, as researchers at the Cologne Institute for Economic Research (IW) found out. This corresponds with the latest results of the Housing Affordability Index, which the institute created for Germany’s biggest cities to compare rental and purchase prices with the purchasing power in each of the cities.
The results for Berlin show that rents have become more expensive since 2010 – both, when compared to the cost of living in other major cities, and in comparison to the national average. Housing in Berlin costs 21.4 percent of the average household’s purchasing power, ranking the city 10th among the most expensive cities.

 

BUYING AN APARTMENT IS CHEAPER THAN RENTING ONE

In contrast, buying an apartment is becoming ever more affordable. The price advantage when purchasing an apartment, as opposed to renting one, has increased by about a third over the last five years. The primary reason for this is that interest rates are so low. Rates have halved since 2010, overcompensating for the increase in condominium prices, even in the biggest cities. As a result, the affordability of living space in big cities has increased considerably, a situation that is not set to change any time soon. The financial world isn’t predicting a rise in interest rates, even in the medium term. In Berlin, the much improved Housing Affordability Index (which fell from 112.9 to 91 percent) reflects this development. What is true for the cities Hamburg and Frankfurt, also applies to the capital: Even without the predicted increase in the value of the land, it is still cheaper to buy an apartment rather than renting one in these big cities.

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Blog | 29. Juli 2016

TREND: LIVING IN THE CITY

Life in the city continues to attract more and more people. The lively, big city atmosphere is just outside the front door – an abundance of culture, countless shops, and a public transport system that makes it possible to live without a car. And that’s not to mention the extended career opportunities that also serve to make life in a big city so attractive. While small towns and rural areas are grappling with the serious issue of depopulation, which has left so many apartments empty, big cities can’t seem to stop growing, including Germany’s capital and biggest city, Berlin. In just two years, from 2012 to 2014, Berlin gained some 135,000 new residents; by 2030 the population is expected to add another 266,000 as it climbs to 3.8 million. This development has consequences for the residential property market. This large-scale flight to the city means that living space is becoming scarce. Over the last five years there have been some enormous price increases for apartments, both for renters and buyers. A major factor behind these developments is the fact that Germany’s biggest cities have not been building anywhere enough apartments. It has become increasingly difficult to find available properties in metropolitan areas – yet that has not taken any gloss off the attractiveness of big city life.

 

LIVING IN THE CITY HAS BECOME CHEAPER, EVEN FOR HIGHER EARNERS

In principle, it is more expensive to live in a big city, simply because housing costs are higher. Although, in real terms, rents and purchase prices have actually become more affordable in most big German cities since 2010. Net cold rents have fallen in relation to purchasing power in almost all of Germany’s big cities – only Berlin and Stuttgart stand out as exceptions. In these two cities, rents have risen faster than incomes, as researchers at the Cologne Institute for Economic Research (IW) found out. This corresponds with the latest results of the Housing Affordability Index, which the institute created for Germany’s biggest cities to compare rental and purchase prices with the purchasing power in each of the cities.
The results for Berlin show that rents have become more expensive since 2010 – both, when compared to the cost of living in other major cities, and in comparison to the national average. Housing in Berlin costs 21.4 percent of the average household’s purchasing power, ranking the city 10th among the most expensive cities.

 

BUYING AN APARTMENT IS CHEAPER THAN RENTING ONE

In contrast, buying an apartment is becoming ever more affordable. The price advantage when purchasing an apartment, as opposed to renting one, has increased by about a third over the last five years. The primary reason for this is that interest rates are so low. Rates have halved since 2010, overcompensating for the increase in condominium prices, even in the biggest cities. As a result, the affordability of living space in big cities has increased considerably, a situation that is not set to change any time soon. The financial world isn’t predicting a rise in interest rates, even in the medium term. In Berlin, the much improved Housing Affordability Index (which fell from 112.9 to 91 percent) reflects this development. What is true for the cities Hamburg and Frankfurt, also applies to the capital: Even without the predicted increase in the value of the land, it is still cheaper to buy an apartment rather than renting one in these big cities.

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