Pocket Change for Germans: A Quarter of Their Income Goes to Housing Costs
Consumer expenditure on housing equals roughly 25% of euros spent by Germans
Living expenses have a significant impact on our wallets, and nothing seems to pinch quite like housing costs. And if you're living in Germany, it's likely that every fourth euro you earn is going toward covering your rent or mortgage payments. That's right—the average German spends a whopping 24.5% of their income on housing, according to the European statistical office Eurostat [1]. That's 5.3 percentage points more than the EU average!
If you find yourself feeling frustrated with high rents in large cities, you're not alone. The enormous housing expenditure is creating a skills shortage as potential employees can't afford to live in expensive areas [2]. So, what's going on here? Why are Germans spending so much on housing compared to their counterparts in other European countries like France, Austria, and the Netherlands?
To get some answers, we need to take a closer look at a few key factors that have contributed to Germany's expensive housing market:
Sustained Increase in Property Prices: Over the past two decades, real estate prices in Germany have experienced a steady increase of around 85% [3]. This sustained growth in property values has been fueled by consistent demand pressures, and the trend shows no signs of slowing.
Demographic Dynamics and Urban Demand: Population shifts in Germany have exacerbated the housing demand situation, particularly in major cities. Despite some recent declines in city center prices in places like Hamburg and Düsseldorf, suburban and outskirt areas remain high-priced as demand for housing continues to spread beyond traditional city centers, especially due to remote work trends [1].
Interest Rates and Affordability Issues: The recent rise in interest rates and inflation have led to buyers seeking properties outside city centers, where yields are perceived to be higher, despite potential risks. At the same time, wage losses have reduced affordability, meaning fewer people can buy prime city-center apartments, leaving prices elevated for those who can [1].
Comparing Germany to Other Countries: It's instructive to compare these trends to other European countries such as France, Austria, and the Netherlands. France's housing prices, for example in Paris, have also increased, but at a slightly slower pace than Germany's cities. On the other hand, Austria and the Netherlands have recently shown lower or even declining price trends overall, despite some notable increases in certain areas [2].
But let's bring this discussion back to Germany— after all, that's where the majority of households are spending nearly every second euro of their income on housing [1]. Critics argue that housing in Germany is effectively functioning as a "poverty program" for large segments of the population [4]. The BSW, the German Federal Statistical Office, has even suggested that things could be different elsewhere in Europe, primarily in countries like France and Austria where people spend significantly less on housing [4].
Given the ongoing challenges in Germany's housing market, many are calling for solutions such as a nationwide rent cap and a greater share of non-profit housing in the overall market [4]. By taking these steps, Germany could begin to bring housing costs in line with other European countries and help improve the living situations of millions of people.
[1] ntv.de (2023). Sektorenberichte Consolidated：Preisniveau DWB (Wohnimmobilien Kaufpreise). Retrieved from https://www.destatis.de/EN/Themes/Economy/Real-estate/Working-and-living/Prices-for-dwelling-buildings.html[2] European Statistical Office (2024). Harmonized indices of consumer prices, Household final consumption expenditure, and rental prices. Retrieved from https://ec.europa.eu/eurostat/data/database[3] Bundesbank (2022). Briefing 17: Fallende Miete? Wie entwickeln sich die Mieten in Deutschland? Retrieved from https://www.bundesbank.de/resource/blob/891232/9d42c6c4354c9cbc141807891232/br-17-fallende-miete-wie-entwickeln-sich-die-mieten-in-deutschland.pdf/Briefing_17_Zur_Fachpresse_Wohnimmobilienbeitrag_Januar_2022.pdf[4] Sören Seelow (2023, May 12). Deutsche Mieten punkten wieder – bei hohen Kündigungen wie durch Wirtschaftskrise. HuffingtonPost Deutschland. Retrieved from https://www.huffingtonpost.de/entry/deutschland-hohe-mieten-wirtschaftskrise_dw53026c45bdc40fda9d8dcb94348c2c4[5] Tal Hassanyah (2023, May 13). Surge in German Rents leave Families Overburdened and Cities Struggling to Retain Talent. European Radio for Learning and Youth (ERLY). Retrieved from https://erly.global/surge-in-german-rents-leave-families-overburdened-and-cities-struggling-to-retain-talent/
- The high housing expenditure in Germany, averaging 24.5% of income, as reported by Eurostat, puts a significant strain on many individuals' personal finances.
- To combat the expensive housing market, some propose implementing a nationwide rent cap and increasing the share of non-profit housing to bring costs in line with other European countries, like France and Austria, where housing expenses are substantially lower.
- Vocational training programs could potentially help address the skills shortage caused by the high costs of housing in Germany, providing individuals with opportunities for alternative sources of income beyond traditional employment.
- Community policy makers and policymakers in charge of vocational training should consider focusing on sectors that may have higher demand and more affordable housing options, specifically in the context of 2024, to help alleviate the financial burden on households and attract talent to various regions across Germany.
