Why do Germans Love Renting?
Germany is a unique country. It seems few of its 83 million citizens are interested in buying a home. They prefer renting. Compare that to the US or Australia, where the obsession for ownership borders on an inalienable right.
In Germany, particularly the Berlin property market, they seem quite content to rent vs buy. The trend to renting has many reasons (listed below), and an obvious one evident in other major rental markets is the concentration of businesses, jobs and people in urban areas. London, Paris, San Francisco, New York have similar characteristics.
Given a lower supply of houses for sale, they almost have to rent in Germany, yet many of them actually prefer the lifestyle and benefits of renting.
So Many Reasons to Prefer Renting in Deutschland
Demographic, immigration, business and career needs, urbanization and high density housing mandates, overcrowding, lack of construction, rent controls, and cost trends might all be conspiring to turn the world into a renter nation. Germany is no exception. German attitudes about renting are unique too. Just over half of German voters seemed to believe they can legislate lower rents take rental units away from the major landlord in the country.
Most other countries in Europe will be experiencing the same trends so it’s good for investors to investigate the German rental property market.
Germany’s Low Home Ownership Rate
Germany has one of the lowest homeownership rates in the industrialized world, just behind Switzerland which is well known for its very pricey real estate, and property ownership laws. According to GZ.com, only 43% of Germans own their own home, a rate just higher than California in the US.
The Swiss are simply priced out of their housing markets, but are the Germans similarly facing dire unaffordable conditions?
The truth may be that both renting or buying is quite pricey and the rising cost of living isn’t helping. Themayor.eu reports that rent prices have been falling of recent which may affect the kaufen vs mieten decision.
The trend to renting vs buying is evident in most countries, and particularly across Europe. The reason is fairly obvious in the lack of land for lower density housing types to be built in cities, and the high cost in taxes, construction, and discouraged investors who are risking their capital in building rent controlled rental apartments.
It’s clear that Germans feel differently about laying out hundreds of thousands of Euros to buy a property. For those who wish to buy, the price challenge is great.
There are a lot of rental units in Germany and plenty of Hausverwalters. It’s a mom and pop industry that is only gradually adopting hausverwaltungssoftware to manage them.
Rents are Still Affordable but for How Long?
What’s important to note about German rent prices is that they’re still low compared to the UK, Switzerland, France, Italy, Denmark, and the Netherlands. The cost of living in Germany is surprisingly high yet not nearly as high as London, Oslo, Paris, Amsterdam and other major Northern cities.
So what is it that makes Germans continue to prefer renting to buying?
Is it Just the Low Rent Prices?
It seems Germans been given a pretty sweet incentive to rent including price caps for landlords and developers.
The German government doesn’t really encourage buying. There are less tax breaks available for buying homes for buyers or developers so building for purchases hasn’t made sense.
A Guarantee of Low Rents
There has been plenty of rental apartments for rent, although supply is tightening up and causing prices to rise, which has created a backlash against the big property landlords in the country. The belief in socialism may come into play too as some may fear capitalism will only lead to nightmarish increases and ultimately poverty for renters.
Deutsche Wohnen, the second largest rental property landlord in Germany conducted its own survey of their tenants. They discovered their tenants very satisfied with their rental situation. In fact, from 2017 to 2019, those who were very satisfied with their rental home and living almost doubled.
Of course, the recent moratorium on confiscating their properties (and LEG’s and Vonovia’s properties) ruled that their portfolio should be purchased by the government and turned into public housing has them back on their heels. That legislation isn’t legally binding however, so it’s not known what they outcome of that referendum will be.
Will making their rental portfolios publicly owned solve Berlin’s housing cost crisis? Likely, it won’t as more people move to the cities where the rentals are. Having the government purchase them and rent at a loss could put the government in a tough financial situation.
Summary of why Germans Might Love Renting
- easier, more convenient lifestyle in the cities where rentals and their jobs are located
- rents are relatively low due to controls
- supply issue: buying requires a lot of money and there aren’t sufficient houses for purchase
- lots of rental properties available
- special laws exist to let renters pass on their rental unit to a friend
- they seem happy with renting an apartment/condo
- renting allows mobility and tech workers may not be interested in buying
- they believe rent prices are guaranteed to be low and they’ll use the government to make it so
Perhaps this is a trend we might see globally with overcrowding, construction costs and limited land available, and now with the likelihood of rising interest rates.
It seems Germans may like the financial ease, lifestyle, and feeling of protection from rising rent prices that they enjoy. And a few enjoy what is called a Nachvertrag where renters can sign a friends rental contract and have the low rent price preserved and where the lease is continued.
Young Germans Like the Urban Lifestyle
Cities such as Berlin are a big draw due to the appealing, convenient, modern lifestyle, not available in rural Germany. The city offers plenty of benefits in socializing, education and high tech work opportunities. With such demand in a limited area, we can see why rental properties are popular.
Most renters in the city of Berlin however don’t have it so easy. In fact the 85% of Berliners who rent are facing fast rising prices. FT.com in their report stated that Berlin renters pay on average, 62% of their net income on rent. And for anyone considering moving to Berlin, such as International students, the overall costs can be too much to bear.
With the expected population growth in Berlin and its housing shortage situation, it looks like some contentious years are ahead for its politicians. The political and investment circumstances here may be discouraging construction of new housing of any kind.
For small business “Hausverwalters and Vermieters,” the situation is a challenging one although it’s unlikely they will face a shortage of tenants.
Germany rental and property laws are complex and it is wise to have a German-based and experienced Hausverwalter to help you manage your rental. Learn more about how to choose a property manager in Berlin and how to buy a rental property in Germany.
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