Germany was long regarded as a country of moderate rents. But in recent years the picture has changed: rents have skyrocketed in all major cities, with tenants in Munich now having to shell out over €20 per square meter.
This is shown by a ranking from the research institute Empirica, which analyzed the initial rental prices in 80 selected cities. The focus was on existing apartments from the last 10 years with an area of 60-80 square meters.
Where exactly are the causes for the exorbitant rise in rental costs?
Mass migration to the cities
A major driver of the explosion in rental prices is the ongoing rural exodus. More and more people are moving to the cities - between 2009 and 2019 alone, the population of the ten largest German cities rose by an average of 8 percent.
At the same time, new housing construction remains at too low a level in many regions, so that high demand meets scarce supply. This drives prices up.
Berlin: No other city saw such a large population increase in the 2010s as Berlin. Over 400,000 people were added - thus the population rose by 11.7 percent. Accordingly, rent increases have been severe.
Exploding construction and property costs
Closely linked to the influx into cities are the massively increased construction and land costs. Building land has now become scarce - and correspondingly expensive. This affects both housing companies and private home builders.
According to an analysis by the German Economic Institute, prices for residential building land increased by more than 60 percent between 2010 and 2020. The rising land prices inevitably affect rents.
At the same time, the actual construction costs are exploding: Material shortages, sharply rising energy and personnel costs as well as the requirements for climate protection and accessibility cause construction costs to rise further. All of this is reflected in higher rents.
Munich: In the Bavarian capital, the German leader in rental prices, land prices for apartments alone nearly doubled between 2016 and 2022.
Index and graduated rental agreements
Part of the exorbitant rent growth in major cities is also due to the increasing prevalence of index and graduated rental agreements.
With index rents, the rent level is linked to inflation, with graduated rents, annual rent increases are set in advance - regardless of the cost of living development.
According to a study by Empirica, in 2021, already every fourth new rental agreement in Germany had an indexation. In cities like Munich and Stuttgart, experts say almost every second new rent is indexed!
Tenant associations have long railed against this type of rental agreement. They would additionally drive up rents that are already rising sharply.
Speculative bubbles in the real estate market
Not only real economic factors are driving the explosion in rents, but also irrational exaggerations in the real estate market. As with speculative bubbles in equity markets, housing prices now far exceed their real value.
For example, nationwide, purchase prices for condominiums more than doubled between 2010 and 2021 (+114 percent), while rents only rose by 36 percent.
Such extreme price increases can no longer be explained by market fundamentals - it is a classic speculative bubble. If it bursts, rents also threaten to get caught in the downward spiral.
Frankfurt: In hardly any other city is the gap between purchase prices and rents as wide as in the banking metropolis. The Bundesbank recently found an actual overvaluation in the market of 30 to 40 percent.
Top 10 most expensive cities in Germany
10th place - Cologne: €14.50 per square meter
With an average of €14.50 per square meter, the Rhineland metropolis of Cologne takes 10th place. More than a million people live in Cologne - and rising. By 2040, experts expect over 1.2 million inhabitants.
"We have an extremely tight housing market, there is practically no supply. In relation to the housing stock in Cologne, the rental supply is negligibly small," explains real estate agent Roland Kampmeyer about the situation.
The municipal housing company GAG Immobilien AG also raised rents in 2023 for over 1,000 apartments.
9th place - Hamburg: €14.68 per square meter
In Hamburg, tenants pay an average of €14.68 per square meter for new rentals - almost €3 more than at the beginning of 2016. According to the Hamburg rent index, existing rents rose by 5.8 percent between 2021 and 2023.
However, critics complain about the calculation method of the rent index. Instead of the more robust median, the arithmetic mean was calculated, which is more prone to outliers upwards.
8th place - Potsdam: €14.89 per square meter
The capital of Brandenburg state, Potsdam, lands at number 8 with €14.89 per square meter. The housing situation is more than tense - the city itself speaks of practically no vacancies. Accordingly, it is extremely difficult to find affordable housing in Potsdam.
Although many new apartments are currently being built, supply is still lagging behind ever-increasing demand.
7th place - Mainz: €14.98 per square meter
Slightly more expensive than Potsdam is Mainz, the capital of Rhineland-Palatinate. Here, tenants had to shell out an average of €14.98 per square meter for new rental contracts in the 3rd quarter of 2023.
In 2019 it was still significantly lower at €12.33 - which earned Mainz 5th place in the ranking at the time. The dynamics of rental price increases thus remain high.
6th place - Heidelberg: €15.84 per square meter
The university town of Heidelberg is a newcomer to the top 10 with an average of €15.84 per square meter for new rental contracts. Despite already very high prices, more and more students continue to flock to the city, further increasing demand for affordable housing.
In Heidelberg's new passive house district Bahnstadt, a rent cap of 67 percent of the standard local comparative rent applies to 54 of the 206 apartments.
5th place - Stuttgart: €15.98 per square meter
With €15.98 per square meter, Baden-Württemberg's state capital Stuttgart takes 5th place in the ranking. The mismatch between average income and rental costs is particularly glaring: in Stuttgart, tenants have to spend an average 29 percent of their net income on gross rent.
4th place - Freiburg: €16.72 per square meter
The university town of Freiburg ranks 4th among Germany's most expensive cities at €16.72 per square meter. Like Heidelberg, Freiburg benefits on the one hand from its strong appeal to students and young academics, which further drives demand for housing.
On the other hand, there is virtually no more vacant housing in Freiburg - between 0.1 and 0.3 percent of apartments are vacant. Accordingly, the supply of vacant apartments is extremely low.
3rd place - Frankfurt: €17.38 per square meter
As a financial center and home of the European Central Bank, Frankfurt is one of Germany's strongest economic cities. Accordingly, renters' willingness to pay is high - on average they pay €17.38 per square meter for new contracts.
Compared to 2019, this represents an increase of over €3 per square meter within 4 years.
2nd place - Berlin: €17.64 per square meter
Even though Berlin is not the most expensive city in Germany, the capital clearly leads the ranking in rental price increases in recent years. According to an analysis by the real estate portal Immowelt, existing rents rose by a hefty 34 percent between 2018 and 2023!
The influx of Ukrainian refugees and possible catch-up effects due to the failed rent cap are being discussed as price drivers.
1st place - Munich: €21.01 per square meter
Munich remains the undisputed top spot in terms of rent levels. In the 3rd quarter of 2023, new tenants had to pay an average of €21.01 per square meter. That's almost €4 more than in the runner-up capital Berlin.
Compared to 2019, this represents an increase of over €3.50 for Munich - per square meter, that is!
Tenant Association President Lukas Siebenkotten speaks of "horrendous rent increases" in light of such figures and calls for a nationwide rent freeze.
Conclusion: Where rents are rising particularly rapidly
The ranking shows that in many major German cities, the gap between supply and demand in the housing market continues to widen - with corresponding effects on rents.
In particular, university towns like Heidelberg and Freiburg, but also economic centers like Frankfurt and Munich attract many people, while affordable housing is hardly available anymore.
The result is rapid rent increases of up to several euros per square meter within a few years. Without decisive political countermeasures, affordable housing thus threatens to become a luxury good.
