Buying a residential property in Germany in 2021 was 59.2 percent cheaper, on average, than renting it nationwide. As a result, the cost advantage of using a condominium over a comparable rental apartment has increased by about three percent compared to 2020, according to this year's ACCENTRO Housing Cost Report, the seventh edition of which was produced in collaboration with the Institute of the German Economy (IW).
According to the study, owner-occupiers live more cheaply than tenants in all 401 German counties and independent cities (last year the figure was 399), including in the metropolitan areas of. You pay an average of 4.21 euros per square meter compared with new contract rents for comparable apartments of 10.30 euros per square meter and month.
The IW explains the fact that owner-occupier costs fell by 0.11 euros compared to the previous year, while prices for condominiums rose by ten percent, with the simultaneous strong increase in new contract rents and the moderate interest rate development in 2021 – as a result, even the opportunity interest rate fell. If the opportunity interest rate had remained the same, buyers would have had to expect owner-occupancy costs of 4.76 euros per square meter, an increase of eleven percent. The division of broker commissions, which was passed in 2021, has also had a relieving effect on owners.
Here's why renters pay more than owners
In its latest report, the IW identified several reasons why homeowners live more cheaply than tenants. As interest rates on mortgages continue to be low, the already very reasonable costs for homeowners have dropped even more. Although purchase prices have continued to rise, not to such an extent that they have outstripped the savings from lower interest rates. Renters do not enjoy this interest rate advantage. Lars Schriewer, member of the board of ACCENTRO Real Estate AG, comments:
"In view of high real estate prices and rising rents, home ownership is still the best form of private retirement provision."
Owner-occupiers also in the metropolises in the advantage
Especially in rural areas and regions with low or medium purchase prices, decisive owner-occupier cost advantages continued to be observed in 2021. This is how the advantages were greatest in the Sommerda district in Thuringia. However, large cost advantages could also continue to be observed in high-priced metropolitan areas, which traditionally have lower owner-occupier cost advantages than rural areas.
There, the cost advantage of owner-occupiers over tenants ranges from 47.3 percent in Berlin (2020: 40.8 percent) to 53.7 percent in Hamburg (2020: 50 percent), 54.9 percent in Munich (2020: 53.4 percent), 59.3 percent in Stuttgart (2020: 57.9 percent), 63.7 percent in Frankfurt a. M. (2020: 60.4 percent), 65.7 percent in Dusseldorf (2020: 64.1 percent) to 66.2 percent in Cologne (2020: 65 percent).
The interest rate turnaround arrives on the residential real estate market
The war in Ukraine determines the real estate market in the aftermath of the Corona pandemic. In addition to the sharp rise in energy prices and inflation, the ECB has initiated its first interest rate moves for July. In the real estate market, however, the interest rate turnaround has already arrived – interest costs rose sharply. According to the study authors, this will be reflected on the market in 2022 in the form of rising owner-occupier costs. Price declines, on the other hand, are not to be expected in the short term.
"The market can cope well with the rise in interest rates to date. Rising construction costs and a further increase in demand for the scarce commodity of owner-occupied housing are stabilizing the market," explains Prof. Dr. Michael Voigtlander of the Institut der deutschen Wirtschaft. "Rising interest rates, however, will significantly reduce the owner-occupier cost advantage."
Depending on the further course of the war in Ukraine and the progress of the Corona pandemic (especially in Asia), the Institute of the German Economy says inflation can be expected to fall, which would also reduce interest rates. In addition, real wages are expected to rise at least in the medium term, which will also improve the affordability of home ownership again.
Interest rate turnaround will reduce owner-occupier cost benefits
The ACCENTRO Housing Cost Report compares three different interest rate scenarios.
- According to the report, a construction interest rate of two percent would lead to an increase in owner-occupier costs of 66 percent to 6.97 euros per square meter.
- With an interest rate of 2.5 percent, the owner-occupied costs would be more than doubled to 8.55 euros.
- At an interest rate of three percent to 10.12 euros and thus increase by 141 percentage points.
Mind you, if purchase prices remain the same – with purchase price increases on the horizon, we can assume new increases in owner-occupancy costs of another eight percent to 7.32 euros (two-percent interest rate scenario), another ten percent (2.5-percent interest rate) to 8.97 euros, or an additional twelve percent (three-percent interest rate) to 10.63 euros.
"Owner-occupier" costs will most likely rise due to the interest rate turnaround, reducing the owner-occupier cost advantage. Over 20 years, the average interest rates were four percent and thus much higher than today, the real estate market was nevertheless attractive. What is important when buying real estate is the long-term perspective, and in view of the population growth, this continues to be extremely good in large parts of Germany," explains Lars Schriewer. "However, even in the most ambitious interest rate scenario, owner-occupancy costs remain below expected new lease rentals."
"Buying therefore remains more affordable than renting."
Speck belts of the top 7 most resilient to interest rate rises
The surrounding areas of the top 7 locations are proving to be the most resilient to the interest rate increases. While the worst-case interest rate scenarios in metropolitan areas and major cities result in rent costs being exceeded by owner-occupancy costs, in the surrounding areas of metropolitan areas and major cities, as well as other areas in Germany, cost advantages for buyers can still be anticipated.
Policy needs to be more supportive of access to property
"In addition to the supply shortage, the interest rate turnaround now adds another bottleneck for prospective buyers. The German government should make the purchase of residential property more affordable by easing the burden of ancillary purchase costs," demands Schriewer. "Revenues from real estate transfer tax have been rising sharply for years due to price increases alone, and local governments are even increasing them further. This results in a massive relief potential. An allowance or other relief on utility costs could be considered."
"We repeat our appeal that access to home ownership should be supported by politics. There are numerous examples from European countries such as the UK and Belgium that provide relief on the purchase of residential property, for example with regard to land transfer tax. Since the necessary equity is the most common barrier to homeownership, government-guaranteed subordinate loans and real estate transfer tax reform could improve access to homeownership for middle- and low-income households," Voigtlander says.
For the Housing Cost Report, the IW compares the housing costs of owners and renters; nationwide, the rents and housing user costs of all 401 counties and independent cities were evaluated. The calculation is based on the net cold rents and the costs of owner-occupiers, which are the purchase price, incidental acquisition costs, mortgage interest and lost interest (opportunity interest) on equity, as well as repairs and depreciation.