Cost of Housing in Germany: Every Fourth Euro Spent, and Here's Why
Germans spend a fourth of their income on housing expenses.
Living expenses, particularly housing costs, can be a significant burden, especially for those with low incomes. According to recent statistics, Germans are amongst the most expensive European residents when it comes to housing costs.
The European statistics agency, Eurostat, indicates that Germans spent around 24.5% of their income on housing in 2024. This is a staggering 5.3 percentage points more than the average EU resident. While this may seem alarming, it's important to understand the reasons behind these numbers.
Urban jitters: The high housing costs in large German cities like Berlin and Munich have been a source of frustration due to escalating rents. These high living costs are exacerbating skills shortages in these areas, as many potential residents are deterred by the high expenses associated with urban living.
Sadly, the situation hasn’t significantly improved since 2023, as Germany retains its top spot in the European housing-costs league table. On the other hand, countries like France, Austria, and the Netherlands have housing costs that are significantly lower. Notably, those at risk of poverty in Germany are spending an average of 43.8% of their income on housing – nearly every second euro!
Comparing costs: Interestingly, Denmark and Greece reported higher average housing cost shares in 2024, with Denmark at 26.3% and Greece at 35.5%. Sweden, however, was roughly on par with Germany. Housing cost shares were particularly low in Cyprus (11.4%), Malta (12.5%), Italy, and Slovenia (each 13.6%), with the EU average sitting comfortably at 19.2%.
So, what's fuelling these costs?
- Imbalance in demand and supply: Germany grapples with an imbalance between the demand for housing and the available supply, particularly in urban areas. This imbalance creates a situation where demand outpaces supply, resulting in higher prices and rents.
- Urbanization and economic growth: Germany's urban centers, including Berlin and Munich, serve as hubs for economic growth and innovation, thereby attracting more residents and driving up housing costs.
- Rapid rental increases: Berlin, in particular, has witnessed substantial rental increases, with a 12.5% growth from 2023 to 2024. The removal of rent caps has contributed to these price hikes.
- A European pattern: While Germany's housing market presents challenges, it's not entirely unique. Other European countries, like Portugal, Spain, and Ireland, have also seen significant housing price increases. Bulgaria experienced a 16.5% rise in house prices in 2024.
As BSW chairwoman Sahra Wagenknecht observed, countries like France and Austria spend significantly less on housing, demonstrating that it's possible to find more affordable housing solutions. Wagenknecht advocates for a nationwide rent cap and a higher share of non-profit housing in the market.
- To address the escalating housing costs, particularly in large cities like Berlin and Munich, a community policy focusing on vocational training for the construction sector could help increase the supply of affordable housing units.
- Personal-finance management can be crucial for those struggling with housing costs. Understanding budgeting and carefully planning expenditures may help reduce the proportion of income spent on housing.
- Policymakers might consider implementing housing-financing initiatives to provide affordable options for those with low incomes, helping to lower the average housing cost share in Germany from the current 24.5%.
- In light of the elevated housing costs in Germany, comparing the country's situation with other European countries like France, Austria, and the Netherlands – where housing cost shares are significantly lower – could offer valuable insights to implement effective policy changes by 2024.