Rising property prices: The dream of owning your own property is becoming a distant memory

The majority of Germans want to buy their own home. The most common arguments are better security in old age, freedom from rent and more creative freedom. But more and more people are looking at this goal with concern. Due to increasing property prices A growing number no longer believe that they will be able to buy their own home in the future. But is there really cause for concern?

Property prices have exploded in recent years

But first of all: Property prices have risen sharply in recent years. It also shows the house price index from the Federal Statistical Office.

Compared to 2015, house prices rose by more than 60 percentage points. Existing properties in particular increased in value. In the same period, the general consumer price index rose by only 16 percentage points. A difference of over 44 percentage points.

However, house prices have not risen at the same rate everywhere. This is shown in particular by the price indices for detached and semi-detached houses. While prices in big cities and urban areas rose by around 50 percentage points, in rural areas they were even up to 70 percentage points within six years.

Meanwhile, the biggest increase was in the seven major metropolises (Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart). Here, prices rose by 80 percent in the period from 2015 to 2021.

In an international comparison, Germany is affordable

Based on the current price for one square meter of housing, Munich is far ahead of other German metropolises. A square meter in the center of the Bavarian state capital currently costs 13,420 euros – significantly more than, for example, in Frankfurt (9,975 euros) or Hamburg (8,417 euros).

In a European comparison, however, Munich is not at the top. In London, one square meter costs the equivalent of just under 15,700 euros – in Zurich even just under 16,000 euros. However, Paris is cheaper than Munich. Here, one square meter costs 12,395 euros, which is almost 1,000 euros less.

But when you look at the price-to-income ratio, the picture changes drastically. The price-income ratio describes the relationship between median house prices and the average annual disposable income of a family. This is based on 1.5 times the median net salary of the population and an apartment size of 90 square metres.

With a ratio of 16.6, Munich is well above Zurich (7.9) and London (14.5), but still well behind other European cities. Locals in cities like Paris or Moscow need 19.2 or 22.2 times their annual income to be able to fulfill their dream of owning their own home.

Internationally, however, Germany is one of the countries where home ownership is still relatively cheap. In this country, the price/income ratio is 8.9. Other leading economies have very different values. In Japan the ratio of house prices to annual income is 11.0 – in China it is even 29.0. Only the USA as a leading industrial nation is significantly below Germany with 4.0.

Prices rise faster than income

But although the price-income ratio in Germany is still relatively good in an international comparison, the situation for people living in Germany has worsened significantly in recent years.

This can be seen in particular from the correlation between disposable income per capita and the housing price index. The disposable income per per capita reflects the purchasing power of private households, where taxes and social security contributions have already been deducted.

The relationship between income and house prices in Germany has worsened significantly since 2010. Especially since 2014, the value has fallen noticeably. While the ratio was 96.4 in 2014, it was only 76.34 in 2020. From this it can be deduced that housing prices have risen much faster than disposable income per person. inhabitant. It is not yet possible to calculate a value for 2021, but the ratio must be expected to continue to fall this year.

A downward trend can also be seen at European level. The proportion has been steadily decreasing since 2014. Until 2019, the ratio was still above the base year 2010, but the value dropped to just over 95 in the 2020 observation period.

The dream of owning a home is far away

There is currently no end in sight to this development. For many, the dream of owning their own home may be even more distant. For now, inflation will lead to a further increase in the expropriation of savers. In addition, rising interest rates in the foreseeable future will make it less attractive to borrow.

However, the dream of owning your own home must not be completely abandoned. If too many people can no longer afford real estate, demand will drop noticeably. This will in turn be reflected in falling purchase prices. Until then, however, many will have to remain with the dream of owning their own home.

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