Medium-sized cities record higher rent increases than large cities: the highest increases for existing apartments in Rosenheim with +6.5%, Landshut +5.5% and Bamberg +4.7%

“The general conditions on the real estate market with, despite the declines, still very high real estate prices and rising interest rates, currently make it hardly possible for most prospective buyers to acquire property. Since the monthly interest and repayment payments significantly exceed the rental payments for comparable properties, those willing to buy are currently opting for the more flexible rental property, at least for the time being. This increases the already high demand and ensures that the price level for rental properties continues to rise,” says Prof. Stephan Kippes, head of the IVD market research institute. “Demand on the rental market is currently high in all market segments. It is to be expected that the demand for family-friendly apartments and houses for rent will continue to increase, as the desire and need for more living space and better quality of living is still present among families with little equity and who are currently unable to finance their own home. What is striking is that in many places rent increases lagged behind the development of the inflation rate, meaning that rents fell in real terms. However, this is only partially encouraging for tenants if wage increases remain noticeably below inflation.”

Demand on the rental market has intensified significantly in all market segments since the trend reversal and currently noticeably exceeds the existing supply in many large and medium-sized cities. In particular, the high influx caused by the Ukraine war put a strain on the already tense housing market. In addition, demand from interested parties who have had to abandon their purchase intentions due to increased interest rates and turn to the rental market has also increased.

While the need for housing is increasing sharply, the downward spiral in housing construction continues, which further increases the pressure on rental housing markets. Increased energy prices, interrupted supply chains, massive increases in mortgage interest rates, high inflation and reduced KfW funding are currently among the biggest challenges in housing construction. The current decline in building permits is worrying: in the first six months of 2023 (January to June), only 25,058 new residential units were approved for construction across Bavaria, which corresponds to a decline of around -29% compared to the same period last year. The economic viability of projects that have already been approved but not yet built is also viewed very critically. Housing construction projects are currently being postponed or stopped more and more frequently.

The significant rise in interest rates, the stagnation in housing construction and the high level of immigration are currently putting the rental market under significant pressure. The increasing demand is causing rising rental prices in both existing and new buildings. The increase in rents for apartments and houses increased slightly in autumn 2023 compared to spring 2023. While the average rent increase was +1.9% in spring 2023, this increased to an average of +2.0% in the next six months. In the half-year comparison between spring and autumn 2023, apartment rents on average in Bavaria – new buildings +2.9%, existing buildings +2.5%, old buildings +2.7% – showed the highest rent increases. Semi-detached houses increased in price by +2.1% (existing properties) and +1.4% (new buildings). The lowest increases in autumn 2023 compared to spring 2023 were recorded in mid-terrace houses with +1.2% (existing properties) and +1.1% (new buildings).

In a 10-year comparison, rent increases in Bavaria are becoming significantly more noticeable. The rent increase for mid-terrace houses was nominally strongest for newly built properties at +57% and for existing properties at +54%. For semi-detached houses – new buildings and existing ones – a rent increase of +50% was measured. Rental apartments recorded somewhat smaller increases (old building: +41%, existing building: +41%, new building: +48%). However, when inflation is taken into account, these increases are reduced significantly. The topic of “energy efficiency” has become significantly more important in both the purchase and rental segments. Since the rapid rise in energy costs, it can be seen that renovated rental properties or properties with a good energy balance are being favored from existing properties. Modernized rental apartments at affordable prices therefore have a relatively short marketing time.

In order to stimulate the construction industry, the federal government has decided on a package of measures. Financial incentives, rapid planning and approval procedures as well as a temporary waiver of planned energy building standards are planned. The federal states are also given the opportunity to structure the property transfer tax more flexibly, but this is merely symbolic or meaningless as long as the states do not make use of this. A reform of property support for families is also being considered. The planned measures are a step in the right direction and must be implemented quickly. The housing shortage can only be eliminated by stimulating new construction activity at all levels but also by mobilizing the living space potential in existing buildings. Significant growth is needed in both subsidized and independent rental housing construction and in the property segment in order not to further aggravate the shortage situation.

The state capital Munich

While the purchase price level in Munich recorded significant declines in all market segments examined in autumn 2023, rental prices showed somewhat greater increases than in spring 2023. While the average price increases in spring 2023 were in the range between +0.9% and +1.9%, the price increases in the rental sector in autumn 2023 were between +4.3% and +6.9%. As in the previous survey, the highest increase in the comparison between spring and autumn 2023 was recorded for rents for medium-sized terraced houses. The price level in this market segment rose by +5.7% for existing properties and by +6.9% for new buildings. Semi-detached houses for rent increased in price by +4.9% (existing properties) and +4.8% (new buildings). Rents for old apartments and existing apartments increased by +4.6% and +4.3% compared to the previous survey; A rent increase of +5.2% was achieved for new apartments. With the shift in demand from the purchase to the rental segment, the pressure on the Munich rental market is increasing. The decline in new construction activity and falling building permits will further reduce the urgently needed housing supply in the state capital and thereby ensure that rent levels continue to rise.

Source: press release IVD Süd