Germany's Rental Housing Supply Sees Steep Decline

The supply of rental apartments in Germany is decreasing significantly, according to a study. Compared to the beginning of 2022, 27 percent fewer rental apartments were offered in the spring quarter in the seven largest German cities, as the business-friendly Institute of the German Economy (IW Cologne) reported in its evaluation.

The number of advertised rental apartments decreased most significantly in Leipzig. "The supply has halved here." Nationwide, 18 percent fewer apartments were advertised than two years ago.

However, those who want to buy instead of rent have better chances, according to the study: The number of advertised owner-occupied apartments has increased by two-thirds compared to the beginning of 2022. The supply of single or two-family houses for sale has even doubled. Nevertheless, demand remains cautious. The reason: Purchase prices are still relatively high - as are financing costs.

"Purchasers' restraint shows how great the financial burdens of financing are," said study author and IW real estate expert Pekka Sagner. "Housing must become more affordable - targeted state promotion is appropriate." This would also relieve the rental market: Those who would actually like to buy a home but cannot due to high financing costs are unintentionally occupying a rental apartment. Part of the solution is new construction, especially in metropolitan areas.

According to the data, new rental contracts in the second quarter (April to June) increased by 1.4 percent compared to the first quarter. If this trend continues, a medium rental price increase of over five percent is expected by 2024. The strong increase is "a symptom of increasing supply-side shortages on the rental market."

Despite the decreasing supply of rental housing in major cities, some areas like Leipzig have seen a drastic reduction with a halved supply. This trend of decreasing rental apartments might influence people to consider buying instead, as the number of advertised owner-occupied apartments has nearly doubled compared to the beginning of 2022.