German Home Owning Becomes Cheaper After Surge to Historic High
(Bloomberg) -- Home ownership for German families has become slightly more affordable, but the market remains skewed toward rentals.
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The average German family would have to shell out 40% of its income to buy a house, down from a high of 45% in 2022, according to a report published Wednesday by the German Economic Institute in Cologne. The improvement stems from falling interest rates and higher wages.
This slight reprieve is a far cry from levels seen only five years ago, when an average family of four had to spend less than 30% of its net household income to be able to afford a mortgage.
Rents have risen steadily, but still only account for 33% of income, according to the study, which bases its calculation on a four-person household that includes one full-time and one part-time wage.
The trends indicate that little will change in the low home ownership rates in Germany, where less than half of residents own their own home. Overall, housing has become a bigger share of household expenses and is likely to keep rising because of low construction rates.
While further rate cuts by the European Central Bank should continue to improve people’s ability to buy property, affordability is unlikely to return to the levels seen in past decades, according to the report.
A slump in new construction is exacerbating shortages. Deutsche Bank economists forecast that just 260,000 units will be completed in 2024, while 370,000 new apartments per year would be needed to meaningfully ease Germany’s housing crunch, researchers Pekka Sagner and Michael Voigtländer said.
“The market needs political impetus to drive forward new construction even further,” Sagner said.
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