Housing: Rare and Expensive

An interview with FAU WiSo economist Prof. Dr. Matthias Wrede

What is the current situation on the housing market – is housing becoming more expensive throughout Germany or mainly in certain locations?

From 2010 to mid-2022, real estate prices rose across Germany, followed by a brief decline and then stagnation. However, prices are currently rising again. The price increase was and is significantly stronger in the top cities and growth regions than elsewhere. Rents have risen over the entire period. As incomes have also risen, the rent burden, i.e., the ratio of gross rent excluding utilities to net household income, has remained largely stable on average since 2005. However, households are affected very differently by high rents: low-income earners, single-person households and single parents, people in urban areas and people who have lived in their homes for a short time are significantly more affected than others.

With a view to the federal elections, what options do you see for policymakers to make housing more affordable again?

The increased demand must be met with a larger supply in order to make housing more affordable again. Housing construction must be made easier and less expensive. Anchoring housing construction as an overriding public interest in building law and relaxing non-safety-related regulations would be steps in this direction. The federal government could provide additional financial assistance to the states for social housing construction so that targeted help can be provided to those in need in the regions most affected by housing shortages. Rent control helps in the short term but hurts in the long term because it reduces incentives to build.

Apart from the obvious problems for private individuals, what consequences does the tight housing market have for other areas of society, such as the economy?

If there is a lack of affordable housing in conurbations with growth potential, this will hamper the matching of labor and jobs and reduce growth. Concerns about rising rents are unsettling broad sections of the population and increasing acceptance of simplistic populist solutions.

How could companies, cities, and other organizations counteract this?

Local authorities should speed up approval procedures, stockpile building land, and—as is already common practice in many cases—make it available through concept awards, but also promote (re)densification. They should take local resistance to new construction and densification seriously and address it in a targeted manner through citizen participation and the provision of infrastructure. Municipal housing companies and housing cooperatives can continue to play an important role in providing affordable housing due to their governance and economies of scale.

The original interview in German can be found here.

Further information:

Prof. Dr. Matthias Wrede

Chair of Economics and Social Policy

Tel.: +49 911 5302-95951

matthias.wrede@fau.de