Housing Market Overview

H1 2023

Falling prices in the home ownership market in the first half of 2023

October 23, 2023
Demand is spiralling as a result of rising housing and borrowing costs and population growth

Two particular trends relevant to housing demand can be identified on the demand side. Firstly, there are demographic trends which primarily affect rises and falls in the number of households and developments in their structure; and secondly, there are temporary qualitative shifts in demand, less demand for home ownership and more demand for rental housing.

There was a further significant increase in the population in 2022. According to the Federal Statistical Office (Destatis), at least 84.4 million people lived in Germany at the end of 2022, which is an increase of 1.122 million compared to the end of 2021. It corresponds to population growth of approximately 1.3% and is due to a significant increase in net migration to 1.455 million (2021: 329,000), the highest level of net migration recorded since German reunification. The main reason for this increase is the influx of Ukrainian citizens but also a general revival of international migration (>350,000) into Germany, which has returned to its pre-pandemic level.

Several trends can also be derived from changes in the demographic profile of the country due to the increasing ageing of the population which have an impact on housing demand in general. While a further rise in the number of smaller and older households is expected in the medium term, there is an associated increase in the total number of households to be considered. The increasing ageing of the population also has a major impact on the housing market. Since the individual age groups represent different user groups that vary in their lifestyle concepts and ideas, and in their income situation and housing preferences, the demand for housing is very diverse. Demographic structural change has a particularly strong impact on the housing market when there is a considerable gap between demand and supply. This gap particularly relates to the living space of the houses and apartments demanded and on offer, but can affect downstream qualitative characteristics such as furnishings and fittings. This disparity can be observed in the German housing market and is increasing the additional demand for specific housing types.

Another temporary discrepancy in housing demand is being observed and is affecting the demand for housing to rent and/or own. Rising interest rates have forced many potential first-time buyers to remain in the rental market. This situation is leading not only to a further surge in demand in rental markets, but also to a renewed increase in the current housing shortfall in many already tense regional housing markets. These shifts will continue until affordability improves again through falling prices or until rising rental costs gradually compensate for rising capital costs.

Housing remains scarce, interest rate rises stifle construction activity

The strong increase in real housing demand, especially in the rental markets, contrasts with a sharp decline in new housing construction. This will certainly lead to a further widening of the gap between demand and supply in the medium term.

The construction industry, which has already had to contend with sharp rises in building costs in 2021 in the wake of measures to combat the pandemic and the associated adjustments to global supply chains, will be further burdened by the sharp rise in borrowing costs. This has been accompanied by a decline in demand for home ownership. This trend is particularly evident when looking at rises and falls in the number of approved new homes.

In the first half of 2023, the construction of 135,000 new homes was approved in Germany. As reported by the Federal Statistical Office (Destatis), this was a 27.2% reduction in the number of building permit approvals in the first half of 2022 (-50,000). In June 2023, the number of building permit approvals for new homes decreased by 28.5% compared to the same month last year. This trend has been accompanied by a significant decline in the volume of new housing construction and in the gross value added in investment in housing construction (in the first quarter of 2023 this was around 3.7% below the previous year's value). The construction industry is therefore in a sectoral recession.

While these developments had a negligible effect on the number of completions in 2022 (when 295,000 new homes were built), the impact will be greater over time. The number of new homes could fall below 250,000 this year. Under current conditions, the forecast for completions is around 240,000 in 2023 and just 190,000-200,000 in 2024.

While the slump in the new business volume has taken some pressure off the rise in building costs, the freed-up capacity has taken pressure off the rise in labour costs. An easing of pressure has been observed in the cost of materials, which is also attributed to the decline in demand and significant fall in energy prices. Nevertheless, there are several reasons to suggest that building costs and their development will remain high over the long term. These include demand for an energy-efficient refurbishment of the existing housing stock which will ensure a continuing high level of capacity utilisation in the construction and finishing trades; the expected catch-up effects in new housing construction over the next few years; and the continuing labour shortage which is particularly pronounced in the construction industry.

Rents rise in all Big 8 cities in the first half of 2023

After years of significantly stronger growth in purchase prices for owner-occupier homes than in The fundamental changes in the economic and capital markets are continuing to have a strong impact on the housing market. Rental prices rose last year and this trend continued in the first half of 2023. In the eight metropolitan areas surveyed (Big 8), asking rents rose by an average of 6.7% year-on-year. Given that rents grew by just 3.7% in the first half of 2022, this is a clear acceleration of rental growth. It contrasts with the development of purchase prices which have fallen by an average of 7.0% in all Big 8 cities*.

Berlin stood out once again in the first half of 2023, with a 16.7% rise in asking rents year-on-year. A double-digit rise in rental prices was also observed in Leipzig where rents increased by 11.1% compared to last year. Movements in rental prices in the other major cities have been more moderate. For example, the median rental price in Stuttgart fell by 1.3% year-on-year, while the rental market in Munich remains the most expensive among the Big 8 cities with a current median monthly rent of €22.25/sqm (+5.0%).

A similar picture can be observed for prime rents. Compared to last year, prime rents in all Big 8 cities have risen by an average of 8.3%. This rise is above the five-year average (+2.8%). With a prime monthly rent of €30.00/sqm (compared to €32.25/sqm), a rise of 19.3% year-on-year, Berlin has now almost caught up the frontrunner, Munich. There have also been significant rises in prime rents observed in Hamburg (+9.1%) and Leipzig (+9.9%).

Rental growth is evident in the new-build segment. Compared to last year, new-build rents have risen by an average of 5.1% in the Big 8 cities. The double-digit rent rises in Hamburg (+10.5%), Cologne (+10.4%) and Berlin (+10.0%) are particularly striking. Conversely, rental prices in Düsseldorf have fallen by 1.2% year-on-year.

Outside of the Big 8, rents grew by 2.7% in all other independent cities in the first half of 2023, which is below the five-year average of +4.0% per annum, while the administrative districts recorded rental growth of 4.9%.

*Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Düsseldorf, Stuttgart, Leipzig

Prices fall in the home ownership market in the first half of the year

Falling purchase prices shaped the housing market in the first half of 2023. The main reason for this was the rise in borrowing costs which limited the financial options of potential buyers.

A decline in purchase prices was observed in all region types in the first half of the year, although there was little uniformity in the regional development of prices. The movements in purchase prices were as dynamic as the rental prices in the eight cities surveyed, but in the opposite direction. The decline of 7.0% year-on-year was significantly higher than in all other independent cities (-5.2%) and administrative districts (-2.2%).

Compared to last year, Munich (-10.9%), Stuttgart (-10.7%) and Düsseldorf (-9.7%) recorded the most significant price drops among the Big 8 markets. Only Berlin recorded slight growth of 0.5%.

There was greater disparity in the development of prices in the top segment (90th percentile). While purchase prices fell in Berlin (-4.4%), Munich (-8.7%), Frankfurt am Main (-8.2%), Düsseldorf (-4.8%) and Stuttgart (-9.8%), rises were recorded in the cities of Hamburg (+2.3%), Cologne (+0.4%) and Leipzig (+7.9%). The price rises recorded in Leipzig surpassed the five-year average (+6.1% per annum).

There has been a similarly mixed picture in the new-build segment. Compared to last year, purchase prices in the Big 8 cities have risen by an average of 3.1%. The highest price rise was recorded in the Cologne housing market (+12.2%). There was similar significant growth in prices in Leipzig of 9.2% compared to last year. In contrast, there have been notable falls in purchase prices in Berlin (-2.5%), Munich (-3.2%) and Frankfurt (-6.2%).

All results are based on an evaluation of asking prices. These do not provide any detailed information on the prices at which the houses and apartments were actually sold. The real estate market reports published by the official land valuation boards, based on the results of analyses of actual transactions, show some significantly greater price reductions.


Dr. Sören Gröbel, Director Research, Berlin

Sandra Baumgarten, Senior Research Analyst

Contact us

Our Residential Market contacts:

Michael Bender, Head of Residential Germany

Ralf Kemper, Head of Valuation & Transaction Advisory Germany
Roman Heidrich, Lead Director Valuation & Transaction Advisory, Berlin
Sebastian Grimm, Lead Director Valuation & Transaction Advisory, Frankfurt

Helge Scheunemann, Head of Research Germany


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