Housing costs in Germany and the EU
News from 2019-12-09 / KfW Research
Compared with other EU countries, Germans spend a lot of money on housing. However, almost one third of private households, including many low earners, do not see their housing costs as a financial burden. But there are countries in which considerably more low earners do not feel under stress from their housing costs. This is primarily the case in Denmark and Sweden.
Housing market: The social market economy can do better than freezing rents
The debate about rising rent costs suggests that in many places rents are no longer affordable for low earners. Across Germany, however, rents have risen at slower rates than incomes in recent years. Consequently, the housing cost burden has fallen for low earners as well. But people who are looking for a home in booming conurbations are paying much more. These are the findings of an analysis for Berlin and Frankfurt. Policymakers can take effective action to limit excessive rent burdens. Historically, experience shows that capping and largely freezing rent increases is not advisable because it crowds out investors and reduces investment. In the long term, this leads to a decline in the quality of rental housing and creates a rental housing shortage.
How do Germany’s housing costs compare with the rest of the EU?
Compared with other EU countries, Germans spend a lot of money on housing. However, almost one third of private households, including many low earners, do not see their housing costs as a financial burden. And the share of households that perceive their housing costs as a heavy burden is significantly lower, at 13%. The main reason Germans do not see housing as a higher cost burden than the EU average is most likely the fact that they have more income at their disposal after paying for housing than households in most other EU states. The high housing costs thus reflect Germans’ high standard of living. But there are countries in which substantially more low earners do not feel under stress from their housing costs – notably Denmark and Sweden.