Germany’s property market faces British-style bubble trouble

Estate agent Rabitz says that prices will stabilise if the goal is achieved but warns it is “a really tough target”.

Populist but economically dubious solutions are gaining traction amid the explosion in both rental and housing prices. Berlin has introduced rent controls to suppress prices but fixing costs has proved unsuccessful. While in September the capital voted “yes” in a referendum to give authorities the power to seize property as housing costs soar. The major parties in the city oppose the policy but the vote underscores rising tensions in the capital over housing.  

While an Englishman’s home is his castle, Germans are not consumed by the desire for home ownership as much as in Britain.

Home ownership rates in Germany are among the lowest in Europe. Around 45pc of Germans own their property while the rest rent, compared to 63pc of Britons and around three quarters of Spaniards and Italians.

Jochen Moebert, economist at Deutsche Bank, says the renting culture dates back to the Second World War as migrants moved from the communist east to the capitalist west.

“There were 8m refugees after the Second World War, a lot of buildings were destroyed and there were very strict rental laws,” he says.

“Over the past 12 years, at least in metropolitan areas, rents have started to increase, and for the first time renting has become a problem.”

However, German attitudes are slowly becoming more like Britons’. While the home ownership rate is falling in the UK as young people are priced out of the market, in Germany it has risen from just over a third in 1990 and some expect it to climb above 50pc in the next decade.

Prices could stagnate, allowing incomes and affordability to catch up. More worrying would be if prices continued to grow rapidly, fuelled by the shortfall in supply, but most dangerous would be if they suffered a sharp decline as a bubble bursts.

Kholodilin says it’s “quite possible” Germany is in a housing bubble.

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