Germany’s real estate market is sounding the alarm bells for Europe’s largest economy

Real estate agent Rabitz says prices will stabilize if the target is met, but warns it is a “really tough target.”

Populist but economically dubious solutions are gaining ground amid skyrocketing rental and housing prices. Berlin introduced rent controls to suppress prices, but costing proved unsuccessful. While in September, the capital voted “yes” in a referendum to give authorities the power to seize property as housing costs skyrocket. The city’s main parties are opposed to the policy, but the vote underscores rising tensions in the capital over housing.

While an Englishman’s home is his castle, Germans aren’t as plagued by the desire to own property as in Britain.

Homeownership rates in Germany are among the lowest in Europe. About 45% of Germans own their property while the rest rent, compared to 63% of Britons and about three-quarters of Spaniards and Italians.

Jochen Moebert, an economist at Deutsche Bank, explains that the rental culture dates back to World War II, when migrants moved from the Communist East to the Capitalist West.

“There were 8 million refugees after WWII, 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 rise and for the first time renting has become an issue. “

However, German attitudes are slowly resembling those of the British. While the homeownership rate is declining in the UK as young people are excluded from the market, in Germany it has risen from just over a third in 1990 and some expect that it exceeds 50% over the next decade.

Prices could stagnate, allowing incomes and affordability to catch up. More worrying would be if prices continued to grow rapidly, fueled by insufficient supply, but the most dangerous would be if they suffered a sharp drop when a bubble burst.

Kholodilin says it’s “entirely possible” that Germany is in a real estate bubble.

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