Our figure of the month 04/2021: Housing in eastern Germany is be-coming more and more expensive

The purchase price development for single-family houses1 in the eastern German states has been positive in the past five years and was clearly above the national average with an annual growth rate of 6.5% p.a. weighted by the number of inhabitants. Only Thuringia and Mecklenburg-Western Pomerania are below the average with price developments of 4.7% p.a. and 5.7% p.a. respectively. Saxony-Anhalt recorded the strongest price increase nationwide with 9.6% p.a., followed by Saxony with 9.5% p.a. (see figure). The price trends for condominiums2 in these two federal states are similar, both being well above average.

The east is thus in a catching-up process, which is not only driven by the centres of Leipzig, Dresden, Potsdam, Halle or Magdeburg. Numerous smaller municipalities are also showing above-average price increases. However, affordability is not increasing at the same rate, with the result that with average wage earners have to pay an ever larger share of their income for a single-family home. Current annual gross salaries for the year 2020 at a federal state level are not yet available from the Federal Statistical Office, but wage increases comparable to the house price development are not to be expected, so that a falling affordability must be assumed. The above-average price developments can still be explained by the low interest rate level, the few alternative forms of investment and the lack of suitable living space including building land. The resulting demand pressure is additionally increased by the capacity bottlenecks in the construction industry and has hardly changed due to the Corona pandemic.

Despite this dynamic price development, with the exception of Berlin, all eastern German states are still far below the average price level of almost € 355,000 for a single-family house with the features under consideration. The price ranges are visible in the figure by the colour categories. Although the Free State of Saxony already belongs to the 4th price category, it is at the lower end and thus below the national average. The two southern German states are the most expensive, together with Hesse, Hamburg and Berlin. These five federal states have not left their position as high-price regions within the federal states for over ten years. The gap to the other federal states is still so large that they will remain an "expensive place to live" for years to come, even if prices fall. Only the most populous federal state, North Rhine-Westphalia, stands out this year from the group of federal states with an above-average price level. Above-average house prices have been achieved there since 2006. However, the difference to the average is increasingly decreasing and was below € 2,000 in 2020. A further slowdown in price development is to be expected given the generally poorer conditions on the labour market in North Rhine-Westphalia as well as low population pressure in this federal state.

The current price data from the IVD show that the east has become more attractive - even outside the major cities - and that demand pressure and willingness to pay remain high in Bavaria, Baden-Württemberg, Hesse, Hamburg and Berlin. However, the currently observable increase in demand for larger living space in the countryside would dampen the demand pressure and thus the price development of the city states Berlin and Hamburg in the future.

Other figures can be found here.

1) Single-family house from stock, built from 1949 onwards, medium equipment and location, approx. 125 sqm.
2) Condominiums from stock, built from 1949 onwards, medium furnishings and location, approx. 75 sqm.


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