HOUSING COST REPORT FOR GERMANY 2 021 Nationwide Analysis of Rents and Owner-Occupied-Housing Costs in Germany by the German Economic Institute INCLUDING SPECIAL SECTION: Incoming Migration: What is the Post-Pandemic Outlook? 6th Edition ACCENTRO HOUSING COST REPORT 2021 CONTENTS Nationwide Analysis of Rents and Owner-Occupied-Housing Costs in Germany Summary . 4 1 Introduction. 4 IW Survey on Behalf of ACCENTRO Real Estate AG by Prof. Dr. Michael Voigtländer & Pekka Sagner 2 Owner-Occupied Housing Costs . 5 2.1 Notes on the Methods Used . 5 2.2 Findings for Germany. 8 ACCENTRO REAL ESTATE AG Kantstrasse 44/45 2.3 Findings for the “Big 7” Cities . 9 D-10625 Berlin Phone: +49 (0)30 / 887 181 0 2.4 Findings for the Rural Districts and [email protected] Urban Districts . .12 www.accentro.ag 2.5 Interest Rate Sensitivity on the District Level . .17 2.6 Annuity Trend and Level . .18 German Economic Institute (IW) PO Box 10 19 42 3 Incoming Migration: What Is the D-50459 Cologne Post-Pandemic Outlook? . 22 Prof. Dr. Michael Voigtländer 4 Conclusion . 26 Phone: +49 221 / 4981 - 741 [email protected] 5 Bibliography . 28 Pekka Sagner List of Figures . 29 Phone: +49 221 / 4981 - 881 [email protected] List of Tables . 29 Annex . 30 Cologne, 9 June 2021 Summary wounds in the corporate world. 2. Owner-Occupied-Housing Costs The purpose of the user-cost-of-housing approach is to compare rental costs with the recurrent costs borne by 2.1 Notes on the Methods Used homeowners. While the approach is used to determine the relative economic benefit of owning your home out- Making Rents and Owner-Occupancy right versus renting your home, it also identifies over- or Costs Comparable under-valuations in the market. The effort to make the costs of renting and those of own- Over the past year, interest rates for mortgage loans er-occupying your own property comparable necessi- experienced another significant drop, whereas the tates a few assumptions regarding the situation of own- returns on alternative investments declined as well. Both er-occupiers. The costs of renting are directly obtained of these trends caused owner-occupied housing costs to from the respective rent level. The section below will decline last year. In many parts of Germany, the plunge in compare the costs of letting or occupying residential mortgage interest has also prevented a rise in annuity, accommodation, respectively. On the tenant side, the meaning the sum of interest and capital repayment that comparison will use the base rent before heating costs as borrowers shoulder to finance a mortgage loan. The benchmark. Unlike tenants, owner-occupiers need to fac- development of this parameter, which is decisive for the 1. Introduction tor various individual line items into the calculation of user-cost-of-housing approach, may also help to explain their housing costs. The approach taken to calculate the why prices for residential real estate just kept on going owner-occupied housing costs are based on the studies up last year. The price growth seen last year despite the The ACCENTRO Housing Cost Report 2021 represents the This year’s report will venture a look at post-pandemic conducted by Poterba (1984) and Himmelberg et uncertainties associated with the coronavirus pandemic sixth annual edition of the report. At its core, the report times. In particular, it will discuss the repercussions for al. (2005). Included in the owner-occupied housing costs therefore comes as no surprise from the angle of the compares the housing costs borne by owner-occupiers international migration and its implications for German are expenses regularly incurred by the owner, such as, for user-cost-of-housing approach, as it reflects the persis- with rental costs paid by tenants. Comparing the costs of cities. Immigration from abroad has played a key role in instance, the costs associated with the debt financing of tent undervaluation of residential real estate in Germany. these two accommodation options is not just highly in- the real estate boom that Germany experienced over the a mortgage loan. Here, it is important to differentiate be- teresting from a personal point of view, but also permits past decade. Based on provisional figures released by the tween the financing costs, meaning the payment of inter- In the wake of the pandemic, the incoming migration conclusions about the housing market in general. This Federal Statistical Office (Destatis), Germany’s incoming est and the capital repayment. The capital repayment to Germany declined last year, slowing the demographic edition also marks the second time that the Accentro migration took a nosedive in 2020, thereby slowing the component is not part of the owner-occupied housing growth as a whole. The migration flow is, however, Housing Cost Report is published during the ongoing population growth of prior years. The strong migration costs because its purpose is wealth-building. It is exclud- expected to rebound and rise again in the medium term, coronavirus pandemic, which has impacted Germany as flow seen during the past decade appears to be ebbing. ed from the comparison because the tenant side lacks and the country’s major cities in particular will remain much as the rest of the world. By the first half of 2021, However, demographic forecast are predicting significant a wealth-building aspect. The components of the own- relevant target regions for both internal and external meaning the time of the report’s publication, the vacci- growth rates in the years ahead, especially for the major er-occupied housing costs break down into various com- migrants. A permanent reversal of the demographics in nation campaign has gathered momentum in Germany, German cities. There are sound reasons for it, and a rever- ponents, and can be represented in mathematical form Germany’s major cities is therefore not to be expected in so that it is reasonable to assume that dining, shopping sal in the demographics of the cities is not be expected in as follows: the medium term. and travelling will become easier before the end of this the medium term. year. Hopes are running high that the pandemic will be SNK = P ∙ (b ∙ i ) + P ∙ (s + a) - P ∙ ∆P overcome soon. The other parts of the report are structured as follows: k,t k,t F,t k,t k,t k +P ∙ (1 - τ ) ∙ (1 - b) ∙ i First, the methodology underlying the user-cost-of-hous- k,t t A,t In its opening section, last year’s Housing Cost Report ing approach is elaborated and illustrated using an exam- + Pk,t ∙ (mk,t + gk,t + n + e) ∙ (1 - τt ) ∙ i A,t discussed the potential ramifications of the coronavirus ple. Next, the results for the nationwide average and Ger- +Pk,t∙ (m k,t + gk,t+ n + e) ∙ iF,t pandemic for residential property markets. Based on the many’s seven largest cities are presented over time, report findings, it was assumed at the time that the coro- followed by the results for Germany’s rural districts. The navirus pandemic would not cause an abrupt deteriora- report will then move on to present the results of the an- The owner-occupied housing costs SNK are determined tion of prices on the market (see Sagner/Voigtländer, nuity calculation, which put the results of the user-cost- on the level of Germany’s 401 rural and urban districts k 2020). As it turned out, prices on the homeownership of-housing calculation into perspective. Finally, the im- for a given year t. Of key importance when determining market did continue to rally in 2020, and significantly so. plications of the coronavirus pandemic for the incoming the owner-occupied housing costs is the purchase price P This coincides with the insight that owner-occupied migration to Germany, and for the migration flow within of the owned property, quoted in euros per square metre housing costs continued to decline last year while the Germany, will be discussed before the report concludes of dwelling floor area in a given district and year. A cer- economic benefits of homeownership over renting kept with a medium-term outlook for the post-pandemic tain share b of the price is borrowed, subject to a borrow- rising. The reason for this, in addition to yet another sub- development. ing rate of iF. The higher the purchase price, the leverage stantial interest rate drop for mortgage loans, is not least and the mortgage interest are, the higher the owner- a decline in opportunity interest rates, as the economic occupied housing costs are bound to be. Unlike tenants, turbulences of the year behind us also struck deep 4 Survey compiled for ACCENTRO Real Estate AG Housing Cost Report 2021 5 property owners must also factor in the costs of mainte- The data include initial selling prices or resale prices of Variables and Data Sources nance s and amortisation a which will cause the value of fully refurbished period flats in good locations and with Ta b l e 2 .1 the property to deteriorate over time unless the neces- high-spec interior fit-outs, on the one hand, and new-ten- sary capital expenditures are made. This cost item should ancy rents for comparable flats, on the other hand. The Variable Explanation Source therefore be considered on an opportunity basis. Either calculation of the owner-occupied housing costs also Pkt Purchase price, in euros per sqm of dwelling floor area vdpResearch (2021) the capital expenditures are actually made, keeping the takes account of appreciation. The anticipated long-term b Debt capital share Dr. Klein (2021) property value stable, or they are skipped, causing the appreciation we use is based on the data by F + B (2021).