Rising Rental Costs Impacting Poorer Households in Germany

BERLIN (Reuters) – According to a study released on Wednesday, poorer households in Germany, especially single parents and individuals living alone, are disproportionately affected by increasing rental costs amid a looming recession and the most severe property market crisis the country has faced in a generation.

A report from the German Institute for Economic Research (DIW) indicates that low-income groups devote a larger portion of their income to rent compared to wealthier households, and this disparity is continuing to grow.

From 2010 to 2022, asking rents nationally increased by 50%, with up to 70% growth in major cities, while existing rents saw a rise of 20%. In 2021, the bottom 20% of income earners dedicated over a third of their income to rent, contrasting with just a fifth among the wealthiest segments.

Single parents and individuals living alone are particularly at risk, spending an average of 30% of their income on rent, compared to approximately 20% for families with children.

The proportion of overburdened households—those paying over 40% of their income on rent—has jumped from 5% to 14% in the last 30 years, compounded by a reduction in social housing availability.

This surge in rent contributes to the ongoing cost of living crisis in Germany, which hasn't improved despite a decline in property demand following increased interest rates and building expenses.

To tackle the social housing deficit, the German government aimed to construct 400,000 apartments annually as of 2021, yet only 294,400 apartments were completed in the previous year.

In Berlin, rental costs have increased by more than 40% in 2023 compared to seven years prior. The city government had attempted to implement a rent cap in 2020, which was ultimately deemed unconstitutional by Germany's highest court.

Authors of the DIW study warned against broad rent control strategies, stating that such measures do not specifically benefit low-income groups. They advocated for targeted support for low-income renters and an increase in social housing availability.