Real Estate
Analyses of the situation in the construction sector and studies on the real-estate market both in Germany as a whole and in selected centres in Germany and abroad.
House prices
House prices: Imminent return to normal, overvaluation likely
In 2015, the prices for apartments in the 126 most important German towns and cities rose by 6% yoy again significantly outstripping rents. Among the major cities, Munich, Stuttgart and Hamburg recorded larger price rises between 2009 and 2015 than, for example, Cologne and Düsseldorf. Frankfurt was at the bottom, while Berlin was in the middle, but could catch up in the future. Measured by affordability indices residential property prices have been below their historical averages until now. The anticipated price rises of 6% in 2016 are likely to bring the normalisation to an end. Owing to the high and likely increasing level of excess demand house prices are likely to continue to rise. As a result, they are expected to become overvalued increasing macro-prudential risks significantly. (go to p. 14) [more]
Talking Point
Germany: Is housing policy heading towards the precipice?
It will take many years to reduce the demand overhang in the housing market if there is not a huge jump in building activity. This harbours the risk that the current phase of prices returning to normal could first lead to overshooting and end in a market correction. This scenario comes with high economic costs. These could be avoided by improving depreciation conditions for newbuild housing in Germany's large cities and metropolitan regions. [more]
Misguided policy raises risk of housing bubble
Politicians should focus on an expansion of building activity in the major cities and conurbations in order to reduce the upside pressure on house prices. In the past few months there have been indications of easing activity in the construction sector. If this trend materialises, the pressure on house prices will intensify further. One possible cause of this development is capacity restrictions, and a lack of suitable skilled labour in the finishing trades in particular. An immigration law that specifically focuses on bottlenecks in the labour market could help to bring about some relief. If it becomes obvious over the next few months that construction growth is going to remain sluggish long term, rent control should not be implemented in the regions. [more]
Real Estate
Construction investment: Sharp increase expected, but focus on downside risks
Despite the unbroken upswing in the real estate market since 2009, construction investment has grown only moderately at around 3% per year. This corresponds to a relatively low price elasticity of only about ½, since prices have climbed by roughly 6% per year. This expansion of construction investment started from a low level. As a percentage of gross domestic product, German construction investment is relatively low both by historical and international standards. (go to page 5) [more]
Spotlight on Germany
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