The rental market in major German cities is experiencing an unprecedented surge, with rents soaring at double-digit rates in Berlin and Munich. The demand for rental properties has been fueled by the recent rise in interest rates, prompting consumers to shy away from home purchases. In contrast to the rental boom, buying an old apartment has seen a decline, further highlighting the shift from the buy to rent market.

According to data from the reputable online real estate platform, ImmoScout24, new tenants in existing buildings in Munich had to pay a staggering 16% more than a year ago, while their counterparts in Berlin faced a 14% increase in rents. These sharp rises have left many prospective homebuyers reconsidering their options, as buying a property in Munich slid by 5.5%, and in Berlin, it fell by 0.9%.

Experts attribute the surge in rental prices to the tight housing supply, which has been unable to keep up with the increasing demand. Despite efforts to bridge the gap by constructing new homes, permits for building new properties fell by 31% from the previous year between January and May, according to the German construction association.

Felix Pakleppa, the head of the association ZDB, expressed concerns about a possible massive slump in private construction investment. This could further exacerbate the housing crisis and lead to more severe market conditions for renters.

Furthermore, the homes that are currently under construction tend to cater to the higher-end market, leaving fewer affordable options for renters. In June alone, new apartment units were a staggering 40% more expensive in Berlin and 19% pricier in Munich.

ImmoScout, describing the situation on the Berlin rental market as unprecedented in German history, emphasizes the urgency of addressing the rental crisis. As the European Central Bank continues to raise interest rates to combat inflation, the challenges faced by prospective homebuyers in affording homes are likely to persist, making renting an even more attractive choice for many.

The rental surge in Berlin and Munich is causing concerns among policymakers and housing advocates. As the rental prices continue to rise, efforts to find a balanced solution, such as increasing housing supply and ensuring affordability, become imperative to mitigate the impact on renters and maintain stability in the housing market.

Rewritten from BloombergNews