A widening chasm is emerging in Germany’s rental market, particularly in major urban centers, sparking concerns about social equity and economic stagnation. A new study by the Ifo Institute reveals a stark divergence between rents for existing tenancies and those for new contracts, creating a two-tiered system that threatens to exacerbate inequality and hinder urban growth.
Since 2013, rents for new contracts in Germany’s seven largest cities have surged by approximately 75%, while those for existing leases have remained comparatively stable. This disparity is fueling rising housing costs and creating a significant financial burden on those seeking to enter the rental market.
The difference in cost per square meter averages €4.48, equivalent to a 48% premium for new renters. The divergence is most pronounced in Berlin, where the difference reaches a remarkable 70%, followed by Munich at 45% and Hamburg at 37%. Köln, Frankfurt, Stuttgart and Düsseldorf demonstrate significantly elevated premiums, ranging between 30% and 36%.
“This development threatens to become a source of social unrest and an impediment to urban growth” stated Oliver Falck, Director of the Ifo Center for Innovation Economics and Digital Transformation. “When the workforce can no longer afford housing in metropolitan areas, cities lose economic vitality.
The study highlights a troubling trend: while tenants secured under existing, often regulated contracts benefit from stable and comparatively low rents, prospective renters face an increasingly competitive and expensive market. This creates a scenario where securing a comparable dwelling can result in differences of hundreds of euros, effectively turning the rental market into a lottery.
The economic pressure extends to the overall housing burden. For households with lower incomes, the average cost of rent remains relatively stable at around 35% of their income. However, this figure dramatically increases for new renters, climbing to nearly 50% in major cities. This rise effectively squeezes other essential expenses and limits disposable income.
The skewed market is also impacting labor mobility. “People are incentivized to remain in their existing, affordable apartments, even if they no longer align with their life circumstances” explained Ifo researcher Pascal Zamorski. “This reduces people’s mobility and diminishes their availability to the labor market.
The Ifo Institute argues that policy interventions must prioritize supply-side solutions. This includes reducing construction costs, streamlining approval processes and implementing targeted subsidies for affordable housing. While rent controls may offer a short-term dampening effect, they fail to address the underlying scarcity of housing. Experts now urge a comprehensive approach that stimulates construction and creates a more balanced and equitable rental market to ensure sustainable urban development and economic prosperity.