German Home Prices Seen Slowing in 2014 as Construction Surges

German home prices and rents will rise at a slower pace in 2014 than last year as housing construction starts catching up with demand.

Rents and home prices will probably gain about 3 percent in 2014, after increasing more than 3 percent last year, a panel of real estate advisers said in its annual report to the German government today.

“Fortunately, the number of building permits has risen further,” the panel said in the report. “But in view of falling vacancies, rising demand” and economic growth, prices and rents will continue to rise, it added.

Germany is undergoing a building boom as a growing population and low borrowing costs fuel demand. Urban areas in particular are getting bigger as young people move to areas where jobs are easier to find. Construction growth is alleviating housing shortages in cities like Berlin, Frankfurt and Munich.

Immigration is also on the rise, helping to boost Germany’s population to about 80.8 million at the end of 2013, from 80.5 million a year earlier, the Federal Statistics Office said last month.

Since 2005, when the German housing boom began, apartment prices have gained about 49 percent in Munich and 41 percent in Berlin, the panel said in the report.

Rent Regulations

The German government’s attempt to curb rent increases by tightening regulations may backfire by discouraging construction in large cities, the panel said. The government in November proposed tenant protections including a law that would bar landlords from charging 10 percent more than the neighborhood average.

“The political framework is stoking uncertainty,” the group said. “Especially central locations are the target of market intervention, which could push construction to the peripheries.”

Munich had the highest rise in rents last year at 6.9 percent, followed by Berlin’s 6.6 percent increase. Munich homes also saw the biggest price jump, 12 percent, followed by Berlin at 8.5 percent.

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