German City Rent Gains Slowed on Increased Construction

German rent increases slowed for the first time since 2011 last year as more properties were built to ease a housing shortage.

Advertised rents for new homes in Germany’s biggest cities rose 2.8 percent in 2014, down from 4 percent a year earlier, Berlin-based research firm Empirica AG said in a statement today. Asking prices rose 6.6 percent, widening the gap between the cost of buying and renting. That’s increasing the risk of bubbles in some areas, Empirica said.

“Construction has picked up in the past two or three years in response to the demand,” Empirica economist Reiner Braun said by phone. “We’d also expected price gains to slow; we blame the jump on low interest rates and the lack of investment options.”

Rising rents in cities including Berlin, Frankfurt and Munich has led to protests, rising evictions and new laws. Record-low interest rates are making mortgages more affordable and encouraging tenants -- who may have otherwise put their savings in bonds -- to invest in real estate.

In October, Chancellor Angela Merkel’s cabinet backed legislation to curb rents as rising housing costs in Germany put pressure on her government to act. The draft law, which would take effect this year if passed by parliament, caps rents for new contracts in existing homes at 10 percent more than the local average in areas with tight supply.

‘Superfluous’ Controls

“The rent controls are superfluous now,” Braun said. “Rent increases have climaxed.”

In Munich, Germany’s most expensive city, homes cost an average of 14 euros ($17) a square meter to rent and more than 5,000 euros a square meter to buy, Empirica said. The next most-expensive cities for renters are Stuttgart, Frankfurt and Hamburg, while Freiburg, Stuttgart and Hamburg have the highest purchase prices.

Germany issued permits for the construction of 212,600 new homes in the first nine months of 2014, which is 5.2 percent more than a year earlier, according to the Federal Statistics Office.

Empirica’s study collected data from real estate ads in Germany’s 112 biggest cities.

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