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Is it harder for millennials to buy a home than their parents?

Significantly fewer young people than older people own a home, the statistics say: Why is that so? The requirements for a home have changed – and so have those for property buyers with increasing equity requirements.

The Institut der Deutschen Wirtschaft (IW) in Cologne published figures on the distribution of home ownership at the end of last year: just 12.4 percent of 25 to 34-year-olds own home – among the 65 to 74-year-olds this is already the case 58 percent and thus more than the German average, according to Statista, at 43 percent. In 1987, the number of 25 to 34-year-olds who owned their own home was 19.8 percent, according to IW Cologne.

Why is that? While buying a home was no picnic 50 years ago, some conditions have become more difficult, especially for young people.

More gross monthly salary, but less financial reserves

On the one hand, the requirements for a property have changed significantly: According to Statista, the average apartment size per inhabitant has increased by almost four square meters in the last 30 years alone – while it was 43.9 square meters in 1991, it was 47 square meters in 2019. This is probably why the German population grew by 3.5 percent over the same period (1991 to 2017), but the number of households increased by a full 17 percent. The Institute of Labor Economics (IZA) reported these figures last year.

In view of the fact that the average gross monthly salary in Germany has risen roughly three times since the 1970s – according to data from the Federal Statistical Office (Destatis) – one would think that the price for these requirements for a property would be affordable for buyers.

However, this is obviously not the case: Despite rising incomes, according to OECD calculations, the amount of money invested by German households has fallen over the past 25 years. Apart from that, the starting salaries of the younger generation are known to be lower than the salaries of managers with many years of experience.

Higher equity requirements but fewer reserves – instead more students

The IW Cologne writes: “Another reason for the falling home ownership rate [unter jungen Leuten] could be the increased equity requirement. ” Because credit institutions demand ever higher equity – which young buyers cannot show.

Statistically, according to the IW Cologne, it is three times more likely that couples own their own home than that someone buys a property alone. The IW formulation suggests that there are fewer couples in the younger generation who want to buy a house or an apartment than was the case, for example, in the generation of their parents – who married earlier and started a family.

Destatis data also show that the number of new students has almost doubled over the past 25 years. So there are fewer people between the ages of 25 and 34 who have already built up enough equity for a real estate loan.

Bulwiengesa real estate index: prices have risen (almost) steadily since 1975

Certainly there are solutions for all of this that enable the younger generation to buy their own home early – if this is even desired in times of globalization and the increasing popularity of city life.

Probably inevitable, however, is that real estate buyers will have to pay off their loans longer – because real estate prices have risen almost steadily since 1975 according to the Bulwiengesa real estate index. This process has been accelerated again in recent years: Due to the low interest rate, which enables cheap real estate finance loans, the returns have also decreased, which is why more and more investments have been made in real estate.

The increased demand, of course, also increases prices. According to Statista, the price for ready-to-build land has almost doubled in just 15 years: while a square meter cost around 100 euros in 2003, the price was 189 euros in 2018.

Image sources: Engel & Völkers_Mark Seelen

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