Economists are usually not responsible for feelings, but in this case they have even given the feeling a name: The “around 40-year-olds” are a “lost generation”, according to numerous studies and commentaries Real estate market. After the price increase of the past ten years, the generation between 35 and 45 – unlike their parents – can no longer afford their own house or apartment.
In fact, prices on the German real estate market have developed spectacularly in recent years. This is especially true for the metropolises, where the young people are known to particularly like to live. This is also frustrating because the desire for their own four walls is actually unbroken, even among young people. Depending on the survey, 70 to 80 percent of Germans still describe their own property as a goal in life. And the younger the respondents are, the more of them agree.
But does a whole generation really have to write off the dream of owning a home because they can no longer pay for it? After all, not only have the prices risen rapidly, but the interest rates for building loans have also fallen dramatically – the first banks are now offering ten-year mortgage loans for less than 0.3 percent, i.e. virtually for free. Personal-Financial.com therefore asks the question the other way around: What can the generation around 40 actually still afford today? Compared to your parents, but also specifically in euros and square meters?
It is there: affordable space
The good news first: In many regions of Germany you still get a lot of space for your money, even more affordable than our parents’ generation would have dreamed of. This is proven by the affordability index of the analysis company Empirica, which is currently at a record level: prices have risen, but the fizzy interest rates more than make up for it. At least so far. In the vast majority of German districts, one square meter of living space currently costs less than 2000 euros, according to Postbank surveys. So in many places you can get a house for 200,000 euros, even if, admittedly, the crowd there is limited.
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Otherwise, however, the closer you get to the country’s large and medium-sized cities, the prices have exploded in just ten years. Since 2008, prices per square meter in the big cities – 37 percent of the population live here – have roughly doubled. In Wuppertal, for example, an average square meter of living space now costs 1,300 euros. Not even 15 years ago it was almost 50 percent less, says the city’s real estate market report. According to the Federal Statistical Office Destatis, houses and apartments are now twice as expensive as they were in 2000 on average in the country. Compared to 1975, prices have even increased three and a half times.
House prices of 400,000 euros and more are already being called up in small and medium-sized cities. And if you are looking for a family-friendly apartment in Munich or Frankfurt, you should expect between 600,000 and 800,000 euros. So you really have to be a millionaire there to get involved. But aside from the extremes: has real estate really become unaffordable today?
It depends on the period
To do this, you have to look at the income with which buyers have to finance such prices: If you compare the average gross salaries in 2000 and 2018, however, you will tend towards the pessimists. Because according to Destatis, wages and salaries rose “only” by around 10,000 euros, namely from 25,500 to 35,200 euros.
However, the short period of 18 years distorts the result tremendously. If you take a look back to 1975, the average employee now earns around three and a half times as much as they did then. So his income rose just as much as house prices, which is not so much more difficult for today’s 40-year-olds than their parents.
Such average considerations should always be treated with caution because their informative value is limited. What do rough mean values from city and country say about people in Munich, Hamburg, Frankfurt or Berlin? However, economists argue that the high prices there are also not a problem, after all, incomes are also considerably higher there.
An impressive number also comes from Postbank’s residential atlas and reads as follows: While in most German districts a monthly amount of around 200 to 500 euros was recently enough to finance a 70 square meter apartment (with a 20-year loan period and 20 percent equity) – which sounds absolutely affordable – Allgäu or Baltic Sea residents had to raise 700 to 900 euros, that is also possible. Cologne and Taunus residents up to 1100 euros and Munich even up to 2100 euros per month. According to city statistics, this corresponds to almost the total net income of around half of all Munich households.
The big cities are the problem
At the same time, if one adheres to the widespread expert advice not to spend more than 30 to 35 percent of their income on housing costs, the average earner is no longer able to buy a 70-square-meter apartment. At least not if you want to pay them off in 20 years. Today’s buyers have to pay off their loans much longer, this is also shown by another key figure: While between 1995 and 2010 five to seven annual household incomes were enough to pay off a property in Munich, it is now eleven to twelve annual salaries. In relation to the annual rent, the purchase prices in the seven largest cities have increased significantly, they are currently 27 annual rents, in Munich even 34. A value of 21 is actually considered healthy in the long term.
Not surprisingly, the rate of owner households has stagnated at 45 percent for years. Although around 80 percent of Germans dream of owning their own home, only around one in two actually make the leap into their own four walls. Even the quasi-zero interest rates have not changed that. Since 2002, the number of first-time buyers has almost halved from 700,000 households per year to 400,000. On the other hand, the age of home buyers is rising: Those who move from rented apartments to their own homes are significantly older at 48 years of age and are already high earners, the household has an average of 4,000 euros per month, in 2010 it was around 3,000 euros.
The fact that first-time buyers are getting older is partly due to the fact that the training periods are longer. Many of them enter their careers later, are more mobile and therefore attach themselves to places and houses later on. Most of the boys lack one thing above all: the necessary equity to buy a house. Along with the prices, the ancillary acquisition costs have exploded, making market entry even more difficult.
In addition to the usual 20 percent of the purchase price as equity for the loan, there are also real estate transfer tax, brokerage and notary fees, which also have to be paid for from the savings. With an average property for 400,000 euros, this quickly adds up to 120,000 to 140,000 euros. According to a study by the Institut der deutschen Wirtschaft (IW) in Cologne, only the 20 highest-earning percent of the population bring this with them. If the city apartment costs 600,000 euros, you have to bring as much equity with you as the average German borrows: 200,000 euros.
What really remains of the budget
If you still overcome this hurdle, it is best to do the following calculation: 30, a maximum of 35 percent of the regular household net income is the upper limit for the residential budget. From this, buyers first deduct the roughly estimated monthly ancillary costs for house money (heating, water, electricity, etc.) as well as the maintenance reserve – for a 70 square meter apartment this is easily 200 to 250 euros. The rest is then free for the monthly loan installment. With a household income of 2,000 euros, this leaves a good 500 euros per month; with 4,000 euros it can be 1,000 euros. Depending on how much you still have saved, you arrive at an affordable apartment size and a suitable purchase price.
“While the ongoing burden of interest and repayment is bearable for most households because of the fallen interest rates, the capital requirement at the beginning far exceeds the savings,” says IW real estate expert Michael Voigtländer. Prospective buyers should have saved over 50 percent more today than five years ago. This is particularly the brake on the majority of those willing to buy.
In order to still fulfill your dream of having your own house in the country or your own city apartment, there are now two options: either start saving as early as possible and ambitiously. Or you lower your expectations: Older buildings also have their charm, and maybe you can actually do some things yourself. Maple parquet doesn’t necessarily look worse than oak flooring either. Above all, your own effort is worth cash and realistically saves 15,000 to 30,000 euros, say building associations. However, many shy away from the effort.
Another possibility: Instead of an individually planned new building, you buy a prefabricated house: You can get good properties from 200,000 euros, even luxurious models cost “only” 300,000 euros.
Or you break away from the city and look around the edges. 30 kilometers away from the big cities, the square meter prices are often up to 1000 euros cheaper. You could also buy a smaller apartment, which you will move into later, and only rent the large family home until then.
And do families of four really have to live in 150 square meters? Our parents, who supposedly had it so much easier with their own home, were on average 90 square meters enough for four people. At today’s construction prices, even 30 square meters less save 60,000 to 75,000 euros. The same applies to the property: 50 square meters less land save 36,000 euros in Hamburg, 50,000 euros in Frankfurt and 100,000 euros in Munich. Minimalism is the big trend of our time.
The article was published in the Personal-Financial.com special issue “The big dream of the house”. You can order it in the Personal-Financial.com Shop