Buying a house in Germany still unaffordable for many, report finds

Despite falling house prices and rising incomes, buying a house is still beyond the reach of many in Germany, according to a new “affordability index” by the Cologne Institute for Economic Research (IW). In some areas of the country, however, buying a house is now cheaper than renting. 

Affordability rising in Germany, but house purchase still beyond many

After experiencing a slight dip in 2024, property prices are rising once again in Germany. According to the Association of German Mortgage Banks (VDP), the cost of houses and apartments in the second quarter of 2025 rose by 1,1 percent compared to the previous quarter, the fifth consecutive quarterly increase. 

However, according to a report in Business Insider, prospective homebuyers are in many cases in a better position than they were a year ago. Recently, the Hamburg Institute of International Economics (HWWI) found that purchase prices fell by 0,7 percent in 2024, while average incomes rose by 3,6 percent. 

IW affordability index shows properties are more affordable in 2025

In its latest affordability index, put together with Interhyp, a mortgage broker, the IW found that affordability had actually increased in 392 out of 400 regions between April 2023 and April 2025, dpa reports. 

According to the IW, a purchase is considered “affordable” if buyers have to spend a maximum of 35 percent of their monthly net income on financing it. In the index, this 35-percent ratio is given a score of 100. The higher the score is above 100, the more affordable the property is considered to be. The average score for Germany is currently 100, higher than it was two years ago, but significantly lower than in 2015. 

Where in Germany is buying a house still affordable? 

In federal states like Saarland (151), Saxony-Anhalt (139) and Thuringia (131), buying a house remains relatively affordable. Indeed, the HWWI found that in some of these regions, buying is even cheaper than renting: in Mansfeld-Südharz, buying a house costs the average person 7,8 percent of their net income, compared to 11 percent for renting. In Vogland (7,4% vs 10,2%), Greiz (7,1% vs 9,9%) and Saale-Orla (8,6% vs 11,4%), home purchases are equally affordable. 

Nonetheless, owning a home is still barely affordable for most residents of the largest German cities and their surrounding areas. The seven largest cities are all under the affordability threshold, with index values ranging from 59 for Munich to 87 for Berlin and 90 for Hamburg.  

Prices likely to rise in future

Since new housing construction in Germany remains sluggish, the IW predicts that affordability will not increase in the cities. “This will tend to further price increases,” said Michael Voigtländer, a real estate expert at the IW. He added that price rises in the rental market would most likely outpace rises in the purchase market. 

The IW report said people who can afford to capitalise on the market now would benefit in two ways: both from lower prices and increasing affordability, and also by protecting themselves for potentially higher future rents. He called for the federal government to put more money into new construction to help alleviate the situation for those who cannot afford to buy.