Germany’s real estate market is facing renewed upward pressure on both rents and purchase prices, following a period of relative stability and even some price declines in recent years, according to the German Economic Institute (IW Köln).
The IW bases its forecasts on several key factors. One is the declining number of new builds: only around 215,000 new apartments are expected to be completed in 2026, down from 235,000 this year. Another is the steady rise in single-person households, which increases demand for living space even as the overall population grows.
While pointing to possible solutions, such as reducing real estate transfer taxes and lowering the high costs of land registry and notary fees, the IW also warns that buying property in five major German cities is becoming virtually unaffordable for all but the wealthiest residents.
How much will rents and property prices rise by in 2026?
Currently, the real estate market in Germany is marked by a shortage of affordable housing, particularly in metropolitan areas, while construction costs and interest rates remain elevated. As a result, experts at the IW forecast that property prices will rise by three to four percent in 2026.
“I expect a moderate increase of three to four percent, but not as rapid as in the 2010s,” IW real estate expert Michael Voigtländer told the German Press Agency.
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Several factors are driving these increases, according to the organisation’s analysis.
The number of people living alone continues to grow, pushing up demand for housing. At the same time, the supply of new apartments is shrinking due to fewer building permits in recent years. Rising construction costs and higher interest rates are also making it more expensive to build and buy homes.
The IW forecasts that even fewer new homes will be completed in 2026 than in previous years (215,000, well below government targets). In 2024, just under 252,000 apartments were built – the lowest number since 2015.
In addition, rising wages for many employees and substantial inheritances for a lucky few are also contributing to brisk demand for real estate. In 2024, Germany’s tax authorities recorded a record amount of inheritance and gift tax.
Bu the situation is far from uniform across Germany. The squeeze is overwhelmingly concentrated in cities, where job opportunities attract thousands of new residents each year, while at the same time there are around 1.7 million vacant apartments nationwide – mainly in rural areas – according to analysis firm Empirica.
In 2025, rents rose by four percent nationwide, but by as much as eight percent in large cities, according to the IW.
Revealed: Germany’s least affordable cities for property buyers
Munich tops the list of the most unaffordable cities in Germany for property buyers.
According to calculations by the IW, buyers from the top 30 percent of German households by income must spend an average of 43 percent of their disposable net income on financing the purchase of an apartment in Munich, well above the industry’s affordability threshold of 35 percent.
The IW's calculations focus on just the top 30 percent of earners because these are the people regarded as most likely to buy property.
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The other German cities rounding out the top five are Hamburg, Berlin, Frankfurt and Cologne.
In these cities, the so-called “affordability index” remains below 100 points, meaning that even high earners struggle to buy property.
The index, commissioned by mortgage broker Interhyp and calculated by the IW, measures how much of a household’s income is needed to finance a home. A score above 100 indicates affordability, while anything below suggests that the financial burden is excessively high.
What is the long-term forecast?
The IW believes the current trend of rising prices is unlikely to change significantly in the foreseeable future. The combination of strong demand, limited supply and persistent economic pressures means that both tenants and buyers should prepare for further increases in housing costs.
To make buying property more affordable, the organisation recommends reducing real estate transfer taxes and cutting the costs associated with land registry and notary services, arguing that these measures could help more people enter the property market and ease pressure on urban areas.
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With reporting by DPA.
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