German housing affordability rebounds, but geographic chasm widens

After hitting rock bottom in autumn 2022, when homeownership seemed to slip beyond the reach of even well-heeled German households, a quiet recovery is underway in the nation's property markets. Yet this tale of statistical improvement masks a deeper story of geographic inequality and structural challenges that suggest the affordability crisis is far from over.

The latest Interhyp-IW affordability index tells a story of gradual rehabilitation, with the national reading climbing from a dire 87 points in autumn 2022 to just over 100 points in April 2025—crossing the mathematical threshold where homeownership becomes feasible for model households. This recovery represents a significant turnaround from the nadir of the interest rate shock, when soaring borrowing costs collided with elevated property prices to create what many described as the worst affordability crisis in a generation.

Prof. Dr. Michael Voigtländer from the German Economic Institute attributes this improvement to a convergence of three favourable factors: falling interest rates from their peaks, steady income growth, and property prices that have remained relatively moderate compared to the dramatic spikes seen elsewhere in Europe. "The combination of these elements has created breathing space for potential buyers," Voigtländer explains, though he's quick to temper expectations about a return to the halcyon days of cheap money.

Indeed, while the current index reading suggests mathematical affordability has returned, it remains dramatically below the 174-point peak recorded in May 2015 during the era of negative interest rates. Jörg Utecht, CEO of mortgage broker Interhyp, emphasises that those ultra-low rate conditions were "an exceptional situation that is unlikely to return in the foreseeable future." More tellingly, he notes that even during that period of maximum affordability, many Germans couldn't capitalise due to acute property shortages that pushed prices sharply upward.

The geographic story reveals a nation of stark contrasts that would make any property investor pause for thought. At one extreme, Saarland leads the affordability rankings with an index value of 151, followed by Saxony-Anhalt at 139 and Thuringia at 131—regions where homeownership remains well within reach of middle-class households. The district of Holzminden tops the individual rankings at 174 points, making it a veritable oasis of affordability in the German landscape.

Yet venture south to Bavaria, and the mathematics tell a starkly different story. Munich languishes at just 59 points, meaning the model household would need an income of €80,000 simply to reach the 35% threshold that defines affordability. The surrounding districts paint an equally challenging picture: Miesbach at 52 points, Starnberg at 54, and Garmisch-Partenkirchen at 53. These are the playgrounds of Bavaria's elite—including Tegernsee, where former FC Bayern president Uli Hoeneß and other millionaires have established their retreats—but they represent mathematical impossibilities for ordinary households.

The big seven cities—Munich, Berlin, Hamburg, Frankfurt, Cologne, Stuttgart, and Düsseldorf—remain particularly challenging, with index values ranging from Munich's dire 59 to Hamburg's relatively better 90. Yet the data reveals an intriguing opportunity that many overlook: cities with populations exceeding 100,000 but outside the elite seven register exactly at the 100-point affordability threshold.

The hidden urban opportunity

This statistical sweet spot encompasses cities like Chemnitz (118), Ingolstadt (106), and Erlangen (104), while Wolfsburg commands attention with an impressive 151 rating. "Forty-five percent of the model households we examined don't live in any of the top seven cities, but in these large cities or their surrounding areas," Voigtländer points out. "And affordability is noticeably better here." Utecht reinforces this theme, suggesting these markets merit serious consideration "whether as part of private retirement provision or for personal use."

The two-year comparison from April 2023 to April 2025 reveals improvement in 392 of 400 districts, with the most dramatic gains occurring in previously stressed markets. Munich recorded an 18% increase in affordability, while Berlin improved 14%. Hamburg surged 17%, Frankfurt climbed 15%, and Stuttgart also advanced 15%. These improvements reflect the unwinding of the acute stress that characterised the post-pandemic period, when interest rate hikes devastated purchasing power almost overnight.

However, recent trends suggest this recovery may be approaching its limits. The one-year comparison reveals that 175 of 400 districts have already begun experiencing slight declines in affordability, which IW experts interpret as evidence of market stabilisation rather than continued improvement.

Structural headwinds remain

REFIRE: While the statistical improvement offers welcome relief from the acute crisis of 2022, the broader fundamentals suggest caution is warranted. Germany's construction sector remains mired in crisis, with new housing starts at rock-bottom levels that virtually guarantee continued supply constraints. Voigtländer's prediction of 3-5% annual increases in both purchase prices and rents underscores the reality that today's "recovery" may prove ephemeral.

The index methodology itself—based on households in the top 30% income bracket—reveals how challenging the market has become for ordinary Germans. When even relatively affluent households struggle to meet affordability thresholds in major economic centres, the implications for social cohesion and economic mobility are profound.

For property investors, the data suggests a market in transition rather than transformation. While conditions have undoubtedly improved from the crisis levels of 2022, the geographic disparities remain extreme, and the structural supply shortage continues to underpin long-term price pressures. The recovery story is real, but it's occurring against a backdrop of diminished expectations and persistent challenges that suggest German housing affordability will remain a contentious issue for years to come.

The era of ultra-cheap money and abundant choice that characterised the mid-2010s appears consigned to history, replaced by a more constrained environment where regional arbitrage becomes increasingly important for both buyers and investors seeking value in Europe's largest economy.