Rent burden and real estate investment – where can investors still find growth potential?

What are our peak regions? Where is the rent burden highest?

Map of Germany Evaluation by district 

Around half of the respondents spend more than 30 percent of their household net income on rent.  Almost a third even spend more than 40 percent  – and that is already an overload.  Real peak regions cannot be identified via the survey results.  However, there are still tendencies, both upwards and downwards – where one would not necessarily expect them. For example, in the district of Calw in Baden-Württemberg, 60 percent of respondents said they spend less than 30 percent of their income on monthly rent. The same applies to Bayreuth in northern Bavaria or Meissen in Saxony. In Oldenburg and Trier, the situation is exactly the opposite – the majority of those surveyed here have to use more than 30 percent of their income for housing. Incidentally, this is also the case in Rosenheim, Bavaria, a region that is in principle stronger economically – but whose liveability here ensures growing demand and therefore also rising rental prices. It becomes critical when  the share of household net income spent on  rent exceeds the 40 percent mark. From then on, the budget is considered overburdened. 

The real peaks are more in terms of age groups. Especially younger people between the ages of 18 and 29 are most heavily burdened by rent. Which is not really surprising. Because younger people – especially students – usually have less income and live in prosperous university cities, where small apartments in particular are in short supply and therefore relatively expensive. A not insignificant proportion of the students – just under 35 percent – stated that they had to spend more than 60 percent of their income on rent. In contrast, 40- to 49-year-olds are the least burdened due to their advanced work experience and correspondingly higher income.

Evaluation of age groups

But what does that mean? In the regions where the rent burden is highest, are people in principle also the worst off and do they have to scrimp and scrape to make every penny go further? 

No, not in principle. In most cases, the opposite is the case. Because the perceived rent burden depends on regional purchasing power, in particular on the disposable income of private households. In other words, if you have a large purse, you will also feel the effects of a higher proportional rent burden less strongly.  If the disposable income of a household is significantly above the national average, it can also bear a higher rent burden and continue to have sufficient funds for necessary – and not so necessary – purchases.  Similarly, households with a lower disposable income are less able to absorb  an increase in a possibly lower rent burden and possibly neglect other relevant consumer spending.

So what should you orient your assessment of rent burden to when planning an investment in residential real estate?

The survey results do not show a clear positive correlation between a high rent burden and above-average disposable income.  Nevertheless, it can be assumed that especially in the districts with higher disposable income, the potential for rent increase is greatest.  Where people earn well, a few percent more does not have a direct effect on their usual consumption or lifestyle. 

If you are planning an investment and want to identify locations with the most promising growth potential, you should ask yourself: Where are purchasing power and incomes consistently high?  Where have they risen in recent years?  Where is the corporate landscape growing? And where are infrastructure projects underway that bring economic growth and new, high-quality jobs?  Thus,  where is the future potential high? It is precisely here that sustainable price increases  can be expected and realistic.

The survey results therefore also reflect the current market environment – the economically prosperous cities and regions in Germany are particularly popular with investors. We are happy to support investors in analysing the locations that are suitable for their individual objectives in these respects and in finding suitable properties and development projects.