Essay on Rise in Average Rent in Hamburg

1. Introduction

In Germany, find a new pace to rent is challenging and is always discriminatory. Experts have been forecasting a rise in the cost of renting for years in big cities. Demand for social housing has been increasing with fewer and fewer individuals being able to afford urban life. Over the years, rent has gone up to an extent smaller apartments cost almost twice than ten years back. This has been witnessed in large cities like Freiburg, Munich, and Hamburg. More people are moving into cities, which creates demand for housing (Gilbert, Alan, p.173). However, there are few apartments that can accommodate such people as most people in Germany prefer renting. This paper will determine the reasons as to why the average rent has been on the rise in Hamburg.

1.1. Problem Statement

With an increase in inflation rates and the cost of living, people desire to live in affordable apartments in order to retain more cash for savings. People in Germany can opt-in buying homes or renting depending on the level of income. In Europe, Germany has the most significant number of home-renters, and most people prefer renting to owning a home. According to statistics, only 39% of the total German population own homes. People prefer living in such industrial cities where they can commute to their workplaces easily. However, the rental charges have been increasing over the years, which has force individuals who cannot afford housing in Hamburg seek accommodation elsewhere.

1.2. Objectives

To analyze the factors which have contributed to the rise in average rent in Hamburg.

To evaluate what can be done to resolve the issue of average rent increase to ensure affordable housing in Hamburg.

2. Methodical Approach

2.1. Hamburg Housing Market

In Hamburg, the housing market is competitive, but when individuals know where to search, the process becomes more manageable. For most people, Hamburg is seen as the most beautiful city in Germany and has been ranked well internationally. The number of inhabitants in the city rose by a significant percentage from 2011 – 2017, but the demand for housing in Hamburg is lower as compared to other bigger cities. The labor market of the city has also been growing, considering the number of graduates who hold jobs in the city. In Hamburg, employment has risen over the years during the cycle by almost 20%, and the proportion of graduates rises by 23%. Research indicates that between 2005 and 2018, rent prices have increased by over 50% in German cities, Hamburg included (Mense, Andreas, Claus, and Konstantin, p.2). However, this has not been the case in other cities in the country. Experts relate the rise in rent prices to rising levels of inflation and the fact that such cities are industrial cities. Across Germany, on average, people who moved in other homes in autumn of 2018 paid €7.06 per month per square meter in their new apartments, which total 3.9% more than the preceding year. Residents have perceived this increment as a cold bore, taking into consideration other bills. This increment in average rent has raised the cost of living in Hamburg, and people have resulted in renting in other more affordable housing in other cities.

When it comes to housing policies in Germany, Hamburg is considered as the most progressive city. In 2016, the city’s administration established an alliance with developers to develop 10,000 new apartments. The alliance was termed as “Alliance for Housing,” and through the alliance, developers would be issues with building permits within the shortest time. Other cities have been emulating the example set by Hamburg in the housing sector. The project Oberbillwerder is perceived to relieve the city’s housing crunch, and the construction of 7,000 new apartments will be done by 2022. The construction will be done in a one square kilometer meadow tract and is intended to please environmental activists. The construction will serve over 16,000 residents as well as up to 7,000 jobs. Despite all these projects, the city has been worrying about the housing sector of the country due to inflated rents, and the effects have impacted the face of Hamburg. The average rent per month per square meter in Hamburg range between €10 – €12 (Mense et.al., p.3). This implies a small apartment of sixty square meters can cost €600 exclusive of utilities. As a result, people are being blown to once-neglected neighborhoods. Although, rent in Hamburg is not that high as compared to Munich, Frankfurt, and Stuttgart. The German Tenants Association predicts that rent will continue rising in the coming years.

3. Rise in Average Rent in Hamburg

3.1. Causes of Rent Increment in Hamburg

Low housing inventory in Hamburg has continued to be an issue in the housing sector. After realizing an increment in inventory at the end of 2018, and the start of 2019, the previous four months showed a decline in the number of homes sold in the city. In the year 2019, the overall inventory grew by a small margin for chosen kinds of real estate. There is still a considerable amount of inventory in the high-end market, but there is a shortage of rental property. Low inventory signifies that individuals would not be able to find rental properties to rent in their price range. Thus, demand for the rental property remains high, and vacancy low as the cost of renting continues rising. In Hamburg, the occupancy rate is high as the population in the city keeps on growing (Granath and Anna, p.95). People have preferred to live in Hamburg than in other cities in the country. This move has created a demand for rental apartments, and landlords have taken advantage of the situation and hiked the rental prices to meet the escalating demand. Typically, growth in a city’s population creates a demand for housing. With developers lagging in building more houses to meet the market demand, apartment hunters struggle for the existing houses. It is thus apparent that an increase in demand with constant supply would lead to the price increase.

The population in the city has also been fueled by the increasing number of graduates who hold full time and part-time jobs. For instance, technical colleges and universities have been on the rise, which has led to population growth. These students would also require to rent a temporary place to stay as they study in the city universities. Other students have been employed in the city in some full time or part-time employment, and as a result, they would require to live nearby to ensure efficiency in commuting to their workplaces. Thus, the struggle for existing rental apartments has led to an increase in the cost of renting, as real estate agents strive to meet the demands of all individuals (Granath and Anna, p.100). At the beginning of this paper, we have seen how people have desired to move into urban areas, whether they hold jobs or not. The tendency for individuals to move to metropolitan areas has been initiated by globalization and the desire to be identified to a particular part of the world. Therefore, this move has led to an increased population in the cities despite the fact developers have not responded to the increasing population. In the end, demand for houses grows. In the next section, we will discuss how inflation in Hamburg has contributed to the rise in average rent.

For individuals to occupy houses in Hamburg, they require to conduct thorough research regarding the location and suitability. High rents and housing shortages have driven the people of Germany to take action. This led to politicians to take actions as shortages in housing was driving the prices upwards. On average, an individual in Hamburg spends €859 every month in housing costs with regards to maintenance, rent, and energy consumption. Individuals living alone pay more than 40% of their income on the house relates expenses. Inflation in the city has been driving the price upwards, and people have been spending too much to cover monthly rental costs. In Germany, there is a fear of price instability, and a survey conducted in the country indicates current worry regarding inflation prevailing in the German nation (Birke and Peter, p.203). The German people have low confidence about their government making appropriate policies, and they anticipate inflation to rise in the coming years.

Although there has been a decline in 2018, over the medium term, inflation is expected to elevate. The type of inflation which is prevalent in Hamburg is house costs related. Whereas the rising price levels are regarded as a class of asset price inflation instead of classified as consumer price inflation, it has broad repercussions on the consumer price level. First of all, developers have a tendency to pass the high mortgage refinancing expenses by increasing rent prices. For example, rent expenses form a substantial part of the German consumer price index basket, which is 21%, and thus benefit through the overall inflation figure (Birke and Peter, p.205). In addition, in an environment where the prices of houses are on the rise like Hamburg, property holders have a significant capacity to upsurge consumption expenditure through borrowing against the higher asset appraisal. From 2007 to 2011, the prices in Hamburg have increased from 10% to 20%, which is a substantial disparity reliant on the property type and residential area. In Europe, inflation in rent has, in recent times, heightened, rather than mitigating, the still restrained growths in services and basic inflation (Birke and Peter, p.220). In this regard, the continued rise in inflation level affects the stability of prices, which in turn hikes the price of rent in Hamburg. In this section, we have determined how inflation influences the cost of housing. If not controlled, it could lead to individuals moving out of the city. Inflation similarly plays a substantial part in the prices of construction materials. The next section will discuss how material costs impact rent prices.

The high cost of building materials and transport causes landlords to hike the rent. As developers plan the construction of the property, it is imperative to strategize on the acquisition of materials. The price increase for building materials is standard in all countries, and this increase results in increased cost of housing. Building materials are fundamental construction materials such as concrete, bricks, and cement. The increase in the cost of building materials has been an international trend, and Hamburg has been affected by this trend. According to a survey conducted in Hamburg, the cost of building materials has risen by over 3%, which is high as compared to other cities in the country (Vogelpohl, Anne, and Tino, p.266). For instance, concrete materials have increased by over 2.5%, and reinforced steel saw an increase of 5%. These materials usually vary on a daily basis due to economic factors, which include inflation. There is a connection between high prices and inflation. In times of inflation, the prices of commodities rise as the stability of the prices is normally affected. With such an increase, the cost of building residential property rises, which in turn affects the cost of renting in the city.

Another factor which leads to such an increase is importation and transportation costs. In the construction industry, not all materials are usually available in the country; some must be imported to meet the requirements of construction. For instance, if developers in Hamburg import from other countries like the United States, the cost of transportation and importation would be high as compared to importing from other European nations. This is due to the concept of free trade, which does not apply to other countries on different continents. When importing, such goods would be taxed heavy duties, which would increase the cost of building materials. In turn, German realtors would increase the cost of rent to cover such transportation and importation costs. Adding to the cost of materials is the imposition of taxes by the German government. In order to encourage the development of residential houses in Hamburg, the government can subsidize building materials (Vogelpohl et.al., p.270). However, if the government imposes more taxes on such building materials, the cost of the building would incline, and developers would be required to recover the taxes from rent prices. Finally, building regulation in the city determines the cost of rent to a significant extent. If the government lays out more regulations with regards to construction such as environmental regulations, payment of land rates, and high taxes on rental income, landlords would be forced to charge high prices to tenants to recover such costs. Usually, payment of land rates is a requirement in many nations, as well as taxation on rental income. In the case of Hamburg, the city administration charge exorbitant taxes on rental income, and developers are required to adhere to other building regulations. For instance, the construction sector in Germany is presently being reformed by the Ministry of Economic Affairs and Energy. The Energiewende is one of the projects the country has initiated, which is affecting the construction sector due to recent regulations for old and innovative structures. Such provisions have been effected with the aim of minimizing the nation’s heating objectives in order to realize a near carbon-free construction stock by 2050 (Vogelpohl et.al., p.277). Such regulations by the government have greatly affected the cost of construction, and the construction sector cost fails to bear such costs due to the goal of making more profits. As a result, tenants incur the costs through rental charges. In this discussion, we have established how costs of building materials have a significant influence on the rent prices. This has been contributed by government regulations, taxes, and high import and transportation costs. In the following section, we will discuss how proximity industrialization and being among the bigger cities in Germany have contributed to higher rent prices.

Generally, Hamburg is among the biggest cities in Germany. The city is a significant economic zone comprising of biotechnologies, media, automotive, aviation, and maritime industries. The port of Hamburg plays an essential role in supporting foreign trade between Germany and neighboring European nations. These industries and trade activities have led to the growth of the city, and employment opportunities have increased in such sectors. For instance, Asklepios Kliniken GmbH consists of 12,000 employees, Airbus Operations GmbH 12,700 employees, and Deutsche Lufthansa 9,750 employees. According to statistics, 102,996 companies were situated in Hamburg, and this figure represented 2.9 percent of the total number of companies in the country. This has led to a population increase in the city as people desire to work for large corporations in the city (Fraeser and Nina, p.172). In addition, the cost of living in developed cities is usually high across the globe, as prices of goods and services are on the rise. The motive behind the increase in the cost of living is to compete with other global big cities, for instance, New York City in the United States or Paris in France. As a result, developers do not have problems hiking the prices of rent prices as they strive to meet the standards of such international cities. The city tenants thus suffer as they struggle to meet the hiked rent prices in various parts of the city. In this discussion, we have formulated how developers increase rent prices to match the international standards of bigger cities, which causes rent prices to upsurge in Hamburg. The following section will discuss what can be done to regulate the increasing price of housing in the city.

3.2. Mitigating the Issue of High Rent Prices in Hamburg

Hamburg city is experiencing a high demand for rental houses as it is one of the biggest cities in Germany. There no enough apartments to accommodate the rising demand, which has therefore led to an increase in rent prices. The German Tenant Association identifies the city as expensive and limited, and they state that the regulations established allow property-owners to impose whatever rates they decide on for their properties. This means renters can pay escalated prices of up to 40% more than the standard price (Fraeser and Nina, p.177). The tenants’ association contemplates the government can step in and act on the exploding rental prices. In order to combat shortages in Hamburg, the association encourages additional investments in what is referred to as social housing. Social housing comprises state-supported living structures where the state determines rent. This enables low-income earners to live in popular parts of the city. In addition to social housing, the tenant’s association trusts that a rental limit should be developed to keep rent charges in Hamburg reasonable. The establishment of limits would avert arbitrary rent prices and have already been introduced in Munich. Economists in the country advise that if the government wishes to expedite the construction of residential houses, it can eliminate or adjust some of the construction regulations which affect construction costs (Gilbert, Alan, p.181). Such laws and regulations include taxation on rental income, environmental regulation, and the imposition of land rates. Besides, it is essential to control other constraints such as import duties and inflation levels to ensure price stability. The government plays a crucial role in determining the cost of living in Hamburg. Therefore, it should be on the frontline in ensuring the construction sector is well supported through the provision of subsidies. Doing so would unburden the residents of Hamburg from the rising rent prices.

4. Conclusion

As discussed in this paper, the cost of living in Hamburg has been on the rise due to various factors, most of which have been contributed by the government. Over the past ten years, such rents have been on the rise due to the high cost of construction materials, increasing population in the city, industrialization, and government factors. Therefore, the government is required to take strict measures in establishing rent limits to ensure tenants are not charged exorbitant prices for apartments. Moreover, controlling macroeconomic factors like inflation is essential as it will ensure the prices of commodities are regulated, and consumers do not pay stiff prices.

5. References

Birke, Peter. “Right to the City—and Beyond: The Topographies of Urban Social Movements in Hamburg.” In Urban Uprisings, pp. 203-220. Palgrave Macmillan, London, 2016.

Fraeser, Nina. “Gängeviertel, Hamburg.” Making room: Cultural production in occupied spaces (2015): pp. 172-177.

Gilbert, Alan. “Rental housing: The international experience.” Habitat International 54 (2016): pp. 173-181.

Granath Hansson, Anna. “City strategies for affordable housing: the approaches of Berlin, Hamburg, Stockholm, and Gothenburg.” International Journal of Housing Policy 19, no. 1 (2019): pp. 95-119.

Mense, Andreas, Claus Michelsen, and Konstantin Kholodilin. “Empirics on the causal effects of rent control in Germany.” (2018). Pp.2-4

Vogelpohl, Anne, and Tino Buchholz. “Breaking with neoliberalization by restricting the housing market: Novel urban policies and the case of Hamburg.” International Journal of Urban and Regional Research 41, no. 2 (2017): pp. 266-277.