The widening chasm between existing rental contracts and new leases in Germany’s major cities is creating a burgeoning social and economic crisis, according to a new study by the Ifo Institute. The research reveals a deeply fractured rental market, where established tenants benefit from comparatively stable prices while newcomers face drastically inflated costs.
Since 2013, rents for new contracts in Germany’s seven largest cities have surged by approximately 75 percent. This alarming disparity contrasts sharply with the relatively modest increases experienced by those holding existing contracts, creating a two-tiered system that threatens to undermine urban growth and exacerbate social inequality.
“This development risks becoming a source of social unrest and a drag on urban development” warned Oliver Falck, head of the Ifo Center for Innovation Economics and Digital Transformation. “If workers can no longer afford housing in metropolitan areas, cities will lose economic strength.
The Ifo study quantifies the divergence, finding an average difference of €4.48 per square meter between existing and new rental rates – a staggering 48 percent premium. The gap is most pronounced in Berlin, where the difference reaches nearly 70 percent, followed by Munich (45 percent) and Hamburg (37 percent). Cities like Cologne, Frankfurt, Stuttgart and Düsseldorf are also experiencing significant gaps, ranging between 30 and 36 percent.
Simon Krause, Ifo researcher and co-author of the report, highlighted the increasingly unequal playing field. “A growing divide is opening on the housing market. Existing tenants are profiting from regulated and stable prices, while those searching for new rentals are paying significantly more. It can mean several hundred euros difference for the same location and apartment size – the rental market is becoming a lottery.
The study further illuminates the escalating burden of housing costs. Households with low incomes have seen their average rental cost as a percentage of income remain relatively stable at around 35 percent for existing contracts. However, for new renters, this figure has jumped considerably, topping nearly 50 percent in major urban centers.
This stark contrast is creating a paralyzing effect, discouraging mobility and hindering labor market responsiveness, according to Ifo researcher Pascal Zamorski. Existing tenants are reluctant to relinquish favorable rental rates, even if their current housing no longer suits their needs. “People prefer to stay in their affordable apartments, even if they no longer fit their life situation” he explained. “This reduces the mobility of people and impairs their availability for the labor market.
The Ifo report calls for a radical shift in policy focus towards increasing housing supply and improving efficiency. Experts advocate for measures that lower construction and transaction costs, accelerate approval processes and proactively promote the development of affordable housing. While rent regulation may offer temporary relief, the study argues that it fails to address the fundamental problem of housing scarcity. The report implicitly criticizes current approaches, suggesting a need for more systemic interventions to fundamentally reshape the German housing market and prevent further exacerbation of social and economic divisions.
