• Jochen Möbert

No end of the boom in sight.

"In the German metropolises, demand for living space will exceed supply for even longer," says Jochen Möbert of Deutsche Bank: "House prices will therefore continue to rise.

I can understand that many are sceptical about the years of real estate boom in this country. Above all, because residential construction is actually growing strongly. The number of building permits finally rose last year to 375,000, an increase of 20 percent on the previous year and the highest level since 1999. And according to our calculations, the number of completed apartments is likely to have risen to 276,000 by 2016 - ten percent more than in 2015;

  However, there is little to suggest that this indicates the end of the current trend on the housing market. No significant rise in interest rates is to be expected. Noch migration to Germany and consequently the demand for housing is declining. Even the strong increase in supply is not massive enough to lead to a significant rise in vacancy rates, which could then cause the rise in rents to lag far behind the average price trend. And last but not least, there is also no threat of a fire from the economic side.

I therefore see no reason at the moment why prices should not continue to rise. Let me illustrate this with the situation in some German metropolises. In Munich, for example, between 2011 and 2016 around 45,000 apartments for 900,000 people were built. According to official figures, however, the population grew by 200,000 over the same period. Already now there are about 55000 flats missing in the city. And the vacancy rate is just 0.2 percent;

Or take a look at Berlin. In 2016, prices climbed more sharply there than in any other major German city. Nevertheless, the level is still comparatively low. At the moment you can buy a Munich single-family house three in Berlin. Added to this are the lack of building land, the high discrepancy between the number of building permits and the actual, much smaller number of completions, as well as the continuing influx of new residents;

Although around 44,000 apartments have been added in Berlin since 2009, the number of inhabitants has increased by 1,500,000. Here, too, we have a demand overhang that is underpinned by developments on the labour market. Since 2009, employment has grown by 20 percent, while last year the unemployment rate fell to below ten percent. According to the city of Berlin, another 250000 inhabitants are expected to be added by 2030. In view of the shortage of space and the slow implementation of construction projects, this continuously increasing demand for housing will therefore be met by a rather inelastic supply of housing. This means that prices will continue to rise here as well.

For Hamburg we are a little more cautious. After all, the increase in rents there was not half as great as in the other German metropolises. Wir therefore assume that the excess demand is not quite as high as in Berlin or Munich.

By the end of the decade, we estimate the additional housing demand in Germany at one million. Around 276,000 apartments were completed in 2016. This year it should be more than 300000. Even if this dynamic continues, it will probably only be around 350000 in 2019. So that still doesn't cover the need. A demand overhang remains. Er will only be able to be reduced at some point from 2020.

If demand rises only slightly more strongly than expected or if the pace of completion slows down, it will be much tighter than previously am Wohnungsmarkt .

Don't get me wrong: the risk that the current overvaluations in house prices will end up in a bubble is high. But in the coming years almost all signs point to further rising prices. This year alone, prices in the German metropolises are expected to rise by a further 7.5 percent, and the national average will be six percent. Price dynamics are likely to remain similar in subsequent years.

In recent years, our forecasts have been highly accurate. So don't expect the current real estate cycle to end soon. ®