Germany’s rental market is outpacing incomes

In major German cities, asking rents have been rising significantly faster than real wages since 2023. At the same time, housing construction fell to 206,600 completions in 2025. This is increasing the pressure on project developers, investors, and cities to provide affordable housing.

Germany’s rental market continues to diverge from income trends. In the largest cities, asking rents have risen by as much as one-fifth in some cases since 2023, while real wages rose at a significantly slower pace during the same period. This shortage is evident not only in new leases but also in new construction, which saw another sharp decline in 2025 with 206,600 completed apartments.

Munich remains the most expensive market, with a base rent of 21.44 euros per square meter for newly listed apartments. Hamburg has recorded the sharpest increase since 2023, at 20.2 percent, followed by Dresden at 18.0 percent and Frankfurt am Main at 17.7 percent. Berlin, at 14.39 euros per square meter, is now also among the leaders. For low- and middle-income households, this is narrowing their options, even though purchasing power has recently been under less pressure than during the previous years of inflation.

New construction remains the bottleneck
The main driver is the lack of new housing supply. According to available data, only 206,600 apartments were completed in Germany in 2025. That was 18.0 percent less than the previous year and significantly less than the politically set target of 400,000 apartments per year. For the real estate industry, this makes it clear: rental pressure is not just a price phenomenon, but the result of persistently weak construction activity.

There are no signs that the situation will ease in the short term. Although building permits rose slightly again in 2025 to 238,500 apartments, it takes time for approved projects to actually be built and marketed. At the same time, high construction costs, challenging financing, and cumbersome procedures remain obstacles for new residential projects.

Consequences for Cities and Developers
For owners, developers, and municipalities, the focus is thus shifting further toward feasible projects in high-demand locations. Where building land remains scarce, procedures are lengthy, and financing costs remain high, the supply responds only slowly. This affects more than just major cities. The sharp rise in rents in cities like Hamburg and Dresden, in particular, shows that the shortage is spreading regionally and is no longer limited to individual high-price markets.

For the housing market, this means one thing above all: without more new construction projects being completed, the gap between income and market rents will persist. The policy target is well known. However, the key factor will be whether approved projects are once again translated into completions more quickly.