Empira Group Research: Resilience of German housing markets in a crisis context

German housing rents have been on a strong upward trend for many years. This pattern has been consistent in all major cities for the past 20 years, and there are strong indications that the basic trend will continue. However, risk considerations are becoming increasingly relevant. It is important to investigate how individual locations and their property markets react to weak growth and crises in the general economic environment.

The performance and development of a location are shaped by complex socioeconomic interactions, based on interconnected economies comprising manufacturing companies, private households and public institutions. The growth and stability of these networks are highly dependent on various economic factors.

Economic crises, defined as sustained disruption to the growth and momentum of national economies, rarely happen by chance, but are often the result of systemic weakness. These crises result in declining production and consumption, shrinking GDP and increasing uncertainty in the financial markets. Subdued economic growth directly affects employment and incomes, resulting in reduced demand, financing difficulties and potential insolvencies. Private households feel the effects in job losses and lower purchasing power.

Property markets typically reflect the general economic situation, but may also lead, lag behind or show differing intensities in their reactions to economic shocks. Economic crises weaken demand for real estate, because falling incomes and rising unemployment reduce household purchasing power. At the same time, tighter credit conditions and rising risk costs for banks lower the willingness to invest, which has a negative impact on the property market.

However, the impact of such developments is not the same in all regions. Cities with a diversified economy and strong housing demand are often more resilient to economic shocks. This study will therefore investigate the resilience of German cities and consider how economic crises have differing impacts on local property markets depending on specific regional parameters. The analysis is based on the assumption that the effects of economic crises on property markets depend heavily on the specific features and resilience of the relevant regional markets.

This study will highlight the diverse structure of cities, from their economic landscapes to their demographic make-ups and local property market dynamics. These differences cause varying susceptibility and resilience to the effects of financial crises. The findings of this study are key to understanding why some cities are better able to withstand crisis than others and offer valuable insights for proactive risk and investment management in real estate portfolios.

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