Costly Residential Areas: Identifying A-, B-, C-, and D- cities in Germany with High Real Estate Prices - Luxury Real Estate: Identifying A, B, C, and D Cities with High Property Costs in Germany
In the heart of Germany, the housing market is a hotly contested battleground, particularly in major cities like Munich and Berlin. The persistent shortage of rental apartments, soaring prices, and affordability pressures have made apartment hunting in these cities a challenging endeavour, akin to securing a parking spot at an Ed Sheeran concert.
Munich, known for its high living costs, is one such city that experiences intense competition in the housing market. Berlin, with its complex navigation, follows closely behind. The situation is further aggravated by slow permit approvals, labor shortages, and rising construction costs, all contributing to a housing crunch. As a result, residential property prices in these cities have seen a steady rise, with Berlin and Munich reporting a 3.8% year-on-year increase in Q1 2025[1][2].
However, the story is different in smaller towns across Germany. While affordability pressures exist nationally, they are principally severe in major urban hubs. In contrast, rental prices and living costs in smaller towns remain comparatively more affordable. For instance, a one-bedroom apartment in Nuremberg averages around €848, and even less in towns like Amberg[3].
Trends such as remote work are shifting some housing demand away from major capitals to smaller towns and rural areas in Europe, potentially alleviating demand pressures somewhat outside major cities[4]. Nevertheless, smaller towns have not experienced the same degree of market tightness or the same level of bureaucratic and construction delays visible in large cities.
In conclusion, the housing market challenges—especially for rental apartments—are currently much more pronounced in Germany’s major cities like Munich and Berlin than in smaller towns, where prices remain more moderate and supply-demand balance is less strained[1][3][4]. This discrepancy underscores the need for targeted policies to address the housing shortage and affordability issues in major cities, ensuring a balanced and fair housing market across Germany.
[1] Statista (2025). Residential property prices in Germany. Retrieved from https://www.statista.com/statistics/1022315/germanys-residential-property-price-index/ [2] Deutsche Welle (2025). Germany faces housing crisis as prices soar. Retrieved from https://www.dw.com/en/germany-faces-housing-crisis-as-prices-soar/a-58064231 [3] Numbeo (2025). Cost of living in Germany. Retrieved from https://www.numbeo.com/cost-of-living/in/Germany [4] European Commission (2025). Remote work and its impact on housing demand. Retrieved from https://ec.europa.eu/info/publications/remote-work-and-its-impact-housing-demand_en
- To mitigate the challenges faced in major cities like Munich and Berlin, the German government could consider investing in community aid programs, providing vocational training in the construction industry to address labor shortages, and implementing policies that streamline the permit approval process to expedite housing development.
- As a viable alternative to maintaining a high-priced urban lifestyle, some individuals are choosing to invest in home-and-garden properties in smaller towns, where affordable housing and lower living costs can create a more financially sustainable lifestyle.
- Given the more affordable rental prices and less strained supply-demand balance in smaller towns, real-estate investors may find opportunities to capitalize on the housing market trends and invest in home purchases or rental properties there, without experiencing the same pressures faced in major cities like Munich and Berlin.
