Inflation and Shortage of Building Materials: Why Real Estate Prices Keep Rising

The zero interest rate policy of recent years has made it possible for many to dream of having their own four walls. Cheap financing made some things possible. But what happens next?

There’s never been more money in circulation. The central banks’ zero interest rate policy makes this possible. And it was also made possible for many home builders to realize their dream: Ten years ago it was 4.5 percent interest on a real estate loan with a term of 15 years, at the end of last year it was an average of one percent. It was also possible to get a loan of half a million euros. But now interest rates are rising. Will this also cause property prices to fall due to possibly lower demand?

Experts rule out interest rate hikes

No, says Stefan Risse from the acatis fund company. Rather the opposite is the case. Because there will be no really big interest rate hikes for the time being. “If interest rates are raised, then they will probably only rise with inflation, and if that is the case, real assets will continue to rise – driven by inflation – real estate is real assets – that is, the price of them is likely to climb more quickly.”

That will not harm the large listed real estate companies such as Vonovia and Deutsche Wohnen – on the contrary, according to Risse. He sees the end of the flagpole at two percent mortgage interest. He considers an interest rate level like ten years ago to be out of the question in the next few decades: “Increases in the direction of four to five percent are completely unthinkable. How should the states, how should the heavily indebted companies – sometimes heavily indebted – then add their debts and their interest burden serve?”

Building is becoming more expensive on many levels

Despite the persistently low interest rates: One or two percent interest makes a difference. In addition, building is becoming more expensive. The economy is booming in China, a huge empire, entire cities are being built out of the ground in a short space of time, and China is also buying up everything from Germany that is available: wood, sand, steel. And pays huge prices. Due to the shortage of building materials, the costs of building in this country are increasing enormously.

Professor Günter Vornholz from the EBZ Business School in Bochum points out that twice as many apartments are being built today as ten years ago. There is therefore a strong demand for a lack of building materials. “Together, the products that are used in construction are significantly more expensive,” says Vornholz. In addition, there is the good business activity in construction: “This means that prices in the construction sector have risen sharply than they have been for years.”

Sought-after raw materials drive prices up

Not only will construction costs rise. Stefan Risse says everything is getting more expensive, especially raw materials. He gives an example: “A car powered by an electric motor needs four times as much copper as an internal combustion engine. That means that the price of copper should continue to rise, but also cobalt, lithium, silver. Everything that is used for batteries. Us. We are facing a new super cycle in terms of raw materials – and it will last longer. ”

These are all price drivers that fuel inflation. The Federal Statistical Office presented the latest figures today. Accordingly, consumer prices in June are 2.3 percent above the level of the same month last year. A slight weakening from the May figures, but it is unlikely to stay that way. The estimates are at three to four percent inflation rate in autumn.