Bigger city, lower property yields

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Runaway housing costs are such a big issue that even in the notoriously divided US Senate, 89 out of the 100 senators recently voted to pass the most ambitious legislation in decades to bring down housing costs. And there are many reasons for high rents and house prices in big cities, but one of them is simply the fact that big cities are… big.While housing affordability has become extremely low in major metropolitan areas like London, Paris or New York City, the situation remains more relaxed in Germany (though you wouldn’t know it if you spoke to Germans).Yes, house prices have gone up significantly in Germany as well. Still, an apartment in Berlin will cost you only about $8,700 per square meter in the city centre and about $13,400 in Germany’s most expensive city, Munich. Compare this to the average price per square meter in Paris ($14,300), New York City ($18,500) or London ($21,000), not to mention Hong Kong ($26,000).A team at the University of Würzburg analysed the cost to buy and rent residential space across Germany and found that bigger cities demand a premium. The charts below show the relationship between the number of inhabitants and house prices as well as rents across a large range of German cities.Bigger cities have more expensive housing.Source: Gehr et al. (2026)The main driver for this size premium seems to be that housing in larger cities is perceived to be safer in the sense that vacancy rates tend to be lower. If you lose a renter, it is much easier to find another person who will rent your flat in a large city than in a smaller city. The market is si…