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Monday, January 27, 2014

Most Germans Don't Buy Their Homes, They Rent. Here's Why

It's just a fact. Many Germans can't be bothered to buy a house.

The country's homeownership rate ranks among the lowest in the developed world, and nearly dead last in Europe, though the Swiss rent even more. Here are comparative data from 2004, the last time the OECD updated its numbers. (Fresh comparisons are tough to find, as some countries only publish homeownership rates every few years or so.)
And though those data are old, we know Germany's homeownership rate remains quite low. It was 43% in 2013.
This may seem strange. Isn't home ownership a crucial cog to any healthy economy? Well, as Germany shows—and Gershwin wrote—it ain't necessarily so.
In Spain, around 80% of people live in owner-occupied housing. But unemployment is nearly 27%, thanks to the burst of a giant housing bubble.
Only 43% own their home in Germany, where unemployment is 5.2%.
Of course, none of this actually explains why Germans tend to rent so much. Turns out, Germany's rental-heavy real-estate market goes all the way back to a bit of extremely unpleasant business in the late 1930s and 1940s.
Germany%20Rentals.psd
By the time of Germany's unconditional surrender in May 1945, 20% of Germany's housing stock was rubble. Some 2.25 million homes were gone. Another 2 million were damaged. A 1946 census showed an additional 5.5 million housing units were needed in what would ultimately become West Germany.
Germany's housing wasn't the only thing in tatters. The economy was a heap. Financing was nil and the currency was virtually worthless. (People bartered.) If Germans were going to have places to live, some sort of government program was the only way to build them.
And don't forget, the political situation in post-war Germany was still quite tense. Leaders worried about a re-radicalization of the populace, perhaps even a comeback for fascism. Communism loomed as an even larger threat, with so much unemployment.
West Germany's first housing minister — a former Wehrmacht man by the name of Eberhard Wildermuth — once noted that "the number of communist voters in European countries stands in inverse proportion to the number of housing units per thousand inhabitants."
A housing program would simultaneously put people back to work and reduce the stress of the housing crunch. Because of such political worries — as well as genuine, widespread need — West Germany designed its housing policy to benefit as broad a chunk of the population as possible.
Soon after West Germany was established in 1949, the government pushed through its first housing law. The law was designed to boost construction of houses which, "in terms of their fittings, size and rent are intended and suitable for the broad population."
It worked. Home-building boomed, thanks to a combination of direct subsidies and generous tax exemptions available to public, non-profit and private entities. West Germany chopped its housing shortage in half by 1956. By 1962, the shortage was about 658,000. The vast majority of new housing units were rentals. Why? Because there was little demand from potential buyers. The German mortgage market was incredibly weak and banks required borrowers to plunk down large down payments. Few Germans had enough money.
It's worth noting that Germany wasn't the only country with a housing crisis after World War II. Britain had similar issues. And its government also undertook large-scale spending to promote housing. Yet the British didn't remain renters. The UK homeownership rate is around 66%, much higher than Germany's.
Why? The answer seems to be that Germans kept renting because, in Germany, rental housing is kind of nice....

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