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Germany is a tenant nation. Only 45 per cent of households live in ir own four walls, among OECD countries quota is only lower in Switzerland. That doesn’t have to be a problem per se. Many – including our – studies have shown that tenants are more mobile. This is important for a functioning labour market. Moreover, economies with a high rent rate are more robust because households are less likely to be in debt. And yet, at least two arguments argue that Germany would do well if we were to make it easier for people to create residential property.
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First, formation of wealth in Germany is underdeveloped. According to statistics from European Central Bank, German households have fewer assets than households in Spain, Italy or Ireland. You can argue for a long time about se statistics, for example because pension schemes such as pension insurance are not taken into account. Neverless, re remains a big difference, which is ultimately based on lower housing ownership.
In ory, tenants could, of course, save amount that owner uses to repay loans to build up assets. And y could invest se amounts in diversified portfolios that have a better return-to-risk ratio than home ownership. Alone: y don’t. Impressively, economic psychology studies show how hard it is for us to save for distant goals like a better pension. A loan that you have to pay off and where your own apartment hangs, is disciplined against it.
Reduce inequality
More home ownership would not only strengn individual wealth formation and pensions, but would also have an impact on distribution of wealth: While Germany is not in any way inconsistent with income inequality in international comparison, The differences in property in Germany are actually particularly large. Strengning residential property would reduce wealth inequality as more people benefited from rising property prices. In this way, broad strata could participate in benefits of capital market.
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is head of competence field financial markets and real estate markets at Institute of German Economy Cologne e.v.
Second, in current phase, home ownership is simply cheaper than living for rent. Many people may not believe this right at moment, but housing prices have risen sharply. In fact, interest rates have fallen even faster. In contrast, re are some strong rental increases, especially in cities. Even taking into account credit repayment – which serves to build up assets, tenant does not even carry out – financial burden of owners in many regions is considerably lower than that of tenants.
Due to low interest rates re is refore a time window in which home ownership is particularly favorable. And it is to be said that this time window does not close so quickly. We are now increasingly discussing a reversal in eurozone, but it will be done slowly and cautiously. In addition, ECB has a low impact on long-term interest rates – because y are determined by global capital market in interplay of savings and investments. As savings are very high and investments stagnate, many points to fact that low-interest phase continues until 2020s.
However, housing ownership has stagnated since 2010, ownership rate has remained virtually unchanged. This is mainly due to high entry hurdles in form of required capital. For example, anyone who wants to buy an apartment in North Rhine-Westphalia for 250,000 euros, which corresponds to German average price, has to pay around 28,000 euros in non-working costs: 16,500 euros for real estate tax, 8,900 euros for broker, rest for Notary and land register. In addition, bank expects a loan of at least 25,000 euros in equity. In total, buyer needs savings of more than 50,000 euros. However, only eleven percent of tenants have this. The overwhelming majority is thus in fact excluded from formation of ownership.
