ZADC
A sen for your rental housing thoughts A sen for your rental housing thoughts
Share this on WhatsAppBY Kate May It’s a fact that Germans can’t be bothered to buy a house as they like how their housing... A sen for your rental housing thoughts
Booking.com

BY Kate May

It’s a fact that Germans can’t be bothered to buy a house as they like how their housing system works.

According to rich-country think tank Organisation for Economic Cooperation and Development or OECD, more than 93 per cent of German respondents tell pollsters they are satisfied with their current housing situation.

So how did Germany do it? The country’s rental-heavy real estate market goes way back to the late 1930s and 1940s in extremely unpleasant circumstances. By the time of its unconditional surrender in May 1945, 20 per cent of its housing stock was rubble. About 2.5 million houses were gone; another two million were damaged. A 1946 census showed an additional 5.5 million housing units were needed in what would ultimately become West Germany.

The country’s housing and economy were in tatters. If Germans were to have places to live, some sort of government programme was the only way to build them. A housing programme would at the same time put people back to work and reduce the stress of the housing crunch.

 Then … a Quonset hut village in Berlin, Germany, in January 1946. Picture courtesy of Getty Images/Keystone.

Then … a Quonset hut village in Berlin, Germany, in January 1946. Picture courtesy of Getty Images/Keystone.

Soon after West Germany was established in 1949, the government pushed through its first housing law designed to boost construction of houses which “in terms of fittings, size and rent are intended and suitable for the broad population”. It worked and what followed was the rise in renting.

Homebuilding boomed thanks to 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 658,000 units.

The vast majority of the new housing units were rentals because of little demand from potential buyers as few Germans had enough money while banks required borrowers to pay large downpayments.

Germany wasn’t the only country with a housing crisis after World War II. Britain had similar crisis and its government also undertook large-scale spending to promote housing. Yet, the British didn’t remain renters. Why?
Economists think German housing policy struck a much better balance between government involvement and private investment than in many other countries.

For instance, in the United Kingdom, when the government gave housing subsidies to encourage building of homes after the war, only public sector entities, local governments and non-profit developers were eligible for them. That effectively squeezed the private sector out of the rental market.

Britain also imposed stringent rent and construction cost caps on developers of public housing – and housing quality suffered. Over time, the difference between publicly and privately financed construction became so glaring that rental housing, which was largely publicly financed, acquired a stigma. In other words, rental housing became housing for poor people.

Now … an OECD poll shows over 93 per cent of German respondents are satisfied with their housing situation.

Now … an OECD poll shows over 93 per cent of German respondents are satisfied with their housing situation.

According to economist Michael Voightlander, who has written extensively on Germany’s housing market, Germany also loosened regulation on rental caps sooner than many other countries.

By contrast in the UK, harsher regulations on rental housing stretched into the 1980s, pushing landlords to cut back on maintenance and driving quality of housing down.

Another simpler explanation for renting’s popularity in Germany may be it is relatively cheap. The regulations are favourable to renters. For example, German law allows state governments to cap rent increases at no more than 15 per cent over a three-year period.

There is another simple reason Germans are less likely to own homes as the government doesn’t encourage it. Unlike high homeownership countries like Spain, Ireland and the United States, Germany doesn’t let homeowners deduct mortgage interest payments from their taxes. Without that deduction, the benefits of owning and renting are more evenly balanced. Both homeowners and landlords in Germany are barely subsidised.

Those regulations, a solid supply of rental housing and the fact that German property prices rise very slowly mean German rents don’t rise very fast.

And because one of the main reasons to buy a home is to hedge against rising rents, the tendency of German rents to rise slowly results in fewer homebuyers and a lower homeownership rate. Its homeownership ranks among the lowest in the developed world and nearly dead last in Europe.

Another element is German banks are quite risk averse, making mortgages harder and more expensive to get.
Let’s hope it doesn’t take a war for countries with persistent affordable housing issues and crises in order that their people are satisfied with their housing situation.

There is more to homeownership than just building homes for sale because homes for rent are needed, too, especially for people struggling on low incomes.

Source: Excerpted from Quartz, a digital news network.

Property 360 Online

Property 360 Online is a news portal focused on major issues, views and major market movements in the Malaysian real estate sector.

Shares