Currently in the UK it seems like the ultimate dream is to own a house, with many people taking out lifelong mortgages to be able to achieve that dream.
However, the same doesn’t happen in Europe, with surveys showing that the majority of people have a tendency to rent their homes.
For a Brit it’s a hard fact to accept, but it’s 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 last in Europe, though the Swiss rent even more.
In Germany home ownership is not viewed as a crucial aspect of life. In Spain, for example, around 80% of people live in owner-occupied housing, while in Germany only 43% own their home.
Research shows that Germany’s rental-heavy real-estate market goes all the way back to the late 1930s and 1940s.
The Second World War started and ended with Germany as a focus point. By the time the war was over in May 1945, 20% of Germany’s housing stock was rubble. Some 2.25 million homes were gone, and another 2 million were damaged due to the heavy bombing. A census showed an additional 5.5 million housing units were needed in what would ultimately become West Germany.
Alongside the destruction came the economic catastrophe after the war. The financial situation was nil and the currency was virtually worthless. The population needed places to live and some sort of government program was the only way to build them. After Germany was split in two by the Americans and the Soviets, each country was responsible for developing their side.
A housing program would simultaneously get people back to work and reduce the stress of the housing crunch. West Germany designed a housing policy that would benefit the majority of the population.
The rise of renting
West Germany was established in 1949, soon after that the government pushed through its first housing law. The law was designed to boost construction of houses which would be “suitable for the broad population” even though they resembled war bunkers.
The law worked, thanks to the combination of direct subsidies and generous tax exemptions available to public, non-profit and private entities; West Germany was experiencing their first home-building boom after the war.
In 1962, the shortage in housing was about 658,000 and the majority of 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 and few Germans had money.
Aside from the historic factor, Germans kept renting because rental housing is nice.
Economists think German housing policy struck a much better balance between government involvement and private investment than in many other countries. For example, the UK government only gave post-war subsidies to public-sector entities, local governments, and non-profit developers. That consequently squeezed the private sector out of the rental market. In Germany, “the role of public policy was to follow a third way that involved striking a sensitive balance between ‘letting the market rip’ in an uncontrolled manner and strangling it off by heavy-handed intervention,” wrote economist Jim Kemeny, of the German approach to housing policy.
Britain also imposed stringent rent and construction cost caps on developers of public housing. Under those constraints, housing quality suffered. Over time, the difference between publicly and privately financed constructions became so glaring that rental housing acquired a stigma attached to poor people.
Germany also loosened regulation of rental caps sooner than many other countries, By contrast in the UK, harsher regulation on rented housing stretched well into the 1980’s pushing landlords to cut back on maintenance and driving the quality of housing down still further.
In the Germany rents are much cheaper than in the UK, because even though the country’s policies might have been slightly more balanced than in other countries, its rental market is still robustly regulated, and the regulations are quite in favour of the renters.
Given the housing crisis in countries like the United States, Spain and Ireland in the recent years, the German approach to housing looks pretty good right now. German people seem to like how their system of housing works, according to the OECD, more than 93% of German respondents tell pollsters they’re satisfied with their current housing situation. That’s one of the highest rates of any nation the rich-country think tank surveyed.