In the U.S., home ownership is regarded as a positive for society. The political class talks about an ownership society and promotes home ownership through the tax-code. Here Quartz explains why and how Germany became a country of renters. The home ownership rate in Germany, one of the richest countries in the world, is only 43% compared to 66% in the U.S.
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 renteven 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.)
Why is renting cheap in Germany? Well, 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 favorable to renters. (Given the strong political constituency renters represent in Germany, this shouldn’t be too surprising.) For example, German law allows state governments to cap rent increases at no more than 15% over a three-year period.
There’s another pretty simple reason Germans are less likely to own houses. The government doesn’t encourage it. Unlike high-homeownership countries like Spain, Ireland and the US, Germany doesn’t let homeowners deduct mortgage-interest payments from their taxes. (There’s more on the structure of European tax systems here.) Without that deduction, the benefits of owning and renting are more evenly balanced. “Both homeowners and landlords in Germany are barely subsidized,” wrote Voightländer in a paper on low homeownership rates in Germany.Those regulations, a solid supply of rental housing, and the fact that German property prices historically rise very slowly —that’s a whole other story—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.
Jeremy Jones, CFA
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