German home ownership rates fall yet again

For the first time since 1993, the proportion of German households living in their own home has fallen. By end-2018, the last time when reliable figures were available, the home ownership rate was just 42% percent, one percentage point lower than five years ago, according to an analysis by the Berlin-based research institute Empirica in cooperation with the Landesbausparkassen (LBS). This is the lowest rate in the EU, and only Switzerland in Europe has a lower rate of owner-occupation.

Romania has the highest rate of owner-occupiership in Europe, with 95.8% of households owning their own four walls. The UK and France, for example, have rates above 65%.

The study is carried out every five years and is based on samples from the Federal Statistical Office for 2018, for which around 60,000 private households were surveyed.

Regional differences play a big role in Germany, with eastern Germany still lagging the west despite a strong catch-up after re-unification – a trend which has since stalled. At just over 36%, the home ownership rate in the new federal states is still some way below the figure in the west (just under 45%). However, the recent sluggish development is not solely an East German problem.

Part of the problem is the absence of younger owners inn the mix, the report demonstrates. Across Germany, the proportion of 70- to 79-year-olds in home ownership has climbed sharply over the past 20 years. The reason, according to LBS, is a generational effect: Thanks to their wealth advantage, today's West German seniors had an easier time than the war generations in acquiring home ownership. The majority still live in a house that they often built in the 1970s.

With a home ownership rate of 58%, 70- to 79-year-olds have outperformed all other age groups in western Germany, while the picture is different for the younger generations: Among 30- to 39-year-olds, for example, only 25-30% are likely to own their own property.

Family formation and rural exodus as life circumstances change also play a role in the declining home ownership rate, according to the study. Two-thirds of couples with children live in their own home, while childless couples of the same age are only 50% likely to do so. The rate is higher the earlier families are founded, say the Empirica researchers. By contrast, singles are more likely to remain renters.

However, more and more young people are striving for higher professional qualifications by studying, and are therefore moving to the cities and staying there longer. This often means that starting a family is postponed further, and being a tenant is prolonged.

The financial hurdles for first-time buyers in expensive cities have also become higher. Property prices have risen so fast that savings and equity cannot keep up with real estate prices, LBS said. Despite the pandemic, prices for houses and apartments have just risen at the fastest rate in almost four years, according to data released by the Federal Statistical Office end of December.

Between July and September, i.e. the third quarter of 2020, prices were 7.8% higher than a year previously.

As a result, the pool of potential buyers is shrinking. It’s not helped either by government and local council moves to convert rental apartments into owner-occupied condominiums, which we’ve reported on in these pages. The recent new changes to broker commissions, also described elsewhere in REFIRE, is an attempt to lower the hurdles to home acquisition by splitting the costs between buyer and seller. But it’s unlikely to transform German home ownership rates for the foreseeable future.