Der Eigentumsskandal – Book Review: Why are Germans so averse to property ownership?

Waiting for a clear-headed analysis of Germany’s housing market is like waiting for the 46A bus in my home town of Dublin. You wait ages, and nothing happens. Then along come two together, all at once. What a waste - the first bus gets all the waiting passengers, while the second bus rides along in its wake, practically empty.

Now the first thing to be said is that - this being Germany, two buses never come along together. They arrive as they’re scheduled to arrive, at intervals of ten minutes. And almost inevitably, within a minute of their promised arrival time. The driver, if delayed, will do everything to make up for lost time to ensure that the system remains overall highly reliable.

Recently two books on Germany’s housing market appeared within weeks of each other, albeit with a different emphasis. This review concerns Der Eigentums Skandal, by Jürgen Michael Schick and Josef Girshovich (the other, Wohnwahnsinn by Utta Seidenspinner, while addressing other aspects of the market, can be usefully read as a companion volume).

The sub-title of Schick and Girshovich’s book Der Eigentums Skandal is “How Politics Hinders our Wealth and What We Can Do About It”. This they proceed to explain, with the authors examining, in a highly readable and clear-headed manner, just why the German residential housing market differs from many of its first-world fellow nations in crucial ways.

The authors are both active market participants, with Schick heading up a real estate brokerage as well as being an active spokesman on behalf of residential property owners. Not surprisingly, the thrust of the book is that Germans need to invest more in their own property, for a variety of reasons that are dealt with clearly and competently for the lay, as well as the professional, reader.

For many foreigners, it is indeed surprising how few Germans own the properties they live in. With home ownership rates of about 45%, Germany holds the wooden spoon in home ownership in Europe, with the exception of Switzerland, which has its own historical legacy making home ownership less necessary or possible. In the big German cities the home ownership rate is even lower, at a mere 15% in Berlin, for example.

But if Germany can keep all those buses and trains running on time, why are so many Germans sitting on the sidelines while a raging property market makes it all but impossible for many to profit now from rising prices? Or even to give themselves a fair chance of the rising tide lifting their boats, too?

Since the publication of this timely book, unease in Germany has risen even further about its housing markets, particularly in the big cities, with Berlin to the fore in proposing draconian new measures to counteract what it views as real estate profiteering. These include tabling motions and lining up referendums for outright expropriation and re-nationalisation of housing resources. The hysteria is set to escalate in the coming months, and at the time of writing (mid-February 2019) it’s not at all clear where this will end.

The authors comprehensively examine why Germany so lags in its willingness to become a nation of property owners. The main arguments are well-known - strong legal protection for tenants, an aversion to debt, abnormally high transaction costs, and a general unwillingness to take on the responsibility of house and building maintenance. Added to that, as this reviewer can attest to after many years of living in Germany, is what could best be described as a widespread indifference (or even ignorance) towards matters financial, and an educational approach to capitalism that often disdainfully views money matters as being best left to specialists.The traditional assumption that the state will look after its citizens in their old age is one that Germany’s ageing population is loathe to abandon. The post-war social contract, whereby those at the bottom pay in heavily to support the older generation with their generous pensions, is crumbling at the seams - but no beneficiary of the payouts - that were designed with a different industrial and demographic structure in mind - will ever countenance handing anything back.

Meanwhile, the signs of old age poverty across Germany are becoming impossible to ignore. Without more people buying property as a bulwark against being compelled to pay ever-rising rents out of paltry pensions in their old age, Germany is headed for social unrest and even more extreme voter dissatisfaction, the authors caution.

What’s needed is nothing less than a completely new form of thinking about property in Germany, argue the authors persuasively. The assumption of “tenants good, landlords bad” has deep cultural roots in Germany, despite its diminishing relevance, and is widely adhered to, particularly in political discourse.

But the truth is that no amount of housing conferences, tenant protection summits or similar time-wasting distraction maneuvers are a substitute for the real problem - the lack of affordable housing units. Only new building to meet the demand will solve this problem.

In the meantime, the vicious circle is completed - the lack of housing leads to rising rents and prices, and a greater determination by a significant minority to stay put at any cost. This portends more trouble ahead.

In a perverse way, the ingrained German craving for security and stability perhaps plays a key role in contributing to the ongoing unwillingness to embrace a fresh approach to property ownership. The authors identify a key attribute that holds potential buyers back - a basic lack of respect for ‘earned’ property, and a lack of willingness to take responsibility for property ownership. Of course, after 20 years of living in the same rented apartment, a form of ‘ownership’ has evolved - but without any of the financial benefits, such as price appreciation and the paying down of a valuable asset, which accrue in their entirety to the actual landlord. But old habits of looking to the state to solve social problems die hard.

In fairness to the authors, Schick and Girshovich don’t shy away from pointing out the hurdles on the way to more home ownership - and they are not insignificant. High levels of stamp duty (frequently 6.5%, depending on the federal state), very high brokerage fees of up to 7.5%, and sometimes obsessively restrictive lending requirements by risk-averse banks make property acquisition in Germany admittedly a more serious undertaking than in many other countries. This reflects the overall cultural bias towards caution in all things, with a tendency towards risk avoidance rather than opportunity maximization.

These biases will be hard to shift, but the authors provide a series of realistic reforms that must be enacted if things are to change. They address issues such as provision of more equity capital subsidies to help people raise the required deposit (at least 20%), such as the Baukindergeld initiative, which is already helping many families imagine the ownership of their own four walls. Lower stamp duties will help, as will a more balanced legal framework supporting landlords, and potential builders.

Without a lot more building, in any event, the upward spiral of rents and prices is fated to continue, causing more pain and anger to those who see it all slipping further out of their reach.

The building blocks for such a shift in attitudes have to be laid and fully supported by politics at the highest federal level, argue the authors. Nothing short of a national initiative to foster a more understanding approach to the positive benefits of home ownership will see any meaningful change to the residential property climate in Germany, they conclude.

This isn’t going to be easy. But Der Eigentums Skandal provides a very useful blueprint to developing a platform that can slowly take the fight back to those who want to see a fairer, more enlightened German approach to this thorniest of social dilemmas. It is a timely and welcome addition to a serious debate in a rapidly shifting economic environment. Germany needs to wake up.