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Landlords in Germany benefit from favourable tax treatment
Imagine two neighbours in the same apartment building in Munich. Both bought identical apartments for €300,000 in the same year, under the same conditions, with the same financing. One lives in their apartment. The other rents it out. After fifteen years, the landlord has achieved a return on equity of just under nine per cent. The owner-occupier has achieved around six per cent. The difference in present-value terms, according to a new study by the Cologne Institute for Economic Research (IW), amounts to more than €87,000 — in favour of the landlord.
Same building. Same price. Same starting point. Different tax treatment.
That disparity is not the result of chance. According to the IW, it reflects the way Germany's tax system treats residential investment and owner-occupation differently. Landlords can depreciate the building for tax purposes, deduct mortgage interest and offset maintenance expenditure against taxable income. Owner-occupiers generally cannot. Acquisition costs, including land transfer tax (Grunderwerbsteuer), become part of the landlord's tax calculation through the property's cost base, while for owner-occupiers they remain simply part of the upfront cost of buying a home.
The IW's model compares two otherwise identical buyers over a 15-year holding period, assuming the same purchase price, financing structure and market conditions. Under those assumptions, a landlord paying the top marginal income tax rate benefits from deductions that generate annual tax savings throughout much of the holding period. By the second year, the model estimates those tax savings at almost €2,000. The owner-occupier next door receives no equivalent relief.
The figures vary across Germany but the underlying pattern remains the same. In lower-priced regions the owner-occupier's disadvantage narrows to between €40,000 and €52,000 in present-value terms. According to the IW's calculations, owner-occupation only becomes financially competitive where gross rental yields exceed 6.78%. In 2025, only eleven German districts met that threshold, among them Elbe-Elster, Vogtlandkreis and Altenburger Land. Across Germany's seven largest cities, average rental yields stood at just 3.37% — well below the level at which owner-occupation begins to match the financial returns available to landlords under the study's assumptions.
Germany stands alone in Europe
What makes the findings particularly noteworthy is not simply their scale, but their international context. The IW examined six comparable European countries — the Netherlands, France, Austria, Belgium, Denmark and Ireland — and concluded that Germany is the only one in which owner-occupiers are placed at a tax disadvantage relative to landlords. Every other country in the comparison favours owner-occupation to some degree.
The Netherlands provides perhaps the clearest contrast. There, owner-occupiers pay land transfer tax at just 2%, while landlords pay 10.4%. According to the IW, owner-occupiers achieve average returns of around 12%, approximately five times those available to landlords. Germany sits at the opposite end of the spectrum. Landlords achieve the highest investment returns among the countries studied, while owner-occupiers achieve the lowest.
Tax policy is plainly not the only reason Germany remains a nation of tenants. High transaction costs, demanding equity requirements, strong tenant protections and a long-established rental culture all play their part. The IW's argument, however, is that the tax system reinforces rather than offsets those structural characteristics.
More than a housing-market question
The implications extend well beyond the housing market itself. Germany's home ownership rate stood at just 44% in 2022, the lowest in the European Union, compared with an EU average of around 70%. The IW study suggests that this cannot be explained solely by culture or affordability. Tax policy has also become part of the explanation.
The longer-term consequences become visible in retirement. A separate IW study published in 2025 found that 49% of tenants aged between 50 and 64 face a pension shortfall, receiving less than 60% of their final net income after retirement. Among homeowners of the same age, the proportion falls to just 14%. The figures do not prove that tax policy caused this difference. But the correlation is striking: in the EU country with the lowest home ownership rate, almost half of older tenants face a substantial retirement-income shortfall. That is not a relationship German policymakers can comfortably ignore.
Owner-occupiers are not entirely without tax advantages. They are not taxed on the housing services they consume by living in their own homes, and gains realised on an owner-occupied principal residence are generally exempt from capital gains tax. The IW's contention is that these advantages do not compensate for the deductions available to landlords, particularly in Germany's major cities.
IW property expert Dr. Michael Voigtländer therefore argues that policy should focus on improving the position of owner-occupiers rather than worsening that of landlords. His proposals include exempting owner-occupiers from land transfer tax — as already happens in several European countries — alongside low-interest subordinated loans to help households with limited savings purchase their first home. Raising taxes on landlords, he argues, would simply replace one imbalance with another.
For international investors active in Germany's residential market, the study provides an important reminder that the country's unusually deep, liquid and institutionally owned rental sector is not simply the product of history or culture. Germany's tax system has quietly reinforced that outcome for decades.
That creates an uncomfortable tension at the heart of German housing policy. Governments of every political colour routinely declare that they want to increase home ownership. Yet the IW study suggests that one part of the policy framework has been quietly encouraging the opposite.
Whether policymakers ultimately decide to rebalance that system is a political question. What is already clear is that one of the defining characteristics of Germany's residential market has been shaped not only by demographics, planning policy and finance, but by the tax code itself.