Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


What America Can Learn from Germany’s Housing Policy

The Germans have a great deal to teach America when it comes to running an economy. The statistics show that the Germans are doing something right.

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In April 2015 Germany had a trade surplus of 221 billion Euros ($244.79 billion), while the United States reported a trade deficit of -$408.79 billion. That means Germany exports more than it imports; America imports more than it exports. Germany. If that wasn’t enough, the value of the DAX (the German equivalent of the S&P 500) grew from $1,443.00 in 1990 to $11,058.39 in 2015.


Average Germans are sharing in the prosperity as well. The average salary in Germany is around €48,948, or $54,217.25, a year, according to The average salary in the USA was $44,888, or nearly $10,000 less than that in Germany, according to the U.S. Social Security Administration.

Germany’s Unusual Housing Policy

What’s truly interesting is that many of the lessons Germany can teach us run counter to our current economic wisdom. One of the most striking differences is in housing policy. Consider these fascinating figures about Germany’s housing situation:

  • Only 41% of Germans own their homes. That means that more than half of Germans rent their housing.


  • In 2012 German house prices were 10% cheaper than they were in 1982, according to British consultant Colin Wiles.


Wiles noted that this gives Germans more money to spend on things like consumer goods and the ability to save more, which drives their economy to grow. One reason why Germany does so well is that its people spend their cash on Mercedes’ and new TV sets rather than mortgage payments.

Housing in Germany
Housing in Germany

Germany also discourages home ownership with some of its policies. For example, there is no tax break for mortgages, which takes away one of the biggest incentives for home ownership. Some of the other advantages to homeownership are also missing in Germany; government regulation effectively caps rents and prevents the kind of sudden increases we see in the U.S. It’s also real hard to evict a tenant in Germany, which gives the working class little incentive to buy.

It’s also real hard to get a mortgage in the country. German banks require a 20% down payment for most mortgages, which makes them difficult to get, Forbes’ Eamonn Fingleton noted. That keeps property values low even as it discourages home ownership.

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The lack of mortgage finance also helps prevent real estate speculation because buyers cannot get cheap, financed mortgages and have no tax incentives.

Yet it does not lead to a housing shortage because the German government actively encourages housing construction. One way it does this is by having local governments provide land to developers rather than the market, which provides a steady supply of property. That also discourages speculation because private individuals have to incentive to buy and hoard land.

It also provides a steady supply of housing because the only way homebuilders can make money is if they are actually constructing and selling units. There’s no incentive to hold land to see if prices go up or to build houses such as McMansions that might not sell.

Will America Learn or Not

All of this, of course, is counterintuitive to Americans. For generations our leaders have told us that cheap mortgages, home ownership and rising property values are good things. Yet we now have a nation where the middle class cannot afford to buy a home in many communities, and a serious shortage of multifamily housing is leading to shanty towns reminiscent of the Hoovervilles of the Great Depression in some of our most prosperous communities.

Working class Housing USA
Working class Housing USA

We also have a boom and bust economy characterized by constant housing bubbles that wreak havoc and leave misery in their wakes. Germany is one of the few countries that avoided the Great Real Estate collapse of 2008. noted that Germany had an unemployment rate of 5.2% in 2014, while Spain, which had a homeownership rate of 80%, had an unemployment rate of 27%.

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It’s obvious that we could learn a lot from Germany in terms of economic policy, particularly housing. It might be possible to stimulate our economy further by adopting some German policies, such as ending the mortgage interest tax breaks, greatly increasing mortgage requirements, ending cheap interest rates for mortgages, and increasing tenants’ rights.

Unfortunately, it is also obvious that our leaders have no desire to learn those lessons. It took the catastrophes of Nazism and World War II to get Germany to adopt its current housing status quo. One has to wonder if the United States will need to suffer a trauma as great as that to learn some lessons from Germany.