How Germany Achieved Stable and Affordable Housing

[Marc]

Yves here. I’ve long been interested in the German approach to housing, since it has two noteworthy features: very high rates of rentals and reasonable costs. This post from MacroBusiness provides a short but very instructive overview. I’m intrigued to see this article highlight an issue that I have stressed as a New York City resident, where tenants have much stronger rights than almost anywhere in the US: that strong tenant protections actually help landlords. The result is that people rent not because they can’t afford to own (which means they are financially less stable) but because they prefer not to (for instance, they prefer the flexibility, or decided to put their money in a second home or in investments). And tenants who have property rights (as in the landlord cannot deny them a lease renewal if they are current on their rent) not only take better care of their unit, but I’ve seen them actually make meaningful investments in them (this happens a lot in my building).

Read more: http://www.nakedcapitalism.com/2011/...e-housing.html

[eri]

surprise surprise

no buying investment portfolios

with other people's money in german

Mortgage finance in Germany is also conservative relative to most economies that have experienced housing bubbles. According to RICS:

…credit availability is more strictly rationed in Germany compared with the pre-financial crisis experience in many other countries. For example, there is conservative loan appraisal, no sub-prime segment and thorough vetting of loan applicant details.

Moreover, base loan-to-value ratios (LVRs) from mortgage banks (the main provider of home loans) are capped at 60%, although other unsecured loans are often added into loan packages (at higher interest rates), which tends to increase the overal LVRs.
In contrast, the UK mortgage market was fully deregulated in the early 1980s. During the height of the 2000s credit/housing bubble, UK lenders were offering 100% plus LVR (i.e. no deposit) mortgages to first-time buyers. However, since the onset of the global financial crisis, lenders have rationed credit and required higher deposits (reduced LVRs), thus contributing to the boom/bust cycle inherent in the UK housing market.