This explains the high wealth inequality we observe[3], despite the low income inequality[4].
This could be caused by the low levels of home ownership given that home ownership (and the associated leverage) is a huge tool for wealth accumulation for the average person.
I know that people say you can make more from ETF's etc. than real estate, but I'm not sure if that applies so much to your primary residence given you will always need somewhere to live and a bank isn't going to lend you hundreds of thousands of euros to invest in ETF's, but they will for your primary residence.
The extra mobility you have while renting is an advantage but one that comes with a hefty price.
[1] https://en.wikipedia.org/wiki/List_of_countries_by_wealth_pe...
[2] https://en.wikipedia.org/wiki/Median_income#Median_equivalen...
[3] https://en.wikipedia.org/wiki/List_of_countries_by_wealth_eq...
[4] https://en.wikipedia.org/wiki/List_of_countries_by_income_eq...
(Of course this all depends on the alternative too: renting regulations vary widely over the world in how strong the position of the occupants is wrt rent increases and landlord initiated termination)
A house can easily lose its value or at least cause large expenses, e.g. if the cellar floods or develops mold problems. Or if the surrounding neighborhood becomes worse.
Selling houses has a large transaction cost.
I really don't see much benefits to owning over renting. I'd rather have 200k in a diversified portfolio that earns me 5k a year after taxes and has a much lower probability of losing 30% of its value while living in an apartment in a central location than own a house in a suburb that costs me a few thousand a year in upkeep and taxes. I'd likely need to buy a car too in that case, which is another few thousand a year.
From a financial point of you a difference is that to do this you need to have 200k cash, while you can borrow most of the money to buy a 200k house.
There is a leveraging effect when investing in property.
The German population is shrinking.
Real estate as a safe and stable investment in the long term relies on steady population growth to insure that demand will always be there for you to be able to sell at a good price.
Of course, if you buy in the most desirable locations you may be shielded from this because demand outstrips supply by a huge margin to begin with.
Also, extreme risks is not what most people aim for in investing when most of their net worth is involved; the utility of money is not linear.
If you want to do it without reducing your expected returns you diversify to products with similar expected returns and, to the extent practical, mutually independent risks.
How could it not?
> If you’re splitting your investment, your downsides are smaller but your upsides are also smaller, and presumably by the same amount.
Yes, and your expected return remains the same. Reducing variability isn’t “reducing returns”, because, as you note, what you lose from reducing the 50+nth percentile returns is made up for by increasing the 50-nth percentile returns.
Risks of buying your home include: - Not being able to move if you can't sell (because the market isn't right) - Being stuck in a house where you pay a high mortgage while you could rent for much less after a crash (what happened in Spain after 2008). Note than in US you can give up your house and your mortgage goes away, but that doesn't work this way in Europe. The bank sells your house and if it doesn't cover the mortgage you still owe the rest
Also if you sell too early after buying, you're losing money because you pay more in transaction fees that you would have in rent (unless there is a big spike in prices).
Anyway, for a long time real estate have been steadily appreciating and people (especially boomers) got used to it, to the point that all their reasoning about real estate is that it's appreciating faster than inflation. It was true for a long period but that's no longer the case.