Over 50% of the population of Germany does not own their home
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From my experience in the UK, homeownership has a lot of cultural weight, because it's really the only way to guarantee stability in housing. While renting, you typically have to renew every year, which results in unexpected price changes and the constant risk you might have to move unexpectedly (often with just 1 month notice periods).
In many European countries though, including Germany, this isn't such a thing. Leases are often indefinite, landlords will really struggle to evict you against your will as long as you are paying your rent and not destroying the place (the only notable exception being if they evict you to personally live in the flat as their main residence) and there are tight limits to the rent increases allowed (https://conny.de/en/rent/rent-increase/information).
When you can get ~similar housing stability without ownership, it becomes more a question of flexibility vs financial investment, rather than a strict goal that always makes sense.
There's also lots of subsidies in Germany that actively support the rental market (rather than houseownership, unlike elsewhere): https://www.brookings.edu/articles/Germany-rental-housing-ma...
How common is that today? In Austria most landlords stopped offering indefinite leases a long time ago, and are instead renewed every 3 years or so when they can increase your rent or kick you out.
Or if you have an indefinite lease it's automatically indexed by inflation which screws you big time if your wages aren't keeping up. The only indefinite lease currently in existence without inflation indexing are very old contracts who got grandfathered in but no landlord is crazy to offer that today anymore.
It is not difficult to renew, though, but there will be a price adjustment.
I eventually caved and bought an apartment.
You can of course make a contract that allows for automatic raises, but that is also limited (earliest 12 month after the begin of the lease, only a fixed/absolute value and not percentage) and you can no longer raise the price for the other reasons.
There are probably other models, but I don't know much about them.
I e.g. avoid those if possible and we've moved out of an (inflation) indexed lease contract recently. Now back to just a regular (non-stepped/indexes) indefinite contract as usual.
As to why we dont buy: We like the flexibility and also property prices here make it hard to get sth. decent in comparison to renting.
Straw man attack, I didn't say that. Nevertheless I'll give you an answer.
I had below inflation rent increase for some decades, yes. I also payed below market prices for some decades. The last flat we rented was 110qm, Prenzlauer Berg, 950EUR/month, market rate approx. 1800 EUR/month.
I do think the property ownership monetary model is more complicated than you suggest.
I wasn't attacking you, I was asking the the rental model makes sense for the landlord if he can't increase rent prices.
>I do think the property ownership monetary model is more complicated than you suggest.
I wasn't suggesting anyhting, I was asking.
>Nevertheless I'll give you an answer.
But from what I understand, you haven't explained. You've only said you were paying below market rate, But how does that work then?
The details are complicated, Germans will accept very complex rules as long as the goal is seen as just, but if you want it simplified to just one sentence: If you're paying a very low price, the landlord can usually increase it slowly until it's fair for the property.
If the market price climbs past the rent you're paying, you'll begin to see some rent increases.
This is mostly not the case - a 2-month notice period is way more common. It might not even be legal with a typical shorthold tenancy.
...even this is pretty much impossible after 20 years AFAIK.
I've seen leases in the UK for 999 years. Not rentals though - leaseholds.
This is a very odd feature of UK housing. You pretty much go through all the steps of buying a property but in the end all you bought was the right to live in the place until the lease runs out.
It also leads to some oddities, like this [0] very cheap flat a stone's throw away from Regent's Park. It's this price because there are less than 10 years left in the lease and I imagine the current tenants/"owners" couldn't renew it. This could happen for many reasons, e.g. the "actual owner" or freeholder wants to raise the lease value too much, or the freeholder couldn't be found. In the latter case I'm not sure what happens, but I imagine it's possible that no one will ever claim the property - and I have no idea in what legal standing this leaves the property.
This is the most common form of "ownership" of flats and apartments. Houses are generally "freeholds", which means you actually own the property.
- https://www.bbc.com/news/uk-politics-67569517
- https://commonslibrary.parliament.uk/leasehold-reform-in-eng...
- https://www.theguardian.com/society/2023/nov/04/labour-promi...
Much of the rest of Europe & elsewhere heavily uses a commonhold model (https://www.lease-advice.org/advice-guide/commonhold/) where all owners of flats in a block collectively own the shared structure of the block itself, and share responsibility for maintaining that as required, with a communal budget and democratic voting on decisions.
I imagine they're either not going to be affected at all (i.e. stay on leasehold until the lease runs out), at which point either:
- It gets converted to a commonhold (potentially necessitating some form of compensation to the current freeholder); or
- It stays in the same regime.
In the former case, there's the chance that existing leaseholders will be priced out of their residence if they're unable to acquire their share of the commonhold.
In the latter, their property value will likely plunge as it's less attractive than the new ones.
Of course, the alternative to this is that commonholds are priced up accordingly but that will probably make them inaccessible to most people and perhaps even more expensive than freehold houses.
When does squatting rights become in play?
What happens if a leaseholder doesn't move out? Do freeholders have extra rights to kick people off property beyond what landlords do?
Contracts will not have fixed terms anymore and "no-fault" evictions will be illegal. Those are two main ones I think.
https://www.iwkoeln.de/fileadmin/publikationen/2016/310521/I...
> The cost of a real estate agent would increase the transaction costs considerably; but since the use of housing brokers is not mandatory, they are left out of the calculation.
Could somebody with more insight than me comment on the total transaction costs? To me it seems like this is one of the main reasons for people to refrain from buying, because it locks them in.
Also, in Berlin at least, prices for buying are skyrocketing. Rents are increasing as well, but probably can't increase as much because of protections.
Tokyo would be the same if salaries/wages in Tokyo weren't so depressed.
As a tenant in Germany, it is just as secure or more compared with owning. You have tenant laws and you know you can call someone to get things fixed any time.
I'm not free market absolutist but living in Berlin has shown me too much tenant protection can end up hurting actual home seekers.
Pretty much. It limits mobility a lot while creating a neo-feudal gentry who lucked out on market timing/conditions and get to exploit it for their benefits and the expense of others.
You're saying this about the tenants? Not the landlords?
I guess only if the kitchen is designed from the start in the cheapest possible way, with everything separate and squarish, with zero protruding or nonsquare shapes, then maybe it can be rearranged to the next apartment. Honestly, this idea is mind blowing every time I read about it.
I'm in the process of purchasing a house, where the seller swapped out the fridge between the initial listing and my offer. The dishwasher needs replacement post-purchase, and I'm planning to purchase a high-end one, and my thinking is to do the same thing with it should I move within the next few years.
Taking this situation to its logical conclusion, it would make much more sense for both parties to just install their own appliances, rather than to have to bundle the house with what are essentially cheapest-tier placeholders.
Another example may be clearer: The walls are necessary for the building itself to stand and survive the winter, but the paint or wallpaper are not. They're only necessary for the tenant, the house would stand securely without any wallpaper.
You obviously want cupboards and a kitchen bench, but they don't matter for the building or the safety of the other tenants.
Usually old flats ("Altbauwohnung") and flats for rich people (they want their own designer stuff) don't have the kitchen included. Other flats have, especially for people with mid or low income.
Also when the flat is owned by a cooperative ("Genossenschaft") or state owned association ("Wohnungsbaugesellschaft") as many flats in Germany are.
If the kitchen is not part of the flat and you move out, some owners will make you remove the kitchen, some won't. In the second case the new renter usually pays for the kitchen ("Abstandszahlung") to own it.
That's sounds insane. How does that even work?
For one, kitchens are bespoke to order to each apartment, because the apartments are sized and spaced differently so the chance of the kitchen of one apartment fitting just right in your next apartment is super slim.
And two, how do you do the logistics of moving the kitchen? There's certainly a significant expense of time and money disassembling everything (especially stuff that's glued and bolted to the walls), packaging it, then carrying it by van or freight, then reassembling it again (assuming it just fits and you don't need further investments to make it fit).
How do you account for all these costs? Tell me how renting is cheaper again than owning.
>until you eventually end up in a house
If most Germans would end up in a house they wouldn't still be renting.
I moved with kitchens in Germany. German kitchens are also differnt from kitchens e.g. in the US.
My kitchen is 13y old and I see zero reason to change the front panels either.
Moving all the above things is possible, but a lot of work for little gain.
Say you put away 1% of the value in depreciation + 3% as cost of capital + 1% in running costs a year. That's around 5% of the homes value in costs that you're having every year, so you need a return on that just to break even.
If you're looking to live somewhere, and you can choose to buy or rent the exact same house, it's simple to do the math. If your yearly rent is 12k, then just divide that by the 5% required return and you get the value of that house.
So 12k/0.05 = 240K
If that house costs more than 240K to buy, you're better off just renting it and saving the difference.
For me the difference in the apartment I'm renting and the price is ridiculous. The landlord is taking about 1.5% of the house value from me yearly, and using that to pay all those costs, so they are losing about 3.5% per year by renting it to me.
Thank you Mr. Landlord
The leveraged appreciation is definitely not -1%.
Over the last ~15 years, it's closer to +10%.
Whatever the case once you account for costs they are not making money
Saving significant amounts of money while renting it's a luxury many people don't have.
Owning your own property is also an insurance against old age poverty. You can pay current market rent with your salary, but you won't be able to with a state pension.
If you pay off your property by the time you retire, it's basically free rent after that. Meanwhile you're paying your landlord's mortgage and owning no asset at the end.
Your math works if you "win the lottery" and get some rent controlled apartment way below market rates, then it makes sense to keep renting and investing the difference somewhere else instead of owning.
Further, a mortgage uses other people's money as leverage on an appreciating asset. Of course it's not always a great deal, but here in the states, inflation and low mortgage rates generally combine to make this a killer deal -- if you can actually get in the market at all that is.
Those who can't, can't.
That is a social problem so, because those who can build generational wealth with all that comes with it (health, education, financial stability). Those who can't, don't. And that is a serious problem, IMHO.
A mortgage is forced savings, and that makes all the difference in the world, for a lot of people. It's not as clear cut as "those who can't, can't". Plenty who can, won't, unless they're forced to by a mortgage or mandatory pension contributions.
To the extent these people exist, they are the people who get burned by homeownership the quickest though.
Yes, but that's missing an important bit: It is saving for retirement using the money that otherwise would disappear into rent.
If you had the option to live for free somewhere vs. buy a house, it'd be clearly far better to live for free and invest all the money for retirement. But rarely anyone has that option. It is really between spending that money on rent (money is gone) or spending it on a mortgage (build equity).
Property taxes and maintenance of a large house in can cost as much as renting an apartment.
Until property tax in some states.
In most EU countries, property taxes on apartments are laughably small compared to the benefits of full ownership.
property taxes, maintenance, ...
Any kind of extra regulation or extra cost for landlords, will be reflected as an automatic rise in rents. If you try to artificially cap the rise in rents the result will be a shortage in rental units. I'm not a big fan of the "free market" for housing, but there's no free lunch for tenants.
The median German is aged 48. In France it's about 42, in the UK 41, and in the US it's 38. And Germany's fertility rate is lower than all of them.
Is that true? If yes, is that hurting government pension/retirement systems? That sounds like a disaster to me. That also means Germany is excluding immmigrants more than is popularly understood.
* seems it’s a known problem: https://www.cnbc.com/2022/10/31/germanys-pension-system-will...
Migration has long outpaced the declining German population
Why do people always mix accounting rules for corporations, rules they don't understand, with private finacials? Heck, even professional real estate investors don't depreciate real estate values in thwir books, houses and appartments aren't cars or machines, they fall under the invesment category and are valuated at market rates...
My US property was just hit with an increase in the building value to the tune of 25%, I assume to account for the increased labor/material/COVID inflation costs.
Their cost of debt was under 2% when they purchased the property, but it's jumped significantly in the past year or so as their debt schedule has rolled over.
These costs will only increase over the next few years as long as rates remain as they are.
For now it's fine in terms of Cashflow since they had a major renovation in 2019, so their cash outflows aren't as big as they could be, but there are more costs than cash.
They are 100% losing money on the property they are renting to me.
I will not go into discussion why the math is wrong, the others already did that.
I'll just note that that's the reason the median net worth of Germans is below the European average. Even poor(er) countries like Poland or Greece have bigger net worth than Germany.
Rant: Now tell me that net worth number is not correct, since the state retirement system is not considered, while ignoring the fact that Germany is not the only country in the world with a retirement system.
You might have high salaries, but if all those high salaries get eaten up by various rent-seeking schemes and businesses along the way leaving you with no wealth to your name and only making the country and businesses rich.
And since German companies don't usually reward all their workers with stocks/RSUs, the purchasing power of the average German has been on the decline for the past 30 years.
Yeah, I probably could buy a house somewhere in Germany. Would it be anywhere close to where my wife works? Nope. Anywhere where I'd not still be annoyed at my 2-4 visits to the office per month? Also nope (but yeah, that's a bit tongue in cheek).
1. You and your potential landlord have access to significantly different investment opportunities (ie, they have a lower interest rate than you would be able to get)
2. Your landlord is losing money (or potential money) by renting to you
3. You would be better off buying than renting
This is an obvious derivative of the common-sense "the landlord's profit must come from somewhere". If you buy, the profit that would go to the landlord goes to you. So any financial argument saying that you're better off renting is really either an argument for #1 or #2 above.
In other words, your maths are wrong.
I tried to make a case for why that might not be trivial. All it requires is a reasonably incompetent owners, that are as bad with foresight, as most humans, companies and even states are.
The point is: It's easy to ignore costs that might get you in 50 years, because it makes stuff simpler now, and making stuff simple now is our thing.
Because the only people stupid enough to get maths behind renting and real estate ownership are those who try tell you that renting instead of buyong makea you rich one day.
Rule of thumb according to [0] is that, assuming historical returns, if your yearly rent is less than 5%
(1% maintenance + 1% property tax + 3% capital cost vs investing)
of the property value it's better* to rent.
[0] https://youtu.be/Uwl3-jBNEd4?si=FDRG-6U_T4nsGtJa
*local tax treatment might play a role
**paying a mortgage requires less discipline than consistently investing during volatile markets
***Purely from a financial, non-emotional standpoint
****you might not be able to rent the house you want to buy
I'm looking to buy a home there soon, it was a struggle to build sufficient down payment, especially after losing my first attempt to the loss of a job.
But renting in Switzerland is a far better experience than what I had in the UK, which was awful. Unexpected and outrageous rent hikes, told to get out of several flats with little notice, or just quit after refusing to pay the hikes. I moved 4 times in six years.
In Switzerland, I feel much better protected, landlords can't just raise rents on a whim, there's renters associations to back you up, the standards are higher, and for me initially, rents were lower.
One annoyance, you can use some of your pension as downpayment without taxt penalties here. Unfortunately, that means it is exceedingly hard to transfer my pension from the UK, as UK gov won't allow tax free transfers abroad to pension schemes that offer such a service.
There are many reasons for this, one reason is houses are build in expensive ways, usually concrete basements, concrete floors and concrete inner walls, bricks for the outer walls. Also the ground is usually very expensive in cities and the ground where you are allowed to build outside is scarce.
That being said, until your 50s, either you are debt, debt offset by property with a certain value, or you pay rent. Either way, you do not live for free. Difference is, once you retire in your 60s, with owned property your living costs actually go down a lot, while rent only keeps coming.
Of course, one can do all kind of corporate accounting tricks to explain that even after your mortgae is repaid, you don't live for almost nothing in your house, but that wouod only show a serious lack of financial understanding.
I live in Germany and once I found how the illusion of owning a property isn't a necessity, I started to be more chill about life in general.
Tenant laws are good here, you can live with dignity. Of course, you will never "live big" as Americans do, but you can take vacations, visit the world, live an everyday life, etc.
At the moment, I'm paying a mortgage, but I don't have this illusion of "owning" it; I know I don't. And even if I finish paying it, I know it doesn't mean very much, as this means I could have invested the money somewhere else or just spend it all on experiences, things that actually matter in life.
Modern humanity has tied too much of who they are, even their self-confidence and self-worth, to what they are able to own. It's sad.
Ownership isn't and never is absolute possession.
I'm not going to go as far as the parent commenter to say it means you don't own it, but I can't think of any other possession where the government takes it away if you don't keep paying. Not books or washing machines or food or anything.
Even with vehicles, you need to pay to keep them registered but if you don't you just can't drive them on public roads. They're not taken away from you.
So real estate really is in a kind of special "you mostly own it but kinda not entirely".
Thing is so, tax debt or default doesn't lead to the state taking you property away (ultimately yes, but then you are at default for a vwry long time and probably bankcrupt anyway). It just means you have to repay you debt, tax authorities might seize e.g. bank accounts.
And even banks prefer refinancing over foreclosures, selling real estate is a risk and work German banks like to avoid.
It's not a tax on vehicle ownership, but rather on annual usage of public roads per vehicle.
Pets are one big category of stuff. Dangerous items are another.
> Ownership isn't and never is absolute possession.
Actually, it usually mostly is. There are exceptions, but generally speaking it is absolute possession. It's not conditional. It's called property rights for a reason. The fact that you're bringing up exceptions just proves the existence of the rule in the just place.
That doesn't mean you can use your property to do harm to others, or that you can bring it anywhere you want, or that it can't be seized if you refuse to pay debts. But most things you actually do simply own, flat-out, unlike real estate with its property tax requirement.
Repaying your mortgage is a combination of interest payments and repaying the debt. It goes to zero eventually. A rent is a permanent payment into the account of the person renting you something they own.
The error to believe the house price will always continue to rise is a risky belief. People always need somewhere to live, but where and when you enter/exit the market matters. If mortgage interest rates were not set to keep the banks happy, then it would possibly be a realistic scenario to believe the housing market works for the benefit of the population.
This whole speculating on real estate value is more of an US thing than it is European. Outside of real estate investors, but those are the landlorda Germans, and others, rent from.
Many people do cash-out-refinances which ensures you never pay the house off, but if you just treat like the mortgage like rent and do nothing else (though if you can get a better interest rate refinancing for what you owe is often a good idea) you will pay it off. If you can afford the initial payment, your effective payment typically goes down over time as inflation brings the rest of your income up. Once you have the house half paid for odds are your payment is so low compared the income that you will have no problem paying the rest off. The early years are tough though before inflation works for you.
Of course if you do the cash-out refinance your payment raises more or less with inflation (just like rent) plus you get a nice chuck on cash to do whatever with. If you invest that cash wisely it might even be abetter investment than paying off the house (I don't think anyone has ever done this, but it is an option)