Interest on mortgage loans has been at an all-time low for years, and yet Germany’s homeownership rate appears to be frozen in place at 45 percent. And it is not likely to increase significantly any time soon, because the number of first-time buyers is actually regressive, as the IW German Economic Institute in Cologne determined in a recent survey (source: www.iwkoeln.de). While as many as 700,000 German households bought their first homes annually in the early Zero Years, the figure had dropped below 400,000 households by 2017.

Over the same period of time, the share of households in Germany that acquired homes sank from over two percent per year to roughly one percent, less than half of what it had been. The recent survey arguably bears out the latest ACCENTRO-IW Housing Cost Report that was published in April 2019 and also concluded that the number of first-time buyers follows a negative trend (source: www.accentro.ag).  

Homeownership Rate in Evident Decline among Younger People

Especially sobering is the fact that younger people in particular are finding it harder and harder to make the transition from renting to owning their homes. Among those aged 35 to 44, the homeownership rate declined by five percentage points to less than 40 percent between 2010 and 2017. Yet this life stage is the most decisive one for the sustainable acquisition of a home because it leaves enough time to repay a mortgage loan before entering retirement.

Worth noting is also the trend in average household income among first-time buyers. Having approximated 3,000 euros in 2010, it had increased to c. 4,000 euros in 2017, up by a third in just seven years’ time (source: www.spiegel.de). While buyer households in 2010 earned about 40 percent more than tenant households, the income of buyers was 80 percent higher by 2017.

Political Action Called For

This means the majority of those who manage to become homeowners represent older and higher-earning households. This trend is surely no coincidence but has to do with rising property prices, the increase in incidental acquisition costs and the growing capital requirements that are associable with a condominium acquisition.

The IW institute’s recommendation to policymakers is therefore to focus more strongly on potential homeowners and to initiate programs that enable even medium-income households to make the leap into homeownership. The child tax credit for first-time home buyers that the German Government launched in the fall of 2018 is considered ineffective by the IW institute, which would favour measures like a reform of the real estate transfer tax or of the estate agent’s fee instead so as to bring down the incidental acquisition costs.