How the state could react with little money to increase home ownership


March 2018

Despite the current low-interest phase and the real estate boom the home ownership rate in Germany stagnates since 2010 at 45 percent, EU-wide the lowest figure. That’s the result of the Socio-economic panel (SOEP) that yearly questions thousands of representative households and lastly got released in 2016. The Cologne Institute for Economic Research (IW) created based on those data a report on the current housing situation in Germany (source: The main finding is that the homeownership quote stagnates or is even declining at younger and low-income households and that politics has to take action against this alarming development. The need for the pension scheme especially grows for younger households, and as the IW states, establishing homeownership is essential for one’s individual capital formation. This is proven by taking a look at countries with high home ownership rate where the individual capital formation is strong (source: S. 11). According to a survey of the European Central Bank the median of net assets per household in the EU is only lower in Estonia and Latvia than it is in Germany.

Mostly older and wealthier people live in ownership

The IW-expert opinion emphasized that one of the reasons for stagnating home ownership development is the increasing number of influx as households with emigrational background have lower home ownership rates. Even households without emigrational background ran out of steam at developing home ownership since 2010. Noteworthy to mention is the closer look at ownership development separated by income and age. Since 1992 nothing happened at the homeownership rate of the bottom 20 percent of the income distribution, while in every other income class, homeownership rates increased. Especially the forth income quintile had strong increase rates from former 44.2 to 57.2 percent. The distribution by age is likewise informative. According to the IW-report homeownership rates decreased at the 35 to 44 year old since 2011. Although it’s important to develop homeownership in this lifecycle as starting or expanding a family falls into it and there is still enough time to pay off the real estate loans before one’s pension. The only age class that had increased homeownership quotes were the 55 to 64 year old as well as people over 65.

Proposals for homeownership aid

Especially the high capital need keeps young families and low income households from developing homeownership. At a purchase price of 250.000 Euro, including side purchase costs the IW-report calculated that equity of 50.000 Euro is needed – but only about 11 percent of renters have that much savings. The IW-Cologne therefore proposes some political measures to income generation. The measures have in common that the financial expenditure for states is low and that other countries already successfully implemented those measures.The most important measure is a reform of the property transfer tax. Proposed is a leveled rate with a tax exempt amount as it is common in the UK.

Households with low and middle incomes would get relieved. Another proposal is that the property transfer tax is not demanded in full rate at the purchasing time, but to allow stretching the re-payment over a longer time period.

The IW-Cologne furthermore demands the extension of the ordering principle on real estate purchases, as the Dutch do, to save people from broker costs. Equally the Dutch households as well as the French can take credit loan loss guarantees of the state in order to take up more debt capital. Moreover the IW-Cologne demands an adaptation of the employee’s savings allowance and the housing bonus as well as the already existing possibility in Switzerland to purchase real estate through the already saved employer-funded pension.

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