Germany’s body politic has long been confronted with the demand to quit stalling and take effective steps to boost private homeownership. The Bundesbank, Germany’s central bank, just published a survey in which it calculated the ways in which various political measures could affect Germany’s homeownership rate. The findings are serious food for thought (source: bundesbank.de).
The Bundesbank conducted three experiments for the sake of the survey. Its authors simulated three measures that policymakers could take to promote private homeownership.
1. Lowering the real estate transfer tax to the average level of the United States, where the homeownership rate is 65 percent and thus far above the German rate of 45 percent. Practically speaking, this would mean lowering the real estate transfer tax rate from currently about five percent (it ranges from 3.5 to 6.5 percent, depending on the state) all the way down to 0.33 percent.
2. Introducing tax deductibility of mortgage interest for owner-occupiers. At the moment, only landlords can take advantage from tax allowances.
3. Ending social housing development and cutting the income tax rate in proportion to the amounts thereby saved.
In the Bundesbank’s model calculations, all three measures caused the percentage of homeowners to go up – and most conspicuously so in the medium deciles of the wealth distribution, meaning in the middle class. According to the outcomes, lowering the real estate transfer tax would be most effective, with everyone between the third and ninth wealth decile likely to benefit. Combining all three measures could actually push the homeownership rate from currently 45 percent all the up to 58 percent, according to the survey.
The total net assets of German households would increase by eleven percent as a result of these measures, or so the survey authors wrote. They went on to say that such an increase in the number of households investing in homeownership would ultimately roll back the wealth inequality in Germany. The latter is comparatively high in Germany and, given the drastic differences in wealth between homeowners and tenants, closely linked to the country’s low homeownership rate, according to the Bundesbank: Among the OECD countries, only Switzerland has a yet lower homeownership rate.
What makes the Bundesbank’s survey all the more fascinating is that the implementation chances of the tested measures, which have been proposed in one form or another many times before, are quite realistic. The only idea unlikely to win a majority given the current social-policy situation is the one proposing an end to social housing development. But lowering the real estate transfer tax or introducing tax breaks are principally conceivable options, not least because they dovetail to some extent with the existing political agenda. In any case, the Bundesbank survey illustrates how very effective the implementation of such measures would be.