Since 2011, the homeownership rate in Germany has stagnated at 45 to 46 percent, meaning that—with the exception of Switzerland—no other country in Europe has as many households living in rental housing as Germany. Although interest rates on mortgages are at a historic low, homeownership is not gaining ground in Germany. This is due, among other things, to demographic factors, but it is also more closely linked to household income than in other countries, as a recent study by the Cologne Institute for Economic Research (IW) has shown. In addition, parental wealth appears to be having an increasing influence on access to homeownership (source: iwkoeln.de).
The analysis makes it particularly clear that younger and lower-income households today own fewer homes than they did a few years ago. While the overall homeownership rate fell only slightly from 45.9 to 45.5 percent between 2011 and 2017, it declined from 15.2 to 12.4 percent among 25- to 34-year-olds and from 40.8 to 38.3 percent among 35- to 44-year-olds. In the first income quintile, the rate fell from 25.2 to 22.0 percent, and in the second, from 41.3 to 40.0 percent.
Parental wealth is an important factor
According to the study’s authors, the decline in homeownership rates among younger households is linked to the increasing prevalence of higher education. Because more and more Germans are pursuing higher education, they are able to start saving for a down payment later, which pushes back the timing of home purchases to a later stage in life. Another factor is the rising number of single-person households, particularly among younger age groups. Couples living together have, first, a higher household income and, second, lower per-capita fixed costs, which makes it easier to save up the down payment.
The IW study also found that whether or not someone purchases a home is often linked to their parents’ financial situation. According to the study, “children of parents who own their own homes at the same time are themselves more likely to become homeowners earlier.” While the influence of parents’ homeownership status declined during the 2000s, it has grown again in recent years.
A Piece of Advice for Politicians
According to the study, between 2013 and 2017, people whose parents owned their own homes were 40 percent more likely to become homeowners themselves than people whose parents did not own their own homes. Given the high down payment requirements for buying a home, financial support from parents is an increasingly important driver of homeownership.
Whether one purchases a home—and thereby takes an important step toward building wealth and securing private retirement savings—thus seems to depend increasingly on whether or not one enjoys certain privileges. Wealth is increasingly being inherited or remains “reserved for income groups that are already well-off,” the study states. Policymakers would therefore be “well advised to focus more closely on access to homeownership.” The study’s authors point out that in other countries, such as the Netherlands or the United Kingdom, the ancillary costs of purchasing a home are significantly lower, which reduces down payment requirements and makes homeownership possible even for less affluent people.
