Capital Language Solutions | Germany – to buy, or to rent: that is the question.

Germany – to buy, or to rent: that is the question.

31. Juli 2015

IMG_6842As far as housing is concerned, and as mentioned in a previous blog post, Germany can be seen pretty much as a nation of tenants rather than owner-occupiers. In major cities such as Berlin and Munich, between 75-85% of the population currently live in rented apartments, which means that only 15-25% are homeowners—extremely low figures when compared to the situation in other European countries.

Similar, but different

Why do such large sections of the population of Germany typically prefer to rent rather than buy? Here you have to consider historical and psychological, as well as economic, factors. Given the disruptions, divisions and insecurities that Germany has experienced since the Second World War (mass property destruction, relocation and internal migration, the emergence and collapse of East Germany and the threat of nuclear destruction during the Cold War), it’s maybe not so hard to understand why many Germans don’t want to be “tied” to such an immovable asset as a house.

Staying flexible

As the market for condominiums and houses in Germany is not as fluid as in other countries, there is also a tendency to want to buy (or build) the property you plan to spend the rest of your life in. Living in rented apartments is seen as an easy way to up- or down-size quickly and without too much hassle. Get a better job? Move to a better, bigger apartment. Child on the way? Move to an apartment with an extra room. And all of this with three-months‘ notice and no complicated discussions with banks or mortgage lenders. Only when people are in a position to truly “settle down” might they even consider buying a property.
There is no equivalent of the American Dream and its manifestation in the form of a house, fully resplendent with a white picket fence, or the UK’s post-Thatcher, right-to-buy mindset as a modern extension of the “An Englishman’s home is his castle” mentality.

Stable, not spiralling, prices

Whereas Anglo-Saxons look to buy a home as soon as they are in a position to do so, many Germans tend to either wait until their 40s (or even 50s), or never have the intention of buying, no matter what stage of life they are at. In England there is always the fear that if you don’t get on the “property ladder”, you will be locked out by the cycle of ever-rising prices and your peers will all be making massive capital gains whilst you sit on the outside looking in. Prices in Germany, because the market is so much smaller, don’t rise at a similar pace, so there’s nothing to be lost by waiting another five or ten years to buy.

You can be sure the landlord will take care of it

Another disincentive to buy is created by the strong tenant protection laws in Germany. There are clear regulations on what costs a landlord can pass on to tenants and there are reams of legislation governing tenancy contracts, rent rises, modernisation, maintenance and repair work. There are tenant advisory services (Mieterschutzbünde) who will help with issues surrounding utilities billing, contracts, disputes with landlords, etc. There are lawyers who specialise in tenant law (Mietrecht) and there are numerous insurers who offer comprehensive insurance policies that provide legal representation in case of disputes (Mietrechtschutzversicherungen).

Generation rent

Naturally, with such a large rental market in Germany, ancillary services such as insurance policies, legal services and advisory and advocacy groups are plentiful. It will be interesting to see how market conditions change as the UK’s rental housing market continues to expand. With some researchers predicting that up to 50% of those under 40 will be living in privately rented housing by the year 2025, it is clear that markets and politicians will have to react. Who knows, maybe some of the solutions that have evolved in Germany over the past sixty years will be adopted in the UK?

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