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Most Germans dont buy their homes, they

rent. Heres why
Matt Phillips

January 23, 2014

Moving on up, in Berlin. (Getty Images/Sean Gallup)

Its just a fact. Many Germans cant be bothered to buy a house.

The countrys homeownership rate ranks among the lowest in the developed world, and nearly dead last
in Europe, though the Swiss rent even more. Here are comparative data from 2004, the last time the OECD
updated its numbers. (Fresh comparisons are tough to nd, as some countries only publish
homeownership rates every few years or so.)

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And though those data are old, we know Germanys homeownership rate remains quite low. It was 43% in
2013.
This may seem strange. Isnt home ownership a crucial cog to any healthy economy? Well, as Germany
showsand Gershwin wroteit aint necessarily so.
In Spain, around 80% of people live in owner-occupied housing. (Yay!) But unemployment is nearly 27%,
thanks to the burst of a giant housing bubble. (Ooof.)
Only 43% own their home in Germany, where unemployment is 5.2%.
Of course, none of this actually explains why Germans tend to rent so much. Turns out, Germanys rentalhttp://qz.com/631113/afterearningafortuneinairlinemilesivefiguredouttheeconomicsofhowexactlytospendthem/

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heavy real-estate market goes all the way back to a bit of extremely unpleasant business in the late 1930s
and 1940s.

The war

(AP Photo)

By the time of Germanys unconditional surrender in May 1945, 20% of Germanys housing stock was
rubble. Some 2.25 million homes were gone. Another 2 million were damaged. A 1946 census showed an
additional 5.5 million housing units were needed in what would ultimately become West Germany.
Germanys housing wasnt the only thing in tatters. The economy was a heap. Financing was nil and the
currency was virtually worthless. (People bartered.) If Germans were going to have places to live, some
sort of government program was the only way to build them.
And dont forget, the political situation in post-war Germany was still quite tense. Leaders worried about
a re-radicalization of the populace, perhaps even a comeback for fascism. Communism loomed as an even
larger threat, with so much unemployment.
West Germanys rst housing ministera former Wehrmacht man by the name of Eberhard Wildermuth
once noted that the number of communist voters in European countries stands in inverse proportion to
the number of housing units per thousand inhabitants.
A housing program would simultaneously put people back to work and reduce the stress of the housing
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crunch. Because of such political worriesas well as genuine, widespread needWest Germany designed
its housing policy to bene t as broad a chunk of the population as possible.

The rise of renting

uary 1946. (Getty Images/Keystone)

Soon after West Germany was established in 1949, the government pushed through its rst housing law.
The law was designed to boost construction of houses which, in terms of their ttings, size and rent are
intended and suitable for the broad population.
It worked. Home-building boomed, thanks to a combination of direct subsidies and generous tax
exemptions available to public, non-pro t and private entities. West Germany chopped its housing
shortage in half by 1956. By 1962, the shortage was about 658,000. The vast majority of new housing units
were rentals. Why? Because there was little demand from potential buyers. The German mortgage market
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was incredibly weak and banks required borrowers to plunk down large down payments. Few Germans had
enough money.

Why Germany?
Its worth noting that Germany wasnt the only country with a housing crisis after World War II. Britain
had similar issues. And its government also undertook large-scale spending to promote housing. Yet the
British didnt remain renters. The UK homeownership rate is around 66%, much higher than Germanys.

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Why? The answer seems to be that Germans kept renting because, in Germany, rental housing is kind of

nice.
Economists think German housing policy struck a much better balance between government involvement
and private investment than in many other countries. For instance, in the UK, when the government gave
housing subsidies to encourage the building of homes after the war, only public-sector entities, local
governments, and non-pro t developers were eligible for them. That effectively squeezed the private
sector out of the rental market. In Germany, the role of public policy was to follow a third way that
involved striking a sensitive balance between letting the market rip in an uncontrolled manner and
strangling it off by heavy-handed intervention, wrote economist Jim Kemeny, of the German approach to
housing policy.
Britain also imposed stringent rent and construction cost caps on developers of public housing. Under
those constraints, housing quality suffered. Over time, the difference between publicly and privately
nanced construction became so glaring that rental housingwhich was largely publicly nanced
acquired a stigma. In other words, it became housing for poor people.
Germany also loosened regulation of rental caps sooner than many other countries, according to
economist Michael Voightlnder, who has written extensively about Germanys housing market. By
contrast in the UK, harsher regulation on rented housing stretched well into the 1980s, pushing landlords
to cut back on maintenance and driving the quality of housing down still further.
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Cheap rents

Of course, all that policy-design detail is interesting. But there might be a simpler explanation for the
popularity of renting in Germany. For one thing, its relatively cheap. (Germany is listed as Deu above.)

Renter-friendly regulations

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Why is renting cheap in Germany? Well, even though the countrys policies might have been slightly

more balanced than in other countries, its rental market is still robustly regulated, and the regulations are
quite favorable to renters. (Given the strong political constituency renters represent in Germany, this
shouldnt be too surprising.) For example, German law allows state governments to cap rent increases at
no more than 15% over a three-year period.

Tax treatment

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(Getty Images/Sean Gallup)

Theres another pretty simple reason Germans are less likely to own houses. The government doesnt
encourage it. Unlike high-homeownership countries like Spain, Ireland and the US, Germany doesnt let
homeowners deduct mortgage-interest payments from their taxes. (Theres more on the structure of
European tax systems here.) Without that deduction, the bene ts of owning and renting are more evenly
balanced. Both homeowners and landlords in Germany are barely subsidized, wrote Voightlnder in a
paper on low homeownership rates in Germany.
Those regulations, a solid supply of rental housing, and the fact that German property prices historically
rise very slowly thats a whole other storymean German rents dont rise very fast. And because one of
the main reasons to buy a home is to hedge against rising rents, the tendency of German rents to rise
slowly results in fewer homebuyers and a lower homeownership rate.
A number of other elements contribute too, but its tough to disentangle what is cause and what is effect.
For example, German banks are quite risk-averse, making mortgages harder and more expensive to get.
Others argue that the supply of rental housing might be higher in Germany because of its decentralized,
regional approach to planning. (The UK is much more centralized.)

Is Germany just better at housing?

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Not necessarily. Its not as if Germans spend a lot less of their pay on housing. The data below show
Germans actually pay more for housingas a percentage of disposable incomethan housing-crazed

countries like the US, Spain and Ireland.

But given the economic spasms suffered in house-crazy economies such as the United States, Spain and
Ireland in recent years, the German approach to housing looks pretty good right noweven if, before the
crash, the low homeownership rate was seen as an albatross around Germanys economic neck.
And German people clearly like how their system of housing works. According to the OECD, more than
93% of German respondents tell pollsters theyre satis ed with their current housing situation. Thats
one of the highest rates of any nation the rich-country think tank surveyed. Then again, the Irish and the
Spanishwhere homeownership is much more widely spreadseem just as happy.
Read This Next: Why Germans pay cash for almost everything
ELITE OR NOTHING

After earning a fortune in airline miles, Ive

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After earning a fortune in airline miles, Ive

gured out the economics of exactly how
to spend them
Allison Schrager

March 22, 2016

Home sweet home. (Reuters/Phil Noble)

I took it hard, the rst time I had to wait. About 20 people in Zone One, not to mention the extraspecial people before them, glided past, avoiding eye contact. Desperate to reassert my status, I turned
and said to the woman behind me: You know, I was 1k last year and several years before that.
She looked at me blankly and asked, Whats that?
Exactly. For years, airlines had played on my deepest insecurities. Like most die-hard point-enthusiasts,
my goal wasnt just accumulating miles, it was building statusI lived in an elite- ying world the
ordinary ier didnt even know existed.
Just like the very rich, frequent iers know that status isnt just about special treatment. Its an identity.
More than upgrades, express security lines, special hotlines, and free alcohol, elite status de nes your
place in the hectic and unpredictable world of travel.
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I built my mileage balance with a single-minded obsession the way some build their fortunes. Elite status
on my airlinemost airlines offer a similar status and bene tscould only be earned through sheer hours
spent in the air, quanti ed as Elite Qualifying Miles (EQMs). To make the top tier, 1K*, I had to
accumulate 100,000 EQMs a year.
Designing savings and investment strategies for clients 401(k) plans, I made up to eight ights every
month. To maintain my status, I invested through a complex strategy of buying miles, taking extra
connections, and making unnecessary runs to gain more and more EQMs. Every year that I got my 1k
status felt like a huge achievement, celebrated with business-class sparkling wine.
I was a rich woman, in terms of miles. Unlike the common traveler, I never used my accumulated points to
buy a ight, because that didnt build status. I actually said out-loud to people, Any journey that doesnt
build status isnt worth taking.
But as a retirement economist, I know that changing your lifestyle requires changing your investment
strategy. For a living, I spend hours reassuring my parents, friends, acquaintances that its OK to spend
some of their nest eggs in retirement, thats what they worked so hard for. And now that Ive retired from
business travel and work locally, it makes more sense for me, too, to spend, rather than save my fortune:
The low status elite levels (all I could hope to achieve now), are not worth the cost and energy of airline
loyalty. I y so irregularly that Id rarely enjoy the perks anyhow. Yet I am still reluctant to spend down
the miles I tried hard to earn. Me of all people.
The reason we save is to have money to spend in the future. But many retirees barely spend their 401(k)s
more than the government requires, and I understand why: Running out of money in retirement is a
terrifying possibility. I nd it scary just to spend my airline miles. But Ive learned a few lessons about
how to spend down miles, along the way, without feeling like youve lost your identity or security
entirely.

Spend strategically: use your miles on high value tickets

How to spend your miles is a hard question. Ive gone back and forth on whether to spend as quickly as
possible or save them. But Ive settled that the best strategy is to use my miles strategically so I get the
best, most comfortable mile for the buck: I pay out of pocket when I y domestic, and I use miles to pay
for expensive overseas ights in business class, and for upgrades.
Thats because domestic ights are shorter ights, so the relative comfort of a better seat feels less vital.
Theyre are relatively cheap, if you book far enough in advance and are open to different airlines, so my
mile-per-dollar rate exchange rate doesnt go very far within the US. But international ights in business
class cost thousands of dollars, money Id rather keep in-pocket. And even then, make sure I get a good,
super saver, rate.

Invest hours and stopovers in your search for the best fare
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When I spend miles, I spend hours searching for itineraries, sometimes combining airlines (aided by
credit card points), to ensure I always get the super saver fare. If you are willing to put in the time and
take a few stop overs, there is almost always a super saver fare where ever you are going.
Evidence shows that retirees save more money on food because they have more time to shop around. Now
that I travel less, I also have more time to search for the best fare.

Have an emergency cushion for last-minute travel

Theres a part of me that also needs to keep a stock of miles availablejust in case. It gives me some
comfort I have enough miles take a spur of the moment trip. So while Im spending more miles than I
used to, I also have a reservation balance I dont go below. I might change that oor someday, as my
points wear down.

With a little creativity, you can still earn miles

To be fair, I am not a true non-saver. Much like modern retirement (which often includes part-time work),
my mileage strategy includes creative ways to keep bringing in points even as I spend them. Ive become
strategic in how I use credit cards, using cards that offer point bonuses and allow me to transfer points at
a favorable rate on airlines I like to y.

If you are smart about it, you can enjoy the same old perks while spending less
Even if I am no longer elite, Ive gured out how to simulate many of those same perks when I y:
I maintain an airline credit card, so I still get priority boarding and
checked bags (if I ever checked bagswhich I dont).
I may not get free domestic upgrades any more, but few elite iers
get them either anymore. Seat upgrades are now often available for
purchase at fairly low prices, at the last minute, instead of given to
elite iers.
Besides, I never cared much about upgrades. In domestic the bulk
head row can give you the same amount of legroom and proximity
to the exit as business class. The only thing you miss is a
marginally wider seat, bad free wine and mediocre plane food. If
its a long ight, I just pay the fee for economy plus and get my
favorite seat (7C on a 737).
Even in economy-class, you can bring rst-rate food and
accessories to improve the in ight experience. Of course, having to
lug around supplies is contrary to the whole ethos of elite ying
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so keep in mind, while it may be more comfortable to bring your

own ice cream sundae on board, it does not an elite ier make.

Your status does not dene who you are

Most important, I no longer care so much about airline status and am able to focus on more important
things. Today, I sometimes feel some pity for elite iers, because I remember how much time away from
home it took to y 100 thousand miles a year. In the end, once Im on the ground, Im happier spending
more time with friends and family, being able to make plans weeks in advance, and being fully engaged
with the people in my lifeinstead of feeling constantly exhausted from my latest, elite-status trip.

*The highest tier on this particular airline is the super-secretive Global Services, which requires clearing
opaque hurdles and a special invite.

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