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Most Germans don’t buy their homes, they rent
- DocTomoe 10y agoBeing German I want to pPoint out that the article leaves out one cruicial detail: Building your own home puts you into debt for quite literally the rest of your life. We do not like debt.
- buro9 10y agoYup. Germany has one of the lowest adoption rates of credit products such as the humble credit card out of nearly all Western nations. Debt is not liked. Edit: From the same site, the linked article at the bottom has the answer: http://qz.com/262595/why-germans-pay-cash-for-almost-everything/ http://qz.com/262595/why-germans-pay-cash-for-almost-everyth... A better link: http://www.businessinsider.com/you-have-to-understand-germanys-long-standing-fear-of-debt-2012-7?IR=T http://www.businessinsider.com/you-have-to-understand-german...
- premium-concern 10y agoYep. "Don't buy things if you can't pay for then." sounds reasonable, but some other countries seem to disagree. Not surprised that those countries suffer from government shutdowns over how much the debt ceiling is raised.
- thesimon 10y ago>suffer from government shutdowns over how much the debt ceiling is raised On the other hand: The government shutdown because of the debt ceiling seems just like "Stop hitting yourself" on the playground. And Germany's budget is far from balanced.
- buro9 10y agoThe myth of the balanced budget. The article speaks of consumer debt, I spoke of consumer debt. Government debt is a different thing, and a government without any debt doesn't sound like a wise thing if it is even possible in such a highly integrated and globalised world.
- nailuj 10y ago> And Germany's budget is far from balanced. Hmm? http://www.bloomberg.com/news/articles/2016-08-17/germany-plans-to-cut-2017-debt-sales-amid-balanced-budget-push http://www.bloomberg.com/news/articles/2016-08-17/germany-pl...
- mpweiher 10y ago>And Germany's budget is far from balanced. "Germany recorded a Government Budget surplus equal to 0.70 percent of the country's Gross Domestic Product in 2015. " While it's true that the budget is not balanced, a 0.7%/GDP surplus is pretty darn close. http://www.tradingeconomics.com/germany/government-budget http://www.tradingeconomics.com/germany/government-budget
- kriro 10y agoNominally Germany has a balanced budget. I agree it isn't really balanced and the big zero is just achieved via some shifting around of things. However the fact that the government jumps through all sorts of hoops to be able to say the budget is balanced is at least an interesting indicator that it does seem to matter to enough people.
- premium-concern 10y agoEven government budgets have to adhere to some standardized schemes of reporting. See also rating firms. Otherwise even the US would have a balanced budget and no debts. (Ignoring the fact that the US is the main force behind trying to change the account rules to make them look less bad.)
- 0xcde4c3db 10y agoIn the US, at least, the shutdowns don't have much to do with our actual spending/borrowing habits. It's a structural quirk of government operation that provides a handy perennial disaster to use for political brinkmanship and finger-pointing. Basically "if you don't start being reasonable by caving to my demands, then you're going to cause a government shutdown".
- premium-concern 10y ago> political brinkmanship and finger-pointing The difference is that parties that try to pull that in Germany not only loose elections, but are punished so hard by voters that they can't even get over the necessary 5% requirement in the next election. Have a look what happened to the FDP after they pushed through lower taxes for hotels.
- DasIch 10y agoIn Germany not passing a new budget wouldn't let to a government shutdown. So it's not an option anyway.
- premium-concern 10y agoEven if it did, it wouldn't matter, because people would vote those politicians that tried this shit and their party out of office.
- webkike 10y agoUsing credit cards does not preclude being able to afford the thing you are paying for. I regularly use my credit card for every day purchases despite having ample money in my checking account. The regular payments allow me to develop a good credit history without much worry.
- josefresco 10y agoBingo. Unfortunately the common assumption is that you're not paying it off monthly and paying high interest.
- fwn 10y agoWhich, by the way, sounds like an awful concept of how creditworthiness is created. Signing into some unnecessary additional financial product with comically obsolete interest rates, just to manually repay it in the random timeframe in which the (still unnecessary) credit is free sounds like a bad idea. It's probably only there to nudge people into paying interest on money they already have.
- josefresco 10y agoCredit history is just a history of making payments on-time. You can build a history by making student loan payments, car payments, health care payments etc. Obviously it's only one factor in someone's credit worthiness, however it's not a bad metric. If you pay your bills on-time, it makes sense that a lender would value you higher/safer than someone who does not.
- hx87 10y ago> the random timeframe in which the (still unnecessary) credit is free Are you talking about the 0% APR period, or the monthly revolving cycle? The latter is absolutely predictable, and if you dislike manual payments you can always set up automatic ones.
- kriro 10y agoWhy can't you use a debit card for that? Isn't having enough money in your checking account to reasonably afford all stuff you need to live basically proof of a good credit history? Isn't the best credit history one where you never need credit in the first place?
- maxsilver 10y agoDisagree might not be the right word, "force" is probably more accurate. In many countries, it would be effectively impossible for most regular people to get basic living needs (like housing and transportation) if they couldn't buy them using some amount of credit. Obviously it shouldn't be this way, it should be possible to save and buy these things outright. But since it effectively isn't (for many people, in many places) I wouldn't fault people for taking on debt to do things like put a roof over their head or get to work on time reliably.
- snowwrestler 10y agoI can pay for my house--over time. Which is fine because I'm also living in my house over time.
- gozur88 10y agoGovernment shutdowns in the US are largely theater. The last time they only halted 15% of expenditures.
- thesimon 10y ago>such as the humble credit card out of nearly all Western nations Of course using your overdraft is totally fine, but using the evil credit cards even when paying in full is just like declaring bankruptcy. Doesn't help payment services in Germany that Visa/MasterCard is always considered an evil credit card and debit brands aren't too common.
- Noseshine 10y agoFrom the PoV of someone who once co-owned a small business in Germany that accepted card payments: The reason they are "evil" is that they charge the dealer the by far largest fees. Cache: no fee. EC card: small fee. Credit card: large fee. And of course I can't ask the customer to pay for it, I must have one price for all. It was something like 1% vs. 3% (approximately(!), just to give an idea of magnitude). It's not even any more convenient. Except for a few places like car rentals, where the credit card serves an insurance function (the rental deposit), there is exactly zero reason to point to convenience. Just use an EC card or a bank card that's attached to the major payment processing networks, everybody has one. On the other hand, most credit cards cost a yearly fee of 20-70 Euros or so. The only reason I grudgingly pay for one is because I rent a car occasionally.
- fwn 10y agoThat's quite interesting. I rent cars quite frequently with the boring free VISA debit card from my normal checking account. I never knew that there are restrictions on which cards can be used for renting.
- Noseshine 10y agoIt's not so much a restriction, and it differs from company to company. For example, I rented twice this year - I don't own a car and usually use the train - and the first time they wanted my to enter the PIN for the credit card, which I didn't know. A big hassle, they took (real!) money off of my EC card (which I got back afterwards). The second time I didn't need a PIN (different car rental company), but they helped themselves to almost 800 Euros in alleged damages from my credit card (good thing I had used an online service and opted into the "we pay the deductible", which was 1,000 Euros, on the full insurance I had also selected to get).
- thatfrenchguy 10y agoNever seen credit cards outside of the US/UK/Canada...
- ghaff 10y agoI use them in continental Europe and Asia all the time. Maybe they're not as common but they certainly aren't anything like unheard of even if they're not as universal as in the US.
- dirktheman 10y agoHere in the Netherlands credit cards are used almost exclusively for online purchases. If you're a (brick) store owner and you would like to accept credit cards at your payment terminal you pay a hefty premium for that transaction. It's usually around 5% of the total amount. Debit cards, that's another story. Most people pay with their debit cards instead of cash. It's convenient, even more so since the introduction of contactless bank cards.
- coldtea 10y agoThey are used all over the world, including in France. Not sure what are you talking about... Except if you live in some rural area...
- Xixi 10y agoI don't know many people who use credit cards in France. Practically everybody use the so-called CB which is a debit card (either immediate or deferred, usually deferred), not a credit card. It doesn't allow you to accrue debt: the balance is always re-paid in full, and the linked bank account (usually a checking account) will go red in case of overspending. That said there are definitely credit cards, usually linked to big retailers (Auchan, etc.), but are they that popular?
- coldtea 10y agoFrom what I see, most people use the CB, but: "Euromonitor International, a market research company, estimated that there were just 34 million French credit cards in circulation" (0.5 per person, in contrast the US has ~4 cards per person). Average credit card spending per French annually is $300 -- so quite insignificant compared to Americans (which would be almost half their annual salary if not more).
- cylinder 10y agoAnd yet the public debt of Germany is just as high as these credit addicted nations, what does that say?
- MagnumOpus 10y agoGross debt is as high. Net debt is way lower than in the US let alone in the UK, Japan or Club Med countries. (The German Feds and the states own parts of a lot of strategic income producing companies - KfW state investment bank, Deutsche Bahn, Volkswagen etc).
- wolfgke 10y ago> And yet the public debt of Germany is just as high as these credit addicted nations, what does that say? That in the past Germany was not so sensible about its budget.
- tanto 10y agoAgreed. Building a house also locks you money. In Berlin you can spent easily 300k to get a 3 BHK apartment.
- andreasklinger 10y ago+1 To explain cultural difference: - In the US you are considered financially stable if you are always paying your debt/credit on time. - In the germanic countries you are considered financially stable if you have none. My US Bank clerk needed a few meetings to convince me that it is good to build go into monthly credits (creditcard) to support my credit score.
- wil421 10y agoI wouldn't go as far as saying always. The banks want a history of loan payments. I'm 30 and just got my first installment loan for a car. Getting a home loan is difficult. I don't have any bad credit at all but not much installment loan history.
- darkhorn 10y ago>My US Bank clerk needed a few meetings to convince me that it is good to build go into monthly credits (creditcard) to support my credit score. Uhmm, can't a bank see your salaries? Because in Turkey they want to see your salaries. You enter to www.turkiye.gov.tr and print out your last 12 months salaries with a validation number and then hand it to your bank. Or you ask from your employer, he ask it from Social Security, travels back to you and you hand it to your bank. Then they check wheter you had missed to pay back your credit (even to another bank, because they share data). And they check wheter if you were rejected by an another bank (because they share data). Basically, your score is high if your salary is high.
- acchow 10y agoThe US system is kind of broken. They don't equate high salary with high creditworthiness - maybe it's because of the american culture of consumerism (which implies that you might make lots of money, but if you spend it all and are going into debt to fund your lavish lifestyle, then you're not creditworthy). So the American system rates creditworthiness by a history of paying off debt on time (usually credit cards, mortgage, car loan, etc.). It's stupid. It would obviously be better if we judged creditworthiness by your bank balance history. But this is apparently hard/impossible to show.
- wil421 10y agoWhat about cars? Are Germans more likely to buy or lease a new car? Or do more people buy used cars with cash?
- tksap 10y agoYou buy the car you can afford. I would only take a credit if I wanted to buy or build a house.
- cylinder 10y agoIn 2014, 27% of all car purchases in Germany were financed.
- premium-concern 10y agoWhich includes leased company cars. So yes, people don't finance their cars.
- kgwgk 10y agoYou can also buy new cars with cash!
- usrusr 10y agoNew cars tend to be leased, but more often than not (at least in the price ranges "family sedan" and up) this is formally a company car, even if it is not used for business purposes at all. This is primarily driven by a full set of smoke and mirrors on the taxation level, that probably grew because it's what keeps the domestic market going for German car giants. In the case of "formally a company car", leasing is not perceived as personal debt at all but just as a car that is much nicer than what you would buy on your own and that you happen to loose when you quit your job. Privately held new cars are the realm of those who can easily afford to pay up front (e.g. a large fraction of those are bought by are retirees in burn those savings as long as you can mode) and those who are at the same time in the top percentiles of both madness for cars and willingness to go into debt (these people certainly do exist, just in slightly but noticeably lower numbers than elsewhere).
- deleted 10y ago[deleted]
- bryanlarsen 10y agoI know some incredibly debt-averse Americans, and they all consider mortgage debt to be "good" debt. They still try to minimize it, and pay it off as quick as they can, but they all would recommend reasonable mortgages.
- ZeroGravitas 10y agoPart of that might be tax incentives for mortgages, which another commenter claims Germany doesn't have
- dasmoth 10y agoThe UK doesn't have tax incentives for mortgages any more, but they're still popular. I think the big distinction is that -- unlike nearly anything else you might buy on credit -- houses don't really depreciate. Even without the overall rising house prices, relatively few people value a 20 year old house at a meaningful premium over a similarly-sized 40 year old house. So it's comparatively easy to justify as an asset counter-balancing the debt.
- hx87 10y agoHouses can certainly depreciate if you don't keep them up to date (e.g. a house with no electricity in 1920) or at least take care of them. The land beneath them, on the other hand...
- mto 10y agoSame for Austria. Then considering that you might change jobs every few years... and the jobs are mostly in the cities, where you can't afford building a house. We live in a small to medium size flat for 380€/month, including some running costs. Buying it would cost roughly 250k. That just doesn't pay off. Most medium sized houses are about 700k€ in the region, with typical software developer wages at 2-4k€/month before taxes. So 1.5-2.5k€ after taxes. Now go figure how long you will be in debt... And of course, people are older nowadays when they start to earn. For example, my parents started working with 16. I visited a technical school up to age 19, had to do a year of civil/military service, then worked 2 years to save some money, then did a CS bachelor. A bachelor alone is "no real degree" here, so also doing an MSc. Working while studying to afford the studying prolonged the studies a bit.. and in the end I started with my first real OKish earnings at age 28 when I started with my PhD. So... yeah. At the bank they laughed at my income when asking for a loan for a flat.
- petra 10y agoSo what happens to people when they are old , and maybe they're pension isn't that good ?
- pjmlp 10y agoSadly they might land in the streets, if they don't have a family to support them. But this can also happen if you own a house, because there are running expenses for municipal taxes, validating the plumbing every X years, renewal of the boiler system before every winter starts, cleaning the snow or paying someone to do it....
- dnissley 10y agoTrue, but then you can sell it and potentially have enough money to live out the rest of your days (or a significant portion of them). There was a comment I read here recently about how a mortgage is in some ways a vehicle for forced savings. Not enough to retire on alone of course, but a big check if you ever need it.
- atmosx 10y agoIf I am not mistaken the word "debt" either has the same root or derives from the word "sin" in Protestant tradition.
- stevoski 10y agoNot so much Protestant tradition as Germanic languages. The German word for debt "Schuld" also means guilt, fault, and blame.
- pluma 10y agoNote that in German the word is generally used in plural when talking about debt and singular when talking about guilt/blame. "My fault" -> "Meine Schuld" "My debt" -> "Meine Schulden" I think both also behave as mass nouns, so there's rarely any ambiguity.
- jakub_g 10y agoInteresting. In Polish OTOH "debt" is a separate word, but I just realized that "to owe someone" and "to be guilty" is the same verb.
- kriro 10y agoPretty much agreed. My rather simple (and completely argumentative) explanation is that Germans generally are less enthusiastic about taking on debt to finance things. Psychologically I'd say it's rooted in the fact that the results of hyperinflation are very much in the minds of people and there's a tendency of "don't borrow if you can save for it". Since the only realistic option for buying houses is taking on debt, less people do it. I feel this mindset is slowly going away though. Another point in favor of this "theory": credit cards are relatively uncommon compared to other countries (that's also changing imo). I feel like home ownership is even less of a useful concept these days with ever shifting jobs so I think we accidentally stumbled upon the right strategy. Edit: There's also quite a few buildings that are owned by a "Wohnungsbaugenossenschaften" (basically a https://en.wikipedia.org/wiki/Cooperative https://en.wikipedia.org/wiki/Cooperative for housing)
- krautsourced 10y agoIt's not about inflation, since inflation is actually good for you if you're in debt (as your debt is not adjusted to the inflation, your debt is effectively shrinking by the inflation). People are still buying and building houses here, especial in rural areas. It's mostly the cities where things simply have become unaffordable for most people.
- paganel 10y ago> It's not about inflation, since inflation is actually good for you if you're in debt Like with many things, the devil is in the details. I'd say a 1 to 5% inflation rate is preferable, a 5 to 10% inflation is livable rate, 10 to 20% is starting to get tense, more than 20% and then everything is suddenly more expensive and you risk don't having money to get you through the month. Yes, some of your nominal debt might go down, but, then again, you still probably have to buy gas every couple of days (which is most probably imported, so its price has gone up), with more expensive gas comes more expensive merchandise (things like food, clothes and the like) because carrying stuff around consumes gas, your heating and electricity bills will also probably double of triple in value in a matter of a couple of years, and so on and so forth (not to say that you can forget about more-than-basic stuff like having a vacation abroad).
- bogomipz 10y agoThere are two way to look at what you are calling "debt" though. In the United States you are allowed to write off the interest on your mortgage from your taxes. This often has the effect of making what you pay for housing every month either cheaper or very close to the same amount you would pay to rent a house. Housing is a constant expense. If you rent practically speaking you are in debt to your landlord every month. In the US and many other countries on the list where home ownership is prevalent although you are in debt to the bank you are also paying yourself in a round about way in the form of equity(principal) that you have in the house. So you are actually saving rather than spending which is generally financially conservative. As the poster above you mentioned Germany doesn't incentivize home ownership via tax breaks and I think thats the key difference.
- pluma 10y agoHome ownership is actually seen as a long-term investment in Germany (although I feel that recently more people come to realize the numbers don't really add up). Land ownership in particular is considered a good thing and most people have a strong aversion to selling off land they inherit. However home ownership is also considered a luxury. Not only is there not as much of a tax incentive as in the US and not only does it require you to take on life-long debt, but there are also a lot of expenses the landlord would have to pay for but a homeowner has to pay out of their own pocket. The obvious example are routine maintenance like roofing and plumbing, but also drainage or the cost of public works: if the house sits on a street corner and both streets get modernized, you may end up having to pay for both. The expenses when renting on the other hand are much more predictable: you just pay the rent and utilities and whatever one-off costs come up have to be spread out via an increase in the utilities bill or swallowed by the landlord. So if you want to build or buy a house, you're expected to save money for paying for these fun surprises as well -- because having to take out a loan is a sign of poor planning, if the bank even grants you one on top of the financing for the house itself. Add everything together and home ownership becomes nothing more than a luxury.
- VLM 10y agoArticle misses the hyperinflation of the 20s and the capital markets in the 50s. By the time the cold war made it apparent that 20s style economy destroying reparations would not be paid, renting was already baked into the cake. Residential real estate is non-productive and post WW2 Germany had not use for a capital drain if anything they needed capital along the lines of the Marshall Plan so its not like anyone was interested in wasting capital in a modern USA style housing bubble.
- cm2187 10y agoSo in Germany, the interest on a mortgage is non tax deductible. The article doesn't mention it but I understand that property owners are also liable for capital gain tax if they hold the property less than 10 years. I think that makes sense. There is no reason to favor individuals investing into an unproductive investment (property) over productive investments (stocks and bonds, which enable companies to raise money to start new projects, create jobs, etc). Over-borrowing to bid the maximum amount one can to buy a nineteenth century house doesn't create any job for anyone, it just transfers wealth to the hands of the seller.
- camiller 10y agoBuying stock on the open market also doesn't create any job for anyone, it just transfers wealth to the hands of the seller. Basically, unless you are investing in an IPO, the company doesn't see a dime from the ongoing trading of it's stock. So the vast majority of investors are not creating jobs by buying stock. Similarly, most bond investors are not buying new issue bonds, they are buying bonds from the current owner of the bond.
- cm2187 10y agoI am not sure that is true as even for stocks, on the other side you have asset managers, hedge funds or insurance companies who participate both in the primary and secondary markets. Of course, you will have similar bubbles forming in stocks than you have in property. But overall it is a way more productive investment. Bonds barely trade on the secondary markets. When you invest into a fund that buys bond, it's pretty much 100% primary market (i.e. new issuances).
- camiller 10y agoFor property you still have ongoing maintenance to pay for, and real estate agents, and the title company, etc. so there are jobs created due to the buying, selling, and ownership of property. If I by 100 shares of IBM in my self-directed account at Charles Schwab there likely isn't a single human being involved in that transaction after I click the buy button. Granted, somebody wrote the code that drives all of that.
- vslira 10y agoAccording to the article, mainly: 1 - Government doesn't subsidize homeowners; 2 - Renting rules are reasonable for renters, increasing supply which makes renting affordable. There, saved you a click.
- easytiger 10y agoThe government doesn't subsidies home owners in the UK and it is considered very very expensive, apparently, by many.
- MagnumOpus 10y agoThe government does subsidise home owners through nearly a dozen different schemes[1], landlords through a dozen more[2], and the mortgage banks through another score[3], which is the reason why prices are very expensive indeed. [1] freedom from capital gains tax, RTB, HTB equity loan, HTB mortgage guarantee, HTB ISA, Forces HTB, NewBuy, AFHOS, Shared Ownership Scheme, Key Worker Scheme, Home Ownership Scheme for Cripples, and that is just off the top of my head [2] rent floors through LHA, tax deductability, ability to flip residence between first and second homes for zero cap gains tax, freedom from inheritance tax beyond the usual limit... [3] state bailouts for all major banks, gurantees, QE, QE2, QE3, liquidity schemes, credit purchase schemes etc etc
- pyb 10y agoWho owns most of the homes then ? Institutional investors ?
- adrianratnapala 10y agoThe home ownership percentage is still 43%, so not that low. Landlords seem to be the usual mix of older, upper-middle proffessionals that you see in other countries. It's just a bit more concentrated. Also there are many houses which have two or three appartments. The owner will live in one appartment, and either have a different generation of their family in the other ones, or else rent it for money.
- ygra 10y agoIn my home city (Rostock) a large portion of flats are owned by a single, large-ish company. A stark difference to now (Tübingen) where most flats are owned by individuals. Personally it's much easier to handle contractual stuff (which renting always entails) with a company instead of a person. At least landlords here tend to have trouble distinguishing contractual interactions (reducing rent resulting from unfixed issues, complaints about things to be fixed, etc.) and dealing with them as a person. With the landlord living just two streets away they're sometimes inclined to take things personal and show up on your doorstep.
- freeflight 10y ago>With the landlord living just two streets away they're sometimes inclined to take things personal and show up on your doorstep. Or worse: They will try to fix/repair things themselves, instead of hiring an actual professional for the job. My landlord, a brain surgeon, won't hire anybody for anything. Instead, he will come over himself and try to fix things he clearly has no clue about. Last time he cut himself trying to fix the parquet floor, ended up bleeding all over the place. I had to repaint some of the walls and the floor is still in a shoddy state.
- pluma 10y agoI live in two places in Germany: a city of one million people and a small town of 16,000. In the city the apartment I live in as well as most buildings nearby are owned by a stock company that owns 42,000 apartments and is mostly (88%) owned by the city. In the town the apartment is part of a building owned by an elderly couple living a few blocks away. Compared with the company, dealing with the private landlord is a hassle. He's not very mobile, so every interaction basically takes place in his living room. He's also of course not doing this full-time, so he's not always up to date on all legal aspects or all of the necessary paperwork. It's nice to see private individuals owning land and houses in principle, but from a pragmatic point of view the company is far easier to deal with. Their scale allows them to have offices with actual business hours and problems can be handled as routine whereas with an individual every little thing is of course special. Because the company is mostly owned by the city, they also invest in long-term projects and community building -- which a private individual naturally can't do as easily. So far I haven't had any problems with either of the two, but I'm fairly certain that having an actual conflict with the private couple would be a far greater issue than taking the company to court -- not in the least because in a small town everybody would hear about it and because they're private individuals it would be seen as personal.
- adrianratnapala 10y agoCan somone explain what the article means by: > Germany also loosened regulation of rental caps sooner than many other countries, Does that mean the amount of rent control was deregulated? I thought the rent control here in Germany was pretty strict -- at least in the sense that the landlord can't increase the rent during an existing tenancy.
- adrianratnapala 10y agoI agree it is a good thing for Germany to have so much renting. Indeed I think home-ownership will be the #1 driver of inequality in other contries over the next generation or two. Those countries will have policies that lcaim help poor people buy houses, but the effect is to just inflate prices and increase financial risk -- as the world has already seen. The one thing that would really help -- increased supply is blocked by a powerful home-owners lobby damanding zoning rules and other restrictions. In Germany the bloc is powerful, and probably gets more goodies than it should. But at least here they are constant building new housing.
- Normal_gaussian 10y agoThe only liberty that renting provides is the protection from the whims of the housing market. Aside from that it takes liberties right left and centre. I cannot structure my house and life as I want from painting and shelving through pets and kitchen appliances. I cannot fix something without causing a hassle and days off work. I cannot register a business here. I am at the whim of my landlord. Renting in the UK is a pain in the arse. I do to see renting as particularly positive for the individual.
- AndrewDucker 10y agoGerman renters have a _lot_ more rights than UK ones do. http://www.telegraph.co.uk/expat/expatlife/11417359/Germany-the-country-where-renting-is-a-dream.html http://www.telegraph.co.uk/expat/expatlife/11417359/Germany-...
- Normal_gaussian 10y agoUnfortunately they still don't approach those of an owner
- AdrianB1 10y agoThat's called ownership: if it is yours, you should have right on it, is it?
- Normal_gaussian 10y agoYes. That is what I am saying, to my mind ownership is vastly superior to renting. Renters are second class citizens in their homes.
- imtringued 10y agoOn the other hand it eliminates the NIBMY problem. Since the tenants do not own their home they don't have the pressure to protect their investment. The landlord receives returns on his investment through rent on a monthly basis which lessens the risk of a sudden development reducing the value of the home. Home owners that live in their own home on the other hand face the full risk since they can only recoup their costs when they sell the property.
- LeanderK 10y agoI am a German CS-Student and currently renting in a shared flat with 4 other students. We call it WG (living-community) and its really popular not only with students, but i know a lot of young professionals and even middle aged ones that share an apartment (it gained popularity in the 60s, so i think its more of an culture thing that older do not share a flat). If you are in a partnership, you can move out and share a smaller one with your partner, but if your not in a partnership (or not that close yet) i wouldn't want to miss living in a shared apartment. You come home, talk about your day, cook together and on the weekend you can go out together. There is always something going on. I can't imagine living in my own apartment all by myself. Working long and then coming home into an empty, dead, dark apartment with no one to talk to. Serious question: Why is it not very popular in other countries?
- ghaff 10y agoTo each their own. After graduating from school, the last thing I had any interest in was a shared living arrangement.
- k__ 10y agoI live with a friend for about 8 years now and it's okay, but I wouldn't do it again when we finally part ways some day in the future.
- valine 10y agoI've always been the opposite. I can't stand coming home to an apartment filled with people. After dealing with chaos all day, I want to know there's a quiet, tidy place where I can relax. I dislike coming back and having to interact with people.
- LeanderK 10y agoyour not forced to share your apartment, but every constellation have their own vibe. Some are quiet and mature (and most of them are not filled with students, i think thats an age thing)
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- josefresco 10y agoHow does Germany handle retirement? In the US, your home is seen as an investment, one that can partially fun retirement or depending on the market, pre-retirement income.
- ygra 10y agoYou pay into a retirement fund as long as you work (Rentenversicherung). When you retire you then get a monthly payment from there. By now, due to more old people and fewer young people, the amount you'd get is getting lower. To combat that there are various ways people invest money for retirement. Betriebliche Altersvorsorge is one, where a part of your income is deducted before taxes. There is Riester-Rente, which is state-sponsored to some degree. Of course, some people choose to invest into property, but there are lots of other options with varying flexibility and payoffs. In general, even if you don't do anything towards your retirement (apart from working your working life), you still have some security as you age. But such provisions are probably one very major difference between the US and Germany.
- nommm-nommm 10y ago>In the US, your home is seen as an investment Historically a very poor one. http://www.usatoday.com/story/money/personalfinance/2014/05/10/why-your-home-is-not-a-good-investment/8900911/ http://www.usatoday.com/story/money/personalfinance/2014/05/... >"Capital gains have not even been positive. From 1890 to 1990, real inflation-corrected home prices were virtually unchanged." >From 1890 -- just three decades after the Civil War -- through 2012, home prices adjusted for inflation literally went nowhere. Not a single dime of real growth. For comparison, the S&P 500 increased more than 2,000-fold during that period, adjusted for inflation. And from 1890 to through 1980, real home prices actually declined by about 10%. Not to say that a house is a bad thing. A house can be great! It provides shelter, stability, and can provide a vast amount of joy and pride. Its a very poor investment vehicle. Its a very bad idea to have 100% of your wealth tied up in your primary residence. Diversification is a key to financial stability everywhere.
- zip1234 10y agoI mostly agree with you but the 2012 point is a very bad end point to choose for house prices. 2011-12 were the trough on housing prices after the crash.
- whack 10y agoThe Germans seem to be far ahead of the curve here. From a financial planning perspective, buying a home results in: 1) The vast majority of your assets becoming concentrated in a single plot of land, in a single neighborhood, in a single city 2) Your future mobility to pursue jobs in other cities, becoming significantly constrained If you want to invest your savings, then invest them in the stock/bond markets. If you really love real estate investments for some reason, invest in a REIT fund where your assets will be diversified across thousands of properties, and fully managed by others on your behalf. Pursuing a national policy of home-ownership makes little sense.
- coldtea 10y ago>Your future mobility to pursue jobs in other cities, becoming significantly constrained Perhaps the idea of people who haven't adopted this is that, unless they like doing so, humans should not have to live like nomads moving here and there to pursue this or that financial opportunity, but instead should be allowed to grow roots in some place, help shape it and improve it, connect with their neighbors, etc.
- kbart 10y ago"humans should not have to live like nomads moving here and there to pursue this or that financial opportunity, but instead should be allowed to grow roots in some place" Why? It's a choice best left to each person, telling somebody what they should do and how to live their lives is patronizing at least.
- coldtea 10y agoWhat part of "unless they like doing so" you've missed? :-)
- whack 10y agoNobody is forcing anyone to move or "live like a nomad." But why take steps that will make it much much harder for you to change your mind later? 5 years from now, if you've been unemployed for a long time and a great job opportunity opens up in a city 2 hours away, you may realize that moving 2 hours away in exchange for a paycheck, is a perfectly valid choice to make.
- standel 10y agoIt's an interesting article. I'm from Belgium, one of the highest house owners countries. Even though it's true it's a life-long debt and it might be risky (in case of crisis), housing is still considered as a Long Term Investment so that you can pass that investment to your children (after heavy tax deduction :)). I find interesting the article does not mention who actually owns all these houses and who benefits in the long term. After all, renting has a guaranteed zero ROI. Also, recently, I've been looking at housing market in Munich and it's very very expensive. Renting is ~20% more expensive than in Brussels and acquisition is +100% more expensive. So, although I admit I do not know rest of Germany housing market, I have some troubles thinking why Munich would be more expensive than Brussels. And I certainly miss, from that perspective, why German system would be more interesting.
- thesimon 10y agoMunich is the most expensive city for property by far, so it's probably not the most representative example.
- freeflight 10y agoMunich might be the most expensive city on average but other German cities, even way smaller ones, also have comparable high rent prices in some of their more centrally located districts.
- coldtea 10y ago>After all, renting has a guaranteed zero ROI. A guaranteed zero ROI is better than a negative ROI which you can get with buying a house (e.g. the house you can resell it drops due to the market and you can't afford the mortgage for some reason...)
- standel 10y agonegative ROI on investment is the risk component of your investment. This is true of any investment. Stock being certainly higher risks than housing and still people invest a lot in stocks. But I should have said renting is a sunk cost. There is no investment component at all in renting.
- WA 10y agoOn the other hand, many Germans believe: renting is paying someone else, buying is paying yourself (which is nonsense). Especially in more rural areas, buying/building a house is considered a big achievement in life. People are even willing to move from a smaller city to little towns just to be home-owners. Buying a house can be a net loss over the years, if you're not located in a major city. Especially in East Germany, house prices are declining. See this graphic [1]. Everything yellow basically doesn't yield any returns. Housing prices in orange and red areas decline over the years. But even in green areas, there are so many knobs you can turn to make buying or renting more feasible than the other. It boils down to lifestyle decision: Do you want to live in your own house or not? If you prefer to rent: Are you willing to save money by other means? Because buying a house works for many people simply because they're forced to "save" a certain percentage of their income every month. I prefer renting, because of the flexibility. I put quite a bit of money in stocks instead. [1]: http://cdn3.spiegel.de/images/image-726182-galleryV9-uttw-726182.jpg http://cdn3.spiegel.de/images/image-726182-galleryV9-uttw-72...
- ghaff 10y ago>It boils down to lifestyle decision Exactly. My philosophy is, to a first approximation, forget the financial aspect. Yes, depending upon tax policies, rent/buy ratios, etc. it may make more or less sense to rent vs. buy in a given location. But, for me, it really comes down to flexibility on the one hand and stability/ability to modify things to your liking on the other. Neither is the "right" approach but IMO it's what most people should be focusing on rather than whether it's a good investment or whether they're "throwing money away" on rentals.
- lmedinas 10y ago> On the other hand, many Germans believe: renting is paying someone else, buying is paying yourself (which is nonsense). Especially in more rural areas, buying/building a house is considered a big achievement in life. People are even willing to move from a smaller city to little towns just to be home-owners. People change to small towns because they want stress free life and a better/larger home for the same price of a small apartment in big cities. Living in cities brings also disadvantages!
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- merb 10y ago> more than 93% of German respondents tell pollsters they’re satisfied You only trust the statistic you created yourself. That is not a true statement.
- mrottenkolber 10y agoGermany is a two-class society divided into landlords and renters. A landlord will usually not own only one but ~3-20 houses that total to ~15-100 flats. The landlords often are renters themselves. When compared with big housing companies, private landlords require bigger profit margins, leading to low quality maintenance of existing houses and ex-orbital rents. Especially in crowded cities, rent regulation is non existent and its a sellers market, inflated by wealthy students that rent expensive micro-flats during university. You or your parents don’t own houses, and are self sufficient on a regular job? Well, you are shit out of luck then. As much as 70% of your income will go towards your rent, effectively financing the better-off and the further expansion of their inefficient renting businesses.
- fwn 10y agoSpending 70% of your income on rent is far from inevitable in Germany.
- LeChuck 10y agoNot only far from inevitable but impossible in a lot of cases. When I was looking for an apartment in Germany most (all? I can't remember) landlords wanted to verify that my income was at least three times the rent.
- mrottenkolber 10y agoWell, that can’t work out in all cases, obviously. Remember that a significant chunk of the people don’t make 3x of a low rent in many towns.
- mrottenkolber 10y agoI wrote “as much as.” So this varies from town to village, and how much income you have. So of course for some rich people it will be 10%, but I would guess for most its ~50% (living quality / income trade-off), while you really want it to be below 15% for a decent flat.
- bogomipz 10y agoI realize that Berlin is nothing like the rest of Germany but I noticed that the rental housing stock there seems to be pretty tight. There's a fair amount of construction going on but it looked like a premium housing stock that was going up. I assumed these were probably for sale but maybe they are high end rentals?
- bogomipz 10y agoI would be curious to know or hear if anyone thinks this trend has been altered since 2008. For close to a decade now we have had extremely low or in some case negative(in Europe) interest rates. Thats a lot of cheap financing. As the article points out the data is from 2004.
- MandieD 10y agoI would be shocked if it hasn't. Here in the greater Nuremberg area, prices have been going up steadily for the past 3 years or so. It took us a year to make the winning offer on a reasonably-priced house. We got a 15 yr mortgage at 1.6% from the local Sparkasse (think Savings and Loan), though we did put down a traditional (high) down payment. So why did we buy? My (German) husband's fear of inflation finally surpassed his fear of debt to accommodate my Anglo-American need for my own pied a terre :) Rents are going up around here, and even though there's the 15% over 3 year limit, that's still a lot over the long term. It was nice not to feel like we had to buy a house, though. That gave us time to save up, to know what we really wanted in a house and to be really certain that we wanted to stay in this region.
- adrianlmm 10y agoThe culture is so much different in México, the first thing you do when you start working is to buy a house even if rents are cheap.
- yolesaber 10y agoWhat's the average house price tho
- adrianlmm 10y agoThey can be as cheap as 70k or as expensive as 500k.
- chilicuil 10y agoIt highly depends on the zone, in Mexico City surroundings you could get or build a house for probably USD 100k+, in downtown it could easily be 500k for a full house or 200k for a department flat. It could sound cheap but the average salary is low too, so you can easily be in dept for the next 25-30 years. Many people buy or build outside of the border city and spend 3-4 hours everyday commuting. In general, I think people try really hard (sometimes during its whole life) to buy/build its own but I don't see that happening much longer, specially for young people who start working at an older age and has additional aspirations.
- wineisfine 10y agoIt seems to me a huge problem when they retire?
- pluma 10y agoIf you run out of money, the state pays for your housing. If you saved money like a good citizen, you're paying out of your own pocket.
- gumby 10y agoThe idea that owning a home is a great investment is an article of faith, not evidence. Imagine if large public companies owned most of the housing stock and rather than buying a house you invested in these companies. Instead of bearing all the location and liquidity risk of owning a house, you would spread that risk over large numbers of markets. In fact being stuck owning a house in an unfavorable market can keep someone from moving, which reduces labor mobility.
- cmdrfred 10y agoIt really depends on where you live. I live outside of Philadelphia. My mortgage, taxes and insurance is less than $1200 dollars for a 3 bedroom house. I'd pay at least $1200 to rent a crappy 2 bedroom apartment and rent just keeps going up around here. Consider, even If my homes value stays completely static (according to Zillow it went up a 5 percent this year), in ten years time I will be paying considerably less mortgage than what that apartment will rent for.
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- jessedhillon 10y agoYes, but there's a reason why the crappy 2br costs as much as your house. That reason might not appeal to you, but it exists and has a specific monetary value.
- cmdrfred 10y agoArbitrage primarily. Development of inexpensive housing is restricted tightly here. I lived in those apartments, everyone there wishes to own but they simply lack the credit history and down payment.
- techthroway443 10y agoCould you explain the reason?
- beguiledfoil 10y agoHaving lived in jurisdictions that limit annual rent increases via a rental index and jurisdictions that do not, I prefer the former. In America such action is dismissed as a price control, unfortunately for me.
- sleepyhead 10y agoAnd how is that working out in Berlin now? Rents in Prenzlauer Berg and Neukölln increasing significantly every year. There wasn't a need to buy before because rent was dirt cheap. That's changing fast. It's obviously going to push out those who are poor but perhaps this will lead to more people realising the benefits of owning property.
- varjag 10y agoSo who then owns the property to rent out for most of the Germans?
- androidfox 10y agoI think in small cities people still buy houses. When they cannot afford the price they rent. Or is there really some strong reports that this happens in Germany only
- chrisper 10y agoYes, I agree with you. Reading the comments here seems weird to me, because where I grew up owning a house is pretty much normal. I grew up in Southern Germany where there are a billion small towns. So most people are owning for sure and not renting. This may not be true in large cities, like Munich or Berlin.
- tiatia 10y agoSure. Housing prices in metropolitan areas are sky high, thanks to the asset price inflation of the ECB. Hey, even a house in a tiny village easily sets you 300k Euro back. The secret of the German export"wunder" is extremely low wages. "Most Germans don’t buy their homes, they rent." Yes. Because they can't fucking afford a house. Riddle solved. Move on.