Fewer Germans Inclined to Save Money toward Homeownership
Just over one in three Germans is putting money aside for the purpose of buying a home – this is the upshot of the latest spring poll by the VPB Association of Private Building Societies.1 The survey outcome implies a drop by five percentage points since the previous poll in fall of 2018 and the lowest score since 2013.2 Many savers evidently ceased to consider it realistic to seek homeownership because they see no way to achieve this goal. And this even though it remains the stated goal of Germany’s grand coalition government to boost the acquisition of homes by private households.
Popular, yet Controversial: the Child Tax Credit for First-Time Home Buyers
No other country in Europe except Switzerland has a lower homeownership rate than Germany, with less than half of all German households owner-occupying their homes outright.3 Since homeownership represents an important contribution to a funded pension plan, the body politic should have a vested interest in raising the low quota. Yet so far, the only relevant step taken by the governing grand coalition is the introduction of the child tax credit for first-time home buyers.
Launched in September 2018, an approximate total of 83,000 applications for the child tax credit were filed as of early April 2019 by German households wishing to buy or build a home and intending to owner-occupy it, according to the Federal Ministry of the Interior.4 The subsidy program is meant to top up the equity contribution of families in the amount of 1,200 euros per child and year, paid over a ten-year period. Whether the child tax credit is an effective means to achieve a significant increase in the homeownership rate is questioned by insiders like the IW German Economic Institute in Cologne.5 The institute argues that the measure creates the wrong kind of incentives and is prone to deadweight effects.
Additional Political Measures a Long Time Coming
A reform of the real estate transfer tax, which keeps being brought up as a sensible alternative to the child tax credit for first-time home buyers and whose review had originally been announced by the coalition government itself, has not been tackled yet. Nor have the German Länder, which are at liberty to set their own real estate transfer tax rate, made any effort to relieve home buyers, preferring to point the finger at the Federal Government instead. Just recently, for instance, Thuringia’s state government of Social Democrats, Left Party and Greens scrapped plans to lower the tax rate of 6.5 percent slightly, which is among the highest in the country.6 For what it is worth, Schleswig-Holstein is contemplating a tax cut, but the state government in Kiel has yet to move past the initial announcement of its intention to do so.7
Another measure announced in the Federal Government’s coalition agreement but not yet implemented is the provision of sureties by the federal KfW development bank. Such a surety would clear the way for a reduced equity commitment when taking out a mortgage loan and thus help to overcome one of the biggest hurdles during the acquisition of a home. While the political options for offering incentives to private households that would encourage them to save up for a home are principally on the table, their implementation is a long time coming.