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German tenancy law prevents wealth creation

The homeownership rate in Germany with 45 percent is one of the lowest in the whole European Union.1 One of the main reasons is the German tenancy law. This thesis was looked at in detail by lawyer Tobias Scheidacker in the magazine “Das Grundeigentum”.2

The tenancy law in Germany is regarding the freedom of contract fundamentally different to the tenancy laws of other European countries. Scheidacker compared the legal situation in Germany with Greece, Italy, Spain and France. In all those named countries rental contracts have a minimum term but they are fixed-term too. The contracts end after the term and the flats gets available. In Germany tenancy contracts are unlimited; an effective maximum term is invalid. It’s in most cases tricky to terminate the tenancy contract even if a landlord wants to claim personal need.

Strong tenant protection is harmful for the tenant

“How long is the tenant living in a flat”, writes Scheidacker, “is in Germany primarily determined by the tenant itself – as if he was the owner.” The rental price law is strongly regulated in Germany as well as is the tenant protection. Scheidacker sums up that the legal status of German tenants is very close to the status of owners.This is not only problematic for the landlord, but also for the tenant itself. The German tenancy law doesn’t provide tenants with an incentive to change into home ownership. In other countries tenants can never be sure to stay long-term in a rented apartment. Therefore rent is mostly something transitional, “for limited stages of life” as studies or education. As soon as life gets a little more predictable or if family planning comes up, people tend to change into ownership. “While we Germans don’t do this, as it’s convenient and secured to remain tenant”, writes Scheidacker

Tenancy law rigidifies unequal wealth distribution

The fact that the biggest part of German households has very low assets is due to the missing real estate property. Scheidacker criticizes that German tenancy law doesn’t improve the situation but it rather rigidifies it. He follows: “We should think about a complete new tenancy law without any political blinders.”