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14012021

Germany’s Declining Homeownership Rate

Although building finance rates are at an all-time low, the homeownership rate in Germany is in decline. As a survey shows that was compiled by the Empirica research and consultancy firm in collaboration with state-owned home-building and loan associations, roughly 42 percent of all German households were owner-occupied in 2018. This is roughly one percent less than in 2013, just five years earlier. A conspicuous contrast between West and East Germany remains in evidence despite the fact that the east of the country did catch up in the years before 2013. While the homeownership rate in the West German states equalled 44.9 percent in 2018, the upward trend in the eastern states has stagnated at about 36 percent since. A breakdown by age groups reveals the widest gap between West and East among those more than 79 years old. Out of this age cohort, 54 percent owned their homes outright in West Germany in 2018, but only 24 percent in East Germany.
 

A Lack of Young Homeowners

The reason underlying the trend in homeownership rate are certain accelerating societal and demographic shifts. Germany’s birth rate has been in decline for decades. But families continue to be seen as the prime motive for seeking homeownership. Roughly two out of three families with children live in homes they own, whereas only one in two childless couples of the same age can say as much. The issue is compounded by the rural exodus of the younger generation. More than 50 percent of the households in West German municipalities live in owner-occupied flats or houses. By contrast, only one in four households in major cities of more than 500,000 residents owner-occupy their homes.1

Germany Lagging Far behind Other European Countries
In Europe, Romania tops the list with the highest national homeownership rate. Nearly 96 percent of the county’s population owner-occupied their homes in 2019. Germany places second to last on the list, behind Austria (55.2 percent). The only country with a yet lower rate, according to the statista online statistics portal, is Switzerland. It is striking to note how high the rates in Eastern Europe are. The first nine spots on the list are claimed by Eastern European countries.2 Southern European countries like Spain and Portugal also have homeownership rates of 76.2 and 73.9 percent, respectively.

One of the main reasons to explain the discrepancy is that Germany has a well-functioning occupier market with a high-quality supply of rental flats. But the situation is subject to certain risks: While Germany continues to be considered the economic powerhouse of Europe, the average wealth of private households is actually higher in other European countries – because of a higher percentage of property owners.
Surveys found that European countries with a low homeownership rate, such as Germany, show a grave net wealth inequality. This means that the wealth inequality between tenants and owners is far lower in countries like Spain and Romania.3 And this even though investing in a home is as important a part of your retirement planning in Germany as anywhere else. High costs of housing were identified as one of the primary causes of the rise in old-age poverty, and these are, of course, absent if you live in a home all yours and paid for. Thus, rising rents and a low homeownership rate can by all means cause problems.

1 www.lbs.de/presse/p/lbs_research/details_15626674.jsp
2 de.statista.com/statistik/daten/studie/155734/umfrage/wohneigentumsquoten-in-europa/
3 www.bundesbank.de/de/publikationen/forschung/research-brief/2020-30-wohneigentumsquote-822090