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Real Estate Boosting Wealth Formation in Germany

Household wealth in Germany showed an 8.3-percent increase over prior-year period by the end of the first quarter of 2018. This is the upshot of the latest Asset Price Index compiled quarterly by the Storch Research Institute (FvS). Definitive for the tremendous increase in wealth—the third-highest since the index was launched in 2005—is the massive appreciation of real estate in Germany. Its total value grew by 9.1 percent compared to the prior-year quarter, the fastest rate ever recorded by the FvS Asset Price Index.1

The findings of the Asset Price Index show once again how important property ownership is for the formation of wealth. The low homeownership rate among German households, currently a mere 45 percent, is the lowest anywhere in the European Union and one of the reasons why the mean wealth of Germans is far lower than in many other countries in Europe despite the fact that Germany’s economy is booming. While the median wealth in Germany, according to the latest Global Wealth Report by the Credit Suisse Research Institute, equals just $47,000, it is more than twice as high in France ($120,000) and Italy ($125,000), for instance.2Interestingly, the homeownership rate in France is 58 percent, the one in Italy actually 77 percent.3

Homeownership Should be Sponsored

It is not least the issue of property ownership that causes the rift between young and old, rich and poor to widen at an accelerating pace. While the assets held by people aged between 25 and 34 years increased by 5.8 percent last year, according to the FvS Asset Price Index, the wealth appreciation for those aged 55 through 64 equalled 9.4 percent. The root cause for this is that the capital of younger households is mainly tied up in savings deposits, whereas older households invested far more in real estate. A comparison between more affluent and poorer households presents a similar picture. The wealthiest ten percent were able to increase their assets by 9.7 percent, whereas the lower middle class, which is characterised by a far lower property ownership rate, saw its assets grow by 2.6 percent only.

Since the acquisition of real estate makes such a definitive contribution to capital building, Germany’s body politic has for quite some time now faced calls to support homeownership. With the introduction of the child tax credit for first-time home buyers, the federal government has just taken a first step toward homeowner subsidies. Out of concern the child tax credit could lead to misguided incentives and promote those most who would buy a home anyway, the IW German Economy Institute in Cologne, for instance, has called for a reduction of the real estate transfer tax or the introduction of a waiver for first-time buyers.4