How Germany Does It

Germany has had stable to falling house prices for years.  Right through the GFC etc.  And they seem to have good quality housing too.  How do they achieve this? Good quality houses at low prices?

Well this blog post gives a good run down.

Basically it comes down to 3 things, the first is land supply, the second is renting terms and the third is that they don’t lend as much on houses.  A couple of excerpts from the article:

First and foremost, the German constitution contains an explicit ‘righ-to-build’ clause. According to The Policy Exchange:

…this “means that everyone is entitled to a permission to build on his or her property as long as there is no explicit legal rule against it.

…if the proposed building fits into the plan, permission has to be granted and if the local authorities deny it then a court will enforce it…

Although there is very close control of what can be built on any site, provided it meets the requirements of the master plan, a developer just can get on and build new housing without seeking development permission.

Regarding renting:

The German rental system is another key factor contributing to the stability and affordability of the housing market. While the majority of rental dwellings in Germany are private, rents are regulated and prices are prevented from increasing sharply. Tenants also have security of tenure as long as they pay the rent and behave well, except on the rare occassion when a member of the landlord’s family needs the accomodation or when the building is going to be replaced.

Further, because renting is the dominant housing choice in Germany, the political system is highly sensitive to tenants’ rights and perecived threats to the status quo typically receives prominant media attention and political responses.

Since home prices are relatively stable (owing to liberal supply) and renters enjoy secure tenure, Germans have little incentive to rush into owner occupation. As such, Germany doesn’t suffer from the ‘panic buying’ and speculation often present in bubble housing markets.

And lending-wise:

Mortgage finance in Germany is also conservative relative to most economies that have experienced housing bubbles. According to RICS:

…credit availability is more strictly rationed in Germany compared with the pre-financial crisis experience in many other countries. For example, there is conservative loan appraisal, no sub-prime segment and thorough vetting of loan applicant details.

Moreover, base loan-to-value ratios (LVRs)  from mortgage banks (the main provider of home loans) are capped at 60%, although other unsecured loans are often added into loan packages (at higher interest rates), which tends to increase the overal LVRs.

So there you have it!


The GFC Rolls On

Wow a new post!

I’ve been a bit inactive on the blog recently, just been doing other things!

This did peak my interest though:

Spain’s house prices to fall another 30pc as glut keeps growing

Spain’s property slump will deepen for much of the next decade, and tracts of buildings along the Mediterannean coast will have to be demolished, the country’s top consultants have warned.


So, 5 years after the GFC started, we’re still seeing similar headlines! Basically what’s been happening is that the banks have been artificially keeping up property prices (by doing things like rolling over defective loans etc.) for years hoping things would improve and they’d be able to make good the many defective loans they have on their books.

But 5 years on, prices are actually declining in Spain.  And other measure look worse too, the unemployment rate of 26% is only getting worse, and all the young workers are leaving – which is exacerbating an ageing population problem.

Spain’s bank rescue from the EU bail-out fund (ESM) is bringing the crisis to a head quickly, and brutally. Brussels insists that Madrid crystallise the losses in the portfolios of the rescued banks, ending the “extend and pretend” policy that has concealed the full gravity of the crisis until now.

So the Spanish banks have been told by their European bosses that they have to crystallise the losses now.  Wow.  This has sent prices falling steeply.  The banks are selling what they can before the state’s ‘bad’ bank sells it’s portfolio:

The big trio of healthy banks – Santander, BBVA, and Caixa – have all rushed to sell their backlog before the state’s “bad bank” unloads its holdings. They have already written down 95pc of the value of their land portfolio. “There is little more to lose,” said Mr Rodrigues de Acuña.

This is the sort of thing that happened in NZ after the ’87 crash.  The banks just rushed to sell the properties they had loaned money on that  were not performing by certain metrics.  And they just sold them for what ever they could get.  And I had expected this to happen again in NZ and Aussie after the GFC, but the banks look like they’ve been able to ride it out.  They just held onto the bulk of their loans/properties and waited for the situation to improve and properties to rise in value again, and it looks like they’ve been successful in this.  Interesting.