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.
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.
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!