The political system of Germany is a Federal democracy, functioning with similar institutions of power as the United States. The federal system has national, state, and local levels, with specific powers reserved for regional assemblies or local authorities. Similar to the U.S, German governmental power is divided into three branches: the Executive, Legislative, and Judicial. Germany also functions under a capitalist economy. Given these comparable factors of power and market influence, the United States can look toward Germany’s successful housing policies for areas of improvement for its housing crisis.
Rental Market
In the U.S, 35.6% of households rent, whereas 54% of all households in Germany rent. The composition of renters also differs in each country, where German renters are often young and lower incomes but with widespread renting among higher income earners as well. In contrast, 40% of renters in the U.S. in 2019 earn less than $35,000, and the medium income for homeowners is roughly $90,000. The largest discrepancy between these rental markets are the financial incentives. Homeownership is not incentivized in Germany compared to similar economies around the world. Mortgage interests can only be deducted from income taxes if the home is rented out. The transaction costs for home purchases are also much higher than other comparable countries, making both homeownership and frequent moves inaccessible to many Germans. Due to these policies, private, nonprofessional landlords have become an essential part of the German rental market. Public organizations and private housing companies own less than a quarter of rental dwellings. Private landlords own 62% of the rental units constructed since 2011.
Subsidized housing emerged in Germany after World War II, and was constructed by not-for-profit and private housing companies. These new buildings were required to rent to low-income households. Today, 90% of rental units are multifamily buildings, allowing for more affordable housing in areas with high population density. Since most of the population rents, rigorous tenant rights and protections are outlined in numerous housing laws. Leases also tend to be open ended and easier for tenants to terminate agreements than landlords. In the most densely populated regions, rent regulations are stronger to maintain the limited available units. In 2015, Berlin implemented a rent cap which prevented low-income households from paying more than 30% of income on rent. That same year, the Senate ruled that Berlin’s government would acquire 30,000 new units over the course of ten years and link rent of the new units to income of the residents.
Homeownership
Homeownership in Germany remains cheaper than other comparable countries. This is because the German economy ensures stable and affordable housing instead of letting free-market supply and demand determine the value and access to homeownership. German municipalities allow for these stable and affordable homes by relinquishing land regularly for land development that would increase the housing supply. The federal government also allots funding based on up-to-date numbers of current residents and households, incentivizing local governments to construct new housing to bring in more residents and therefore increase funding. Banks in Germany are permitted to loan up to 80 percent of property value to homeowners, forcing potential homeowners to accumulate 20 percent of property value for a deposit. On top of that, there is a large consumption tax for homeowners whereas renters are given tax breaks to maximize the use of rental units. These barriers to homeownership incentivize more people to seek out rental units or rent out properties they own. With these barriers to homeownership, renting remains accessible, affordable, and popular in Germany. In the United States, barriers to homeownership are not counterbalanced by the same robust rental market.
Where the United States Can Improve
Both the United States and Germany have decentralized states with local governments and municipalities where land-use plans implemented by local authorities are consulted and reviewed by the federal government. However, the regulations of land-use plans differ in each country. Fiscal zoning in the United States regulates land-use with the intent to minimize government spending and maximize government revenue. In contrast, municipalities in Germany seek to maximize population and therefore revenue from federal incentives with land-use regulations. This allows Germany to maintain the demand for housing while keeping prices affordable and stable. Homeownership in the U.S is viewed as an investment and a primary mode for wealth accumulation, causing underused land and hoarded property in order to maintain market values. German localities legally must provide enough land for housing in all zoning plans which are reviewed by the federal government. From 2010 to 2019, Germany provided 97 construction permits for every 100 people that entered the country. In contrast, From 2010 to 2019, the United states provided 42 homes for every 100 that entered the country.
