I think that makes sense. There is no reason to favor individuals investing into an unproductive investment (property) over productive investments (stocks and bonds, which enable companies to raise money to start new projects, create jobs, etc). Over-borrowing to bid the maximum amount one can to buy a nineteenth century house doesn't create any job for anyone, it just transfers wealth to the hands of the seller.
If you want to create value, you should make sure that housing prices (both renting and buying) stay low. This way not only wealth can go to other investments, but more people can take the risk to start a business if they don't have the risk to be unable to pay their rent or mortgage.
Try telling that to a landlord. Being one is a job in itself - or you have to pay someone else a good chunk of money to do the work for you.
I beg to differ. I think that real estate, like farming, has critical societal benefits that are worthwhile to develop and maintain.
Namely, it is very difficult to raise a family of four in a mutual fund. Investing in a home may is absolutely "productive."
See, there are significant societal benefits to home ownership that you are not considering. For example:
1. A paid off home is a social safety net against homelessness for an entire family and many of their social circles. Even if all of them are unemployed, all of them have a roof over their heads.
2. A paid-off home frees up cash flow. It allows the owner to divert his earnings into other activities or investments or reduce the amount he has to earn monthly.
3. Real estate can be borrowed against. Try that with stocks. If you are an entrepreneur, your home is likely the asset you will use to acquire bank financing for your business.
4. With unskilled / low-skilled jobs vanishing left and right, homebuilding is one of the few markets which still relies entirely on a giant low-skilled workforce. It's one of the few sectors that can keep a lot of people productively employed. I think there are valid arguments against stimulating homebuilding to reduce unemployment among low-skill workers, but there is nevertheless a societal logic here.
5. In a time when wealth is centralizing as never before, investments in real estate distributes wealth locally. I think there are valid arguments against public policy to distribute wealth, but there is a societal logic here.
6. Finally: taxing a home is very counterproductive to the well-being of the middle class and the poor. I'm sure in Germany the interest on a mortgage isn't tax deductible as you say, but I'd also guess that steps are taken to refund the property taxes for the lower classes. Otherwise you simply tax the poor out of their homes - a form of confiscation.
I think there's a lot of sense in NOT taxing one's first home, at least not if it's below a certain reasonably high value. All things considered, home ownership is empowering. A second home or income-generating rental property is a different story, but one's domicile should be unconfiscatable by the state.
Until you can't afford to pay the taxes, utilities, insurance, and maintenance. My grandma bought her house outright with my grandpa's life insurance money. No mortgage ever. It was a terrible choice because she didn't have the money or wherewithal for maintenance or utilities. 30 years later the house was literary falling apart. As you can imagine, the utility bills for a house with gaping holes in the roof were astronomical. It was a positive feedback loop. She lived with massive anxiety about shit getting old and breaking. We all really hoped her house would stay upright until she died. It did, thankfully. She would have lived a much better quality of life in an apartment.
>2. A paid-off home frees up cash flow. It allows the owner to divert his earnings into other activities or investments or reduce the amount he has to earn monthly.
Renting frees up cash flow sooner thus allowing interest to compound much more.
> Real estate can be borrowed against. Try that with stocks. If you are an entrepreneur, your home is likely the asset you will use to acquire bank financing for your business.
You can borrow against your 401(k). Then there's the people who borrow against their 401(k) to buy a home, yes, those exist... I personally know some.
Anyways, I own a home, I'm not anti-home ownership. I just can't stand the myths about home ownership.
It is difficult to ski without skis. But most people don't buy skis, they rent them. Renting skis do not mean that no skis will be manufactured. There is a need for house, houses will be constructed, irrespective of whether people will over-bid on them or not.
> A paid off home is a social safety net against homelessness
Stocks and savings are equally a safety net against loss of primary income.
> Real estate can be borrowed against
Borrowing against your home to finance your business is no different than selling some stocks to invest into your business. In both cases you are using previous savings.
> I think there's a lot of sense in NOT taxing one's first home
Why? Again you are assuming that the alternative to owning a home is renting one and having no savings. The cost of housing (renting) would be much lower in a country without massive over-bidding on property. There is no reason to give a tax benefit to this particular type of investment (property) over any other types of investment.
The state provides this safety net in Germany. When both my parents were unemployed, we didn't have to move out of our apartment. The unemployment benefits were enough to pay the rent.
> 2. A paid-off home frees up cash flow. It allows the owner to divert his earnings into other activities or investments or reduce the amount he has to earn monthly.
Having to pay off a home binds cash flow at first, compared to renting.
> 3. Real estate can be borrowed against. Try that with stocks. If you are an entrepreneur, your home is likely the asset you will use to acquire bank financing for your business.
Can you borrow against a house you have not paid off yet? I think you shouldn't be able to, since the house is already a security for your mortgage. If you use your money to buy a house and then borrow to start a business, that seems horribly inefficient to me.
> 4. With unskilled / low-skilled jobs vanishing left and right, homebuilding is one of the few markets which still relies entirely on a giant low-skilled workforce. It's one of the few sectors that can keep a lot of people productively employed. I think there are valid arguments against stimulating homebuilding to reduce unemployment among low-skill workers, but there is nevertheless a societal logic here.
Houses are still being built when everyone rents, they are just large apartment complexes. In Germany, the low-skilled workers you are concerned about are mostly immigrants from poorer countries in Europe, they would move somewhere else if the housing industry stopped employing them.
> 5. In a time when wealth is centralizing as never before, investments in real estate distributes wealth locally. I think there are valid arguments against public policy to distribute wealth, but there is a societal logic here.
In Germany, the state distributes wealth directly. (see 1.)
> 6. Finally: taxing a home is very counterproductive to the well-being of the middle class and the poor. I'm sure in Germany the interest on a mortgage isn't tax deductible as you say, but I'd also guess that steps are taken to refund the property taxes for the lower classes. Otherwise you simply tax the poor out of their homes - a form of confiscation.
You are assuming the poor own their homes to begin with, this is not usually the case in Germany
if you're using a taxable margin account(1), your broker will almost certainly be happy to let you borrow some fraction of your stock's value as cash, without any paperwork. depending on the value of your account and the amount being borrowed, the rates might even be decent, compared to a HELOC. (after all, their risk is a lot lower, as they can liquidate your stocks on a moment's notice. much easier than foreclosing on a house. and while you're in debt to them, they can loan your stocks out to other people, which is valuable to them.)
(1): holy crap don't sign up for a margin account without fully understanding what you're doing.
I think this is a good point. Honestly, I don't know the economics of how property ownership is distributed in the US, but as a result, I can't say why we aren't all renting from a small handful of giant land owners, who can control entire cities or even regions. For this reason, though I know that the homeowner subsidy is regressive in many ways, and that home ownership isn't necessarily the most productive investment strategy, I'm hesitant to just get rid of it.
Basically, unless you are investing in an IPO, the company doesn't see a dime from the ongoing trading of it's stock. So the vast majority of investors are not creating jobs by buying stock. Similarly, most bond investors are not buying new issue bonds, they are buying bonds from the current owner of the bond.
Not just stock: companies are constantly comparing alternative sources of capital. Any increase in demand from investors for any particular source of capital (bonds, stocks, loans, etc...) will tend to make that capital available at a lower cost to the company.
I have not thought about whether aggregate increases in the demand for housing have the same positive effect on firms, though you could argue that increasing housing values creates home equity and the mortgage interest deduction encourages homeowners to borrow against that new equity and invest the proceeds in ways that will generate a higher return than the interest rate - marginal tax rate, such as stocks. But that happens a lot in economics, many seemingly conflicting forces can lead to the same effect.
Technically and in the extremely specific case, yes, buying stock on the market doesn't create jobs for anyone. However, the liquidity of stock in the aggregate is one part of the confidence of the financial system. Upon IPO, buyers of the stock need to know they can sell their stock on the market after it fulfills their objectives.
Bonds barely trade on the secondary markets. When you invest into a fund that buys bond, it's pretty much 100% primary market (i.e. new issuances).
so it clearly adds value to the original seller
> the deduction began as an unplanned technicality. When the federal government first levied income taxes in 1913, Congress allowed Americans to deduct from their taxes the cost of all interest payments. This is standard policy for corporations: the government only wants to tax profits—not money spent on loans for tractors or a new office. In 1913, the government allowed deductions on all interest—probably because all interest payments were business-related. No one took out car loans in 1913 or paid interest on credit card debt, and the majority of mortgages were for farms.
https://priceonomics.com/the-case-against-everyones-favorite...
http://www.taxpolicycenter.org/model-estimates/individual-in...
For someone earning $500,000 a year, a $5,000 tax break is a $5,000 tax break, it isn't going to do much of anything to their behavior.
Considering that mortgages usually require a down payment, you could also make the argument that the benefit overwhelmingly accrues to the financially stable. People that can't get the down payment together aren't going to be stabilized by a benefit they can't access.
House prices are only high because everyone is over-bidding to buy them. And that's driving rents up.
Now this is different to the question of whether you should individually follow the crowd in a country where everyone over-bids on property. If you don't, you still pay a high rent to repay the massive mortgage of the guy who bought the property. And in a country like the UK, there is a massive moral hazard: because so many voters are all-in into property, politicians will do anything it takes to ensure prices never go down, even if that means printing massive amounts of money, robbing savers from their investments, having negative interest rates, etc. In that world, it probably doesn't make sense to bet against the central bank.
But as a society I think it is a bad allocation of resources.
I don't think he is saying that. As an individual it may be better to invest in the house. Depending on many individual factors. e.g. Capital gains, timeframe, etc.
What I think he is saying is that collectively it is better for society that more people invest in productive activities that generate new wealth.
Unless your family can't afford maintenance, upkeep, insurance, and taxes.
Having 100% of your net worth in your home is very risky and comparable to having 100% of your net worth in a single stock.
Wrong reasoning. It's tax deductable in Switzerland and they rent even way more than the germans
Interestingly, us Germans do not like those much either - mostly because of the associated risks and the Notion that "the small guy" cannot win that lind of game.
There was ... some enthusiasm about the stockmarket in the 1990s, but after the Dotcom-Crash and many people who invested in "save, large, local businesses" like the postal service or the Telekom losing a lot of money, that has waned.
Of course then the capital gains tax treatment would be rather different.
I think you are measuring with unequal yardsticks here.
My ownership of my home provides a lot of active investment activity that wouldn't happen otherwise:
Examples:
- the local nursery benefits from the plants and growing materials that we buy
- investments in home improvements generate contractor man-hours and local material purchases
- as an active participant in stakeholder in the community, I contribute to the governance of the community
- single family homes are valued at a premium to multi family, so I contribute more to local school and municipal services.
Presumably if you were renting
- you would still garden and you or your landlord would still maintain the lawn
- your landlord would still maintain the house
- you would still be living in the community and therefore motivated to participate in it's government
- I don't understand this one at all. Why would a second family suddenly move in if the house was rented?
Why is property unproductive? It produces accommodation, doesn't it?
Investing in manufacturing companies makes more factories.
For me, the motivation for owning a house isn't so much an investment as it is that renting and owning cost virtually the same, given that one has the means to get on the ladder.
I bought my first house (I'm 30) in north Germany about 18 months ago, we paid 515k and it was recently valued at 700k due to large improvements to the area, and the renovation of an old hospital site which is now luxury flats and houses, the mortgage (2.5% fixed-for-25-years) costs us about the same as renting a flat (100sqm) in the city, and we now have 200sqm of living space and 250 of garden to ourselves, we also now own, rather than rent a parking space (which always annoyed me more than it perhaps should have)
The capital gains tax is an interesting point, given the rent we were previously paying at 1800/month (warm == includes some bills) we'd have been over 20k/year out of pocket just by maintaining the renting status-quo. My wife and I discussed whether it was the perfect house for us, whether we wanted to take a risk on living 20min north (metro) of the city, rather than 5 minutes to the west, and whether waiting 2/3 years was justifiable, we poured about 70k of our savings into legal fees, ground-tax and the deposit for the property, we figured that sitting on our hands for 2-3 years could cost us essentially the same.
Naturally one can't write-off the convenience of renting and being able to terminate a contract and simply move, but I have almost the same freedom to rent out my house should I choose not to live there anymore, although the rental market for houses ~20 min north of the city will make it tricky to cover the cost, then keeping the house turns into a question of eating the capital gains tax, or paying out of pocket a few hundred euros per month to make the difference. I also don't have to pay €4k for a "Markler" to help me find a flat, and fax me a contract, a rather shameful act that persists in Germany, even if you do all the work yourself, the Marker can still get their commission, legally speaking, they often do deals to prevent you pushing the issue to the courts.
Given the duration of my mortgage, the low (fixed) rate, I can look forward to the last 15 years of my useful working career being rent and mortgage free, which might be a bit too late to build a nest-egg, but it's certainly better than being at the mercy of ever-increasing rental rates in an ever-expanding city. (in my opinion)
I think it might be fair to close by saying that Germans are typically fiscally risk-averse, and huge debt, variable rate mortgages, and the uncertainness about maintenance and insurance might be as big a driver as anything else. There's also the cultural shift away from generational houses (think "Home Alone") where many generations live together longer term, I think this is significant.
We live in a small to medium size flat for 380€/month, including some running costs. Buying it would cost roughly 250k. That just doesn't pay off. Most medium sized houses are about 700k€ in the region, with typical software developer wages at 2-4k€/month before taxes. So 1.5-2.5k€ after taxes. Now go figure how long you will be in debt...
And of course, people are older nowadays when they start to earn. For example, my parents started working with 16. I visited a technical school up to age 19, had to do a year of civil/military service, then worked 2 years to save some money, then did a CS bachelor. A bachelor alone is "no real degree" here, so also doing an MSc. Working while studying to afford the studying prolonged the studies a bit.. and in the end I started with my first real OKish earnings at age 28 when I started with my PhD. So... yeah. At the bank they laughed at my income when asking for a loan for a flat.
Wow that's a pretty insane rent to purchase price ratio, seems not that dissimilar to Vancouver which is a gong show.
In France major cities outside Paris, I'd expect a 150-250k flat to be 600-800 euros/month in rent.
If you pay only 380€ per month for rent, it's really not worth buying.
To explain cultural difference:
- In the US you are considered financially stable if you are always paying your debt/credit on time.
- In the germanic countries you are considered financially stable if you have none.
My US Bank clerk needed a few meetings to convince me that it is good to build go into monthly credits (creditcard) to support my credit score.
Getting a home loan is difficult. I don't have any bad credit at all but not much installment loan history.
I get warnings for not having more credit cards.
Uhmm, can't a bank see your salaries? Because in Turkey they want to see your salaries. You enter to www.turkiye.gov.tr and print out your last 12 months salaries with a validation number and then hand it to your bank. Or you ask from your employer, he ask it from Social Security, travels back to you and you hand it to your bank.
Then they check wheter you had missed to pay back your credit (even to another bank, because they share data). And they check wheter if you were rejected by an another bank (because they share data).
Basically, your score is high if your salary is high.
Germany has one of the lowest adoption rates of credit products such as the humble credit card out of nearly all Western nations.
Debt is not liked.
Edit: From the same site, the linked article at the bottom has the answer: http://qz.com/262595/why-germans-pay-cash-for-almost-everyth...
A better link: http://www.businessinsider.com/you-have-to-understand-german...
Of course using your overdraft is totally fine, but using the evil credit cards even when paying in full is just like declaring bankruptcy. Doesn't help payment services in Germany that Visa/MasterCard is always considered an evil credit card and debit brands aren't too common.
Not surprised that those countries suffer from government shutdowns over how much the debt ceiling is raised.
My rather simple (and completely argumentative) explanation is that Germans generally are less enthusiastic about taking on debt to finance things. Psychologically I'd say it's rooted in the fact that the results of hyperinflation are very much in the minds of people and there's a tendency of "don't borrow if you can save for it". Since the only realistic option for buying houses is taking on debt, less people do it. I feel this mindset is slowly going away though. Another point in favor of this "theory": credit cards are relatively uncommon compared to other countries (that's also changing imo).
I feel like home ownership is even less of a useful concept these days with ever shifting jobs so I think we accidentally stumbled upon the right strategy.
Edit: There's also quite a few buildings that are owned by a "Wohnungsbaugenossenschaften" (basically a https://en.wikipedia.org/wiki/Cooperative for housing)
People are still buying and building houses here, especial in rural areas. It's mostly the cities where things simply have become unaffordable for most people.
Housing is a constant expense. If you rent practically speaking you are in debt to your landlord every month. In the US and many other countries on the list where home ownership is prevalent although you are in debt to the bank you are also paying yourself in a round about way in the form of equity(principal) that you have in the house. So you are actually saving rather than spending which is generally financially conservative.
As the poster above you mentioned Germany doesn't incentivize home ownership via tax breaks and I think thats the key difference.
However home ownership is also considered a luxury. Not only is there not as much of a tax incentive as in the US and not only does it require you to take on life-long debt, but there are also a lot of expenses the landlord would have to pay for but a homeowner has to pay out of their own pocket.
The obvious example are routine maintenance like roofing and plumbing, but also drainage or the cost of public works: if the house sits on a street corner and both streets get modernized, you may end up having to pay for both.
The expenses when renting on the other hand are much more predictable: you just pay the rent and utilities and whatever one-off costs come up have to be spread out via an increase in the utilities bill or swallowed by the landlord.
So if you want to build or buy a house, you're expected to save money for paying for these fun surprises as well -- because having to take out a loan is a sign of poor planning, if the bank even grants you one on top of the financing for the house itself. Add everything together and home ownership becomes nothing more than a luxury.
My grandmother taught it to me this way: credit is for necessities; for everything else you save. Also: low quality products are more expensive than high quality products in the long run (because you have to replace them more often).
So as an example, if you're in a tight spot and an expensive household appliance (or your car that you need for your job) breaks, it's okay to take out a loan or financing. But if you're already good and it's just a quality of life thing (e.g. a bigger TV when you already have a working one) you save money until you can afford it.
That said, in recent decades a lot of young people have started getting financing for things like bigger TVs or mail order products. This is generally seen as a lower-class problem and has been prominently featured on TV programmes about indebted teenagers and such (a decade earlier when TV was more relevant).
I'd say lifestyle financing is a thing these days, but it's still frowned upon by most people because it's not considered sustainable and basically a form of delayed personal bankruptcy.
(A note on "lower class": the term probably has different connotations in different cultures (and even in different parts of society); I'm specifically talking about people from a low educational background who make minimum wage in low prestige jobs or rely on social welfare.)
In the case of "formally a company car", leasing is not perceived as personal debt at all but just as a car that is much nicer than what you would buy on your own and that you happen to loose when you quit your job.
Privately held new cars are the realm of those who can easily afford to pay up front (e.g. a large fraction of those are bought by are retirees in burn those savings as long as you can mode) and those who are at the same time in the top percentiles of both madness for cars and willingness to go into debt (these people certainly do exist, just in slightly but noticeably lower numbers than elsewhere).
Serious question: Why is it not very popular in other countries?
Also, 1 almost never paid rent. Thanks to him knowing the laws better than me, there was effectively nothing I could do. We couldn't afford this at the time so we forced him out of his room and at least got another person in there for a while. Money is a huge concern for me thanks to student debt. So, when your roommate is screwing around and on the verge of getting fired it stresses me out. Right now I have another roommate who was fired and doesn't seem to care much about finding another job. They're paying rent but the landlord is pretty upset about them being chronically late and only paying $10 here and there.
Every year, "due to market forces" they try to raise my rent by $100 per month, $1,200 a year. So I've been forced to move basically every year because why should I pay more when, magically, getting the exact same (but different) apartment in the same building is cheaper...
Thank god this is my last roommate. I'm buying a house and I can finally sit in one spot for more than 365 days.
Because some countries have much, much worse tenants rights.
I moved from Ireland to Germany and in Ireland:
* There is basically no protection for rent increases, some people are being told their rent is increasing by 50%
* Can't change your apartment. Not allowed to paint the walls, nearly all come with furniture, better make sure you don't damage any of it.
* Oh the landlord/landlord's relative wants to live in the apartment. Eviction time for you.
* You give your landlord your deposit. Let's hope they can find it again if you move out.
* By default, no pets allowed. And many landlords will say no.
* Did I mention about the rent increases?
- Rent increase limits
- Larger changes need landlord's approval (changing walls and stuff). A lot of smaller stuff can be done on your own and doesn't require asking the landlords. (Many landlords are happy if you want to paint the walls etc., though.)
- Only smaller apartments (often intended for students) come usually with furniture
- The deposit has to be put on a special, locked bank account. The money can only been withdrawn if both sides tell the bank in writing that the rent contract is over
- Depends on the size of the pet
I lived in a shared flat in Germany which got a rent increase and other than all the young families in the building we really barely noticed it.
http://www.citizensinformation.ie/en/housing/renting_a_home/...
The landlord's relatives issue is however the easiest way to get someone out of a property and increase rent.
This is the part I hate most about renting. Either leave the apartment empty, or at least give me furniture that isn't broken IKEA shit.
I think what i want to say is that for most living in a shared apartment is not a thing out of necessity anymore, but out of choice
Why the assumption that all roommates everywhere are partying?
For me that is by far my dream scenario after a day at work.
Very popular at least in London due to high rent prices.
Nudity is frowned upon but everyone will be half-naked or naked at home. Hard to share a living space.
1) The vast majority of your assets becoming concentrated in a single plot of land, in a single neighborhood, in a single city
2) Your future mobility to pursue jobs in other cities, becoming significantly constrained
If you want to invest your savings, then invest them in the stock/bond markets. If you really love real estate investments for some reason, invest in a REIT fund where your assets will be diversified across thousands of properties, and fully managed by others on your behalf. Pursuing a national policy of home-ownership makes little sense.
Perhaps the idea of people who haven't adopted this is that, unless they like doing so, humans should not have to live like nomads moving here and there to pursue this or that financial opportunity, but instead should be allowed to grow roots in some place, help shape it and improve it, connect with their neighbors, etc.
People aren't allowed to demand that the economy provide them with all the means they might wish for to do these things in any arbitrarily selected location.
Why? It's a choice best left to each person, telling somebody what they should do and how to live their lives is patronizing at least.
2) Again, this is OK if you want a "home".
Your recommendations are based on assumptions that people want to maximize their money. Most people I talk to (most people over 30, at least) are willing to have less money in exchange for a better overall life.
How to balance money with intangibles is a personal choice. But the "financial planning perspective" is just one piece of the puzzle, not the big picture.
Not necessarily. I can always rent out my flat for about the same monthly fee I pay for mortgage and rent a flat myself in other city/country in case of a good job opportunity. Sure, being in a debt for few decades has many drawbacks, but restricted mobility is not one of them.
Having to rebuild one's social circle from scratch every few years can be a very valuable and beneficial skill for a child.
Imagine if large public companies owned most of the housing stock and rather than buying a house you invested in these companies. Instead of bearing all the location and liquidity risk of owning a house, you would spread that risk over large numbers of markets. In fact being stuck owning a house in an unfavorable market can keep someone from moving, which reduces labor mobility.
On that note, supposedly the idea of homeownership was in part pushed because homeowners do not riot. After all, they can't as easily up and move afterwards.
Buying a house can be a net loss over the years, if you're not located in a major city. Especially in East Germany, house prices are declining. See this graphic [1]. Everything yellow basically doesn't yield any returns. Housing prices in orange and red areas decline over the years.
But even in green areas, there are so many knobs you can turn to make buying or renting more feasible than the other. It boils down to lifestyle decision: Do you want to live in your own house or not? If you prefer to rent: Are you willing to save money by other means? Because buying a house works for many people simply because they're forced to "save" a certain percentage of their income every month.
I prefer renting, because of the flexibility. I put quite a bit of money in stocks instead.
[1]: http://cdn3.spiegel.de/images/image-726182-galleryV9-uttw-72...
Exactly.
My philosophy is, to a first approximation, forget the financial aspect. Yes, depending upon tax policies, rent/buy ratios, etc. it may make more or less sense to rent vs. buy in a given location. But, for me, it really comes down to flexibility on the one hand and stability/ability to modify things to your liking on the other. Neither is the "right" approach but IMO it's what most people should be focusing on rather than whether it's a good investment or whether they're "throwing money away" on rentals.
People change to small towns because they want stress free life and a better/larger home for the same price of a small apartment in big cities. Living in cities brings also disadvantages!
But most people are not investors, they want a home to raise their kids and be a place they belong. That's the disconnect
Of course, what renting gives you is the flexibility to live in a smaller place and avoid overpaying for extra space that you might want to use at a later time. Still, the savings from renting a smaller place have to be greater than the tax expenses that I get charged for renting out.
When compared with big housing companies, private landlords require bigger profit margins, leading to low quality maintenance of existing houses and ex-orbital rents. Especially in crowded cities, rent regulation is non existent and its a sellers market, inflated by wealthy students that rent expensive micro-flats during university.
You or your parents don’t own houses, and are self sufficient on a regular job? Well, you are shit out of luck then. As much as 70% of your income will go towards your rent, effectively financing the better-off and the further expansion of their inefficient renting businesses.
Aside from that it takes liberties right left and centre. I cannot structure my house and life as I want from painting and shelving through pets and kitchen appliances.
I cannot fix something without causing a hassle and days off work.
I cannot register a business here.
I am at the whim of my landlord.
Renting in the UK is a pain in the arse. I do to see renting as particularly positive for the individual.
http://www.telegraph.co.uk/expat/expatlife/11417359/Germany-...
Even within the same city, it's really nice to move near your new job and not have a commute.
Sure its more complex than simply giving notice and leaving but it isn't hard.
On my current street, opposite the flats further up, there is regular fly tipping and various illegal activities. The fly tipping can take weeks to be dealt with as nobody rings the council (I've started emailing the council when I notice it, but I don't walk that way often).
Renters just don't have enough skin in the game to maintain the communities.
Also, recently, I've been looking at housing market in Munich and it's very very expensive. Renting is ~20% more expensive than in Brussels and acquisition is +100% more expensive. So, although I admit I do not know rest of Germany housing market, I have some troubles thinking why Munich would be more expensive than Brussels. And I certainly miss, from that perspective, why German system would be more interesting.
A guaranteed zero ROI is better than a negative ROI which you can get with buying a house (e.g. the house you can resell it drops due to the market and you can't afford the mortgage for some reason...)
But I should have said renting is a sunk cost. There is no investment component at all in renting.
If rent < mortgage interest + other housing sunk costs and you invest the delta, renting can have a substantially higher ROI than buying.
There, saved you a click.
[1] freedom from capital gains tax, RTB, HTB equity loan, HTB mortgage guarantee, HTB ISA, Forces HTB, NewBuy, AFHOS, Shared Ownership Scheme, Key Worker Scheme, Home Ownership Scheme for Cripples, and that is just off the top of my head
[2] rent floors through LHA, tax deductability, ability to flip residence between first and second homes for zero cap gains tax, freedom from inheritance tax beyond the usual limit...
[3] state bailouts for all major banks, gurantees, QE, QE2, QE3, liquidity schemes, credit purchase schemes etc etc
Those countries will have policies that lcaim help poor people buy houses, but the effect is to just inflate prices and increase financial risk -- as the world has already seen. The one thing that would really help -- increased supply is blocked by a powerful home-owners lobby damanding zoning rules and other restrictions.
In Germany the bloc is powerful, and probably gets more goodies than it should. But at least here they are constant building new housing.
Of course, some people choose to invest into property, but there are lots of other options with varying flexibility and payoffs. In general, even if you don't do anything towards your retirement (apart from working your working life), you still have some security as you age. But such provisions are probably one very major difference between the US and Germany.
Typical family houses are spread across two storeys with bedrooms on the upper floor and the living room and kitchen on the lower floor. This necessitates stairs. Also, the house was probably sized to have enough space for children, who at that point have long moved out. And even if you find different uses for that space it still needs to be cleaned and maintained (and you need to clean and maintain the rest of the house anyway).
So depending on how affluent you are, how close your children are and how much care you need, either you struggle living in an oversized house, you move into a single-storey "Bungalow", you move into an apartment or you move into a retirement home.
Another option depending on how the house is built is to split the house into two apartments and have one of your kids live in the other apartment.
Historically a very poor one.
http://www.usatoday.com/story/money/personalfinance/2014/05/...
>"Capital gains have not even been positive. From 1890 to 1990, real inflation-corrected home prices were virtually unchanged."
>From 1890 -- just three decades after the Civil War -- through 2012, home prices adjusted for inflation literally went nowhere. Not a single dime of real growth. For comparison, the S&P 500 increased more than 2,000-fold during that period, adjusted for inflation. And from 1890 to through 1980, real home prices actually declined by about 10%.
Not to say that a house is a bad thing. A house can be great! It provides shelter, stability, and can provide a vast amount of joy and pride. Its a very poor investment vehicle. Its a very bad idea to have 100% of your wealth tied up in your primary residence.
Diversification is a key to financial stability everywhere.
Yes, but what does that mean for money invested in houses? The reason this is not the same question is that money invested in houses is leveraged, at least in the short term.
Simple example of how this can work: You buy a house at 20% down and an interest-only mortgage with a fixed interest rate of 4%. Inflation averages 3% and your house's price grows at exactly inflation. You live there for 40 years and then sell. To make our numbers simple, let's say the initial price was $100k.
So you put $20k down and take out a $80k loan. Each year you pay $3.2k in mortgage interest.
The price of your house after 40 years is, in then dollars, $326k. You sell, pay off the $80k loan, and have $246k left.
Let's consider the alternate situation: you rented for those 40 years. How much did you pay for rent? Chances are, it's no less than the interest on your loan (if only because a landlord would have that interest _and_ other expenses). In practice it probably went up over time, unlike your payments, but let's pretend it didn't. You invested your $20k downpayment in the stock market. What nominal return do you need to get to end up with $246k at the end of 40 years? The answer is about 6.5%. If inflation really averaged 3%, then that's a pretty decent stock market return, and that's all assuming that the capital gains treatment of the house and the stocks is the same (it's _not_ in the US; houses are exempt from capital gains tax to a large extent).
Obviously if you actually pay off your house all this goes out the window. ;) Likewise, if the house goes _down_ in price the leverage acts against you.
Realistically, houses are an awesome investment if you buy at a time of low-ish interest rates, and then before you've really paid off a large fraction of the house inflation spikes. If house prices simply keep up with inflation in that situation, you can really win out. People who bought in the US in the 60s and sold in the 80s or 90s did quite well, on average.
By the time the cold war made it apparent that 20s style economy destroying reparations would not be paid, renting was already baked into the cake.
Residential real estate is non-productive and post WW2 Germany had not use for a capital drain if anything they needed capital along the lines of the Marshall Plan so its not like anyone was interested in wasting capital in a modern USA style housing bubble.
So why did we buy? My (German) husband's fear of inflation finally surpassed his fear of debt to accommodate my Anglo-American need for my own pied a terre :) Rents are going up around here, and even though there's the 15% over 3 year limit, that's still a lot over the long term.
It was nice not to feel like we had to buy a house, though. That gave us time to save up, to know what we really wanted in a house and to be really certain that we wanted to stay in this region.
"Most Germans don’t buy their homes, they rent."
Yes. Because they can't fucking afford a house. Riddle solved. Move on.
You only trust the statistic you created yourself. That is not a true statement.
> Germany also loosened regulation of rental caps sooner than many other countries,
Does that mean the amount of rent control was deregulated? I thought the rent control here in Germany was pretty strict -- at least in the sense that the landlord can't increase the rent during an existing tenancy.
An exception are (formerly) communal companies, companies that have been spun out of "company town" arrangements and of course those that operate formerly "people's owned" buildings in the east. But all those are not really into expanding.
Edit: and one thing I forgot: some units are actually owned by renters. Liking the solidity of a real estate investment and liking the flexibility of living in a rented property that you can easily swap for a different one are not mutually exclusive. For example it ie not terribly uncommon for occupant owners who need to move or scale up or down to keep their property and rent both ways (e.g. when they know that their new demand is not permanent or when their new demand does not match their investment volume).
Also there are many houses which have two or three appartments. The owner will live in one appartment, and either have a different generation of their family in the other ones, or else rent it for money.
In my case (Brno, Czech rep.) the city is by far largest landlord, holding double digits of available housing. Most of those places have very low rent, but it is hard to get the place.
