German model homes? A comparison of the UK and German housing markets

Abstract

Can Britain learn from Germany to tackling the housing crisis? A new paper from IPPR finds Germany has higher rates of housebuilding, a much less volatile housing market, and a larger private rented sector than the UK. IPPR looks at why this has happened. Germany has higher rates of housebuilding, a much less volatile housing market, and a larger private rented sector than the UK. This paper, the first of three, explores the reasons for these differences, looking at both supply- and demand-side dimensions. On the supply side: Germany has a more diverse mix of housebuilders, both small and large, who build a wide variety of homes; a broader mix of investors, including build-to-rent; and a planning system that facilitates the release of land and the translation of permissions into completions. On the demand side: Germany has a more conservative mortgage market with greater restrictions on loan-to-value ratios; a tax system that favours long-term property ownership while discouraging speculation; and a combination of longer tenancies and more rent control, which together make private renting an attractive alternative to home ownership. Despite the many strong features of Germany’s housing market and wider policy framework, there remain areas in which policymakers in the UK can learn from Germany’s missteps. While Germany has managed to deliver more affordable homes in the last three decades, its model for delivering them, through the equivalent 20–30-year covenants, has led to a sharp drop in the availability of affordable rented homes. In addition, the private rented sector in Germany can be difficult to access, with lengthy property-search and application procedures, making entry difficult for prospective tenants and impacting on labour market flexibility. While the UK rental market may be too flexible, to the disadvantage of tenants, a full shift towards a German model could be problematic.