Why German House Prices have been Flat

Geoff SimmonsEconomics32 Comments

Why German House Prices have been Flat

The picture below says it all – German house prices have been flat (in real terms) for the past 30 years, while over the same time ours have increased by 150%. This despite the fact that Germany is the one of the most successful economies in the world and their per capita incomes have risen faster than those of New Zealanders. Why is that, why have we lost the plot and what can we learn from them?




History plays a big part in all of this. Europe suffered two world wars, which destroyed an awful lot of houses. After WW1 the State generally led the rebuild. After WW2 it was a more mixed picture – State and cooperative led in the East and a mix of private, State and cooperatives in the West. Housing is seen as part of the country’s infrastructure, rather than a sector pretty much solely for private endeavour. That’s a huge difference from our culture, but the German value is that everyone should have a reasonable quality roof over their head. They don’t have to own it, but rents are very much controlled in favour of the tenant.

Housing cooperatives are a bit like Fonterra; they are regulated by the government and owned by members (who own shares). Some of the members are residents and some of which are not; like Fonterra the non-residents get a nominal dividend but can’t vote. They first appeared in the 19th Century, and still play a major role in providing affordable housing for sale or long-term rent across the country. There are over 2,000 cooperatives in play today, owning over 2 million rental units. Some cooperatives offer other services, like kindergartens for families or nursing for the elderly.

Various policy settings have played an enormous role in averting speculation too, covering price controls, taxes and planning.

Price Controls

The German government has a history of getting involved in the market whenever the private sector gets too out of control. After the re-unification in 1989/90 there was a law that controlled rapid house price rises to a maximum of 4%, and any capital gain had to be the result of investment made in improving the property. This policy effectively killed speculation post re-unification.

Current policies are not quite that heavy handed, but they aren’t far off. There are strong regulations that benefit renters and limit the gains that can be made by investors; there are rent controls, and as long as renters pay the rent it is very difficult to evict them. The downside is that rental controls have removed the incentive to build new properties, so the state or region has sometimes had to offer incentives to build where there are shortages.


They have a tax (also known as a stamp duty) of between 3.5%-6% (depending on the region) of the property value every time it changes hands. If there are any capital gains left after that, they can also be taxed! Now this doesn’t mean we should rush out and have a stamp duty and capital gains tax (CGT) – we’ve talked about their problems before. In particular transaction taxes such as stamp duty or CGT are less efficient than recurrent taxes such as the Morgan Foundation’s proposal of a Comprehensive Capital Income Tax.

The Germans also have a tax on property values that is similar to a mix between rates and a land tax or the CCIT that we have proposed. Nowadays the tax is quite low, as property values haven’t been updated for inflation for many years. However, its existence is an important deterrent to speculation – the tax isn’t needed if price inflation doesn’t exist!

House prices have also been very stable in Switzerland, and many regions have similar policy settings to Germany. There is a tax on imputed rent in Switzerland, which again is very similar to the CCIT. These sorts of taxes reduce the tax advantages of owning a home over renting one, which explains why Germany and Switzerland have the lowest home ownership rates in the developed world.


All land sales are scrutinised by committees, and experts advise on what the property is worth and what property can be used for. This provides transparency for buyers and sellers that gives an orientation/ guidance for the price of land in an area.

As pointed out by the NZ Initiative in their report Different Places, Different Means, local councils in Germany and Switzerland benefit from developing more housing as when their population rises their funding increases. NZ Initiative postulates that this incentive encourages development, which keeps prices down. Essentially councils are competing to attract people and businesses.


These policies and history have given rise to a culture where the Germans are simply not obsessed with owning their own home. They are happy to rent for long periods if not their entire life, and certainly don’t see investing in rental properties as a get rich scheme. Property is a place to live, nothing more.

The Germans have the 2nd lowest ownership rate after Switzerland. Since 1999 the Germans have seen some speculation on their property, but generally that has come from overseas, particularly pension funds, rather than locals.

Economic Benefit

Both the Germans and the Swiss rightly see the way to get rich as investing in profitable businesses so that they can export to the world. This culture of non-speculation is quite the opposite of New Zealand where speculation is a national pastime, a culture that is aided and abetted by our tax and policy settings.

We may despair at the low rates of home ownership in Germany and Switzerland, but by reducing speculation in housing this frees up money to go where it is needed – investment in businesses. This is precisely what is better for the national benefit – over-investment in property just bleeds the economic growth rate.

To summarise – the Germans have policy settings that encourage the population to see housing as providing shelter, and as part of their basic infrastructure, rather than an investment. This is driven by policy. The policymakers have known for a long time that true prosperity comes from investing in business and generating income and employment – not setting policy to encourage people to bid up the prices on the same property year after year. That’s not wealth creation – it’s wealth redistribution.

Why German House Prices have been Flat was last modified: July 12th, 2016 by Geoff Simmons
About the Author

Geoff Simmons

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Geoff Simmons is an economist working for the Morgan Foundation. Geoff has an Honours degree from Auckland University and over ten years experience working for NZ Treasury and as a manager in the UK civil service. Geoff has co-authored three books alongside Gareth.

32 Comments on “Why German House Prices have been Flat”

  1. Great post, thank you for taking the time to write and share and stimulate actual thinking, rather than hand-wringing. Can’t you run for government??? 🙂

  2. Low home ownership rates are not a good thing. The great thing about owning a property outright is that you know that even if you suffer personal misfortune you only incur minimal maintenance costs in keeping a roof over your head; you don’t have a significant relentless weekly or monthly rent bill to find the money for. And if you need or want to move you can sell up and have the capital to do so. And it’s very much in our culture that a house is more than just bricks and mortar; you can sell up and move – but houses are invested with powerful emotions and memories; it’s something you pass on to your kids if you can.

    There’s advantages and disadvantages to both owning and renting. But NZ is not Germany; we’re a big country with a small population. German population density: 240 per square km. NZ population density: 17 per square km! Apples and oranges Sir.

    High-Density cooperative housing German-style is and will remain the exception rather than the rule in NZ; home ownership makes sense for most kiwis.

    1. …the catch to your first point being, as you say, that you have to own the property outright, i.e. mortgage free. How many people can say that?

    2. they also pay 50% tax contribution to the social system. they know that if they were to ever suffer personal misfortune, the state would put a roof over their heads.

    3. I agree with Scott and Kieron. Also one thing to very much keep in mind is the huge difference between how much rent we pay in NZ and how much Germans pay. I am paying $460 a week in rural Rodney, where as my friend in a rural town in Germany pays 350 Euro a month (around $132 a week). The greed of people and the NZ government (with their 20% deposit stupidity) has made it sheer impossible for me to ever own a house in NZ. And I am very concerned when I am getting old and have to rely on the NZ Super – how will I ever be able to pay the ever increasing rent, support my kids and my husband and I? Lets hope none of my family will ever get sick….It’s a very bleek outlook on our future….

    4. I don’t think it is correct to characterise NZ as a place where people own a house for multiple generations, that sounds more like France. NZ is more a place where on average people move houses every few years.

  3. You missed three very important factors:
    Germany had upwards of 10 MILLION people lost in WW2, lots of space, jobs, and houses suddenly empty (especially ex-Jewish owned ones for some reason……)

    Germany’s economy is built on an industrial & financial basis. Not agricultural one or labour based. Thus it is very easy for them to control the labour based economy without crippling their economic growth and exports.

    Germany has been in a merchantile situation for past 20 years, with regards to Greece, France and PIGS countries and has benefitted well from financial markets such as introduction of the Euro. The merchantile system allows wealth to flow into the German economy from those satelitte countries …like money flowing into Vegas from all the gamblers spending up large. This allows wages to bloom and the local housing isn’t affected as the _locals_ have bidding power better than foreign interests – especially consider as Geoff has mentioned the German government has shown that it is very happy to step in should profits being going in a way they don’t like. Totally opposite to places like New Zealand, where National and Labour governments _encourage_ foreign profits and oppression of local economy.

    1. Yeah, Germany had an abundance of empty houses in pristine condition post WW2. [sarcasm].

      For example, 80% of the buildings in the capital were destroyed.

      As to history, you might know they lost a lot of territory after the war as well, with forced resettlement of ethnic Germans within redrawn borders.

      1. Sorry, did you not realise that people can rebuild on brown site locations? With more modern buildings, and it’s an economic boost as well. See how gdp in NZ has been propped up by the chch rebuild. Yes many Germans were resettled… And even more left. Many lost territories kept their original inhabitants, making that part irrelevant…they lost territory, and with it lost the population in those territories….. And guess whose industrial sector helped those now foreign territories rebuild their brown sites….. Because the Germans, like Napoleon favored burnt earth tactics, so shipped most useful stuff back to central Germany or destroyed it to help slow fifth column issues

        1. “By 1950, a total of approximately 12 million Germans had fled or been expelled from east-central Europe into Allied-occupied Germany and Austria. Some sources put the total at 14 million, including ethnic German migrants to Germany after 1950 and the children born to expelled parents. The largest numbers came from preexisting German territories ceded to Poland and the Soviet Union (about 7 million), and from Czechoslovakia (about 3 million).” (Wikipedia).

          So I guess that’s your first important factor debunked.

          1. Not debunked, supported. (If you’d said from France, us, China, Russia, that might be more of a concern, but relocating existing Germans, no, that supports the internal rebuild aided with extra spaces)
            Note the dates. War end 1945, your date 1950.
            Those people were already living and thus housed. Not the 10+Million dead. Because of only 5years (so no huge local baby boom replacing dead, only transfer of existing accounted for living people’s). Also giving cheap labour to the factories of the industrialists, and plenty of demand for aforementioned empty/repair/rebuild sites within favored areas (vs buying out living owners), and adding to industrial demand so soon after war. Probably still had lots of those German owned, US built Ford trucks from the war time too, no longer required for military use and needing new loads.
            Plenty of good sites, free trucks, in rush of demand, their very own banking system, cheap disparate labour…. That says boom times to me, no wonder they did so well.

          2. I’m not sure if you think that the damaged housing magically restored itself when the war ended…. The Marshal Plan wasn’t extended to include West Germany until 1949… It wasn’t until 1950 that the Allies stopped dismantling Germany’s heavy industry.

            Just to pull out some snippets of your line of ‘reasoning’:

            “relocating existing Germans […] supports the internal rebuild aided with extra spaces”

            “Those people were already living and thus housed.”

            Unfortunately I don’t recognise these as coherent ideas. E.g. living people can be not housed, they’re called homeless, or refugees. They often live in camps or temporary dwellings, waiting for permanent housing to be built. (in West Germany, a lot of this took place in the 50s and 60s).

            20th century history isn’t some mishmash of poorly understood economic theories, it was actual things that happened to actual people.

  4. I heard about the Germans model and immediately saw the benefits to society. The money not locked up in over inflated houses, gets spent on money generating businesses.
    The main difficulty is getting from where we are, to a Germany house price system. Doing it could be relatively quick and easy, but instantly putting so many home owners into negative equity makes it unrealistic.
    The only real solution is to freeze prices and wait for inflation to eventually catch up. Sure, it would take time but the net result would be good, without crashing our economy.
    Let’s see if the government has the spine to do the right thing or not.

    1. That freezing prices and waiting for earnings to catch up will take about 50 to 75 years. We are going to have to do something far more drastic than that.

      1. Rae,
        And your suggestion for getting us to a stable German type housing model would be?
        I agree that 50 years + is a long time but I also see the need to protect the value of house that a lot of people have leveraged themselves to simply get a roof over their heads.
        There is no perfect solution to get from here to these but my solution is good and only takes time.
        I’d love to hear your better solution and I supect most Aucklanders would too.

        1. Well someone’s going to take a hit, presently more and more people are taking hits with insecure, overpriced, substandard rentals. How about we toss a coin for it. By the time 50 years rolls in and more and more people are disaffected you have a recipe for complete disaster. Perhaps a large fall in prices could be seen as “guillotine insurance”.
          Perhaps what we do should be the right thing, and decent, affordable propertied where people can establish themselves and have their stake in the ground in the wider community, have their kids in stable schooling is far more important.
          I suggest we build these types of properties, it will take government involvement to get the ball rolling, then if houses prices do fall, then that is what has to happen.
          I cannot see how you “stabilize” house prices anyway, as once you have enough of them, prices WILL go down.

    2. Who has the authority to “freeze prices” in a free country?! How could that be done? I really don’t see that idea as being workable… to put it politely.

      1. Mike Ross,
        Germany is a free country last time I checked, and they do it there. The government there, supported by the Germans I’ve talked to about it, support their government doing just that. They seem to understand that the government IS the people and that stabling house prices means that A) good for the people and B) good for the people.
        The money all the people living in affordable houses have left over, gets invested over and over, in money generating businesses. I don’t think the NZ economy stacks up so well against Germany. And an important part of why they are so successful is because of their housing policy. The proof is in the pudding

        1. Far from free and very regulated by government and custom. Most people would not have social capital to be seen to qualify for the groups who own property so they do not get to consider that option… It is not a “go for it” yourself type country, everyone expects you to follow the established routines. Nothing like NZ independence.

    3. Actually “money locked up in over inflated houses” is what secures most small business loans, so your assumption is 100% wrong.

  5. Speculation has not been defined nor distinguished from genuine investment, nor has it been explained why it is ‘bad’. The rental markets in many european countries are split, so what a ‘renter’ is in a european context is not exactly what it is in a Australian or New Zealand context.

    For example, subletting is allowed in many european countries. So you have ‘first hand contracts’ and ‘second hand’ contracts. Due to rent controls, often a large shadow subletting market emerges that has higher prices and limited tenancies. Few people talk about this.

    Because returns are controlled, there is a strong incentive to remove rental housing from the market and convert it to condominiums or AirBnB. Many cities are now embroiled in a fight with AirBnB and other holiday rentals as landlords shift their properties to these new platforms simply to avoid the controls.

    Dr. Kristian Niemietz is the Institute for Economic Affairs in his article “How Germany Made Rent Control “Work”” argues that the only reason why rent control in Germany is working, is because everyone is ignoring it.

  6. And what are the other costs I wonder, we appear to have become a house-obsessed, little people in many regards. Aspiration is one thing but when it’s done with so much debt, it makes you wonder what the real long term costs are going to be. I see us becoming an incredibly vulnerable people. It manifests itself by things like a public service that is so conformist that it can’t act with logic and all politicians need is spin. Pity. Still, nothing that a good crisis can’t resolve. We’re still basically a solid people, just a bit delusional.

    1. Given that housing is just about as basic as breathing, food and water, if you have a large number denied, then, yes, it is going to cause some issues. Best we roll our sleeves up and sort it.

  7. How could we encourage more co-housing in NZ? And Ireland is sometimes held up as the nightmare scenario facing NZ. What actually happened to the economy and ordinary people after the bubble burst there? Were there some upsides – such as people starting to invest in the productive economy?

  8. This is really outdated. Despite all the factors mentioned above prices in German cities are up more than 30% (almost 50% in Munich) in the last few years. The reasons? Low interest rates and high immigration, sound familiar?

  9. I support the article for a different reason. The property market is driven by “grass is greener” thinking and those who would profit from such thinking. It will not stop until local carrying capacity is exceeded and demographic entrapment sets in. German population growth is a fraction of ours. German demography is startlingly different (see link). That is a good thing for everybody there but property developers. Until growth of wealth is uncoupled from growth of population here, “growth” proponents will have most of us landless within 50 years.


  10. The biggest difference is they live in apartments. NZ style homes in European cities are rare and cost an absolute fortune even compared to here. If we want affordable housing we need to get used to apartments which when well designed are a joy to live in.

  11. To add my tuppence worth,
    The NZ system is not only diverting capital from investing in industry is is also producing terrible houses,

    This is the warmest (in winter) country I have ever lived in – with the COLDEST houses!

    Germany is a lot further from the equator but I bet their houses are much warmer
    And this is talking as a houseowner
    People who rent are much worse off

    The only way to get a well insulated house here is to have one built

  12. But….Germany’s population has been declining for years – that’s one of the reasons they have been so willing to take in refugees. If NZ’s population declined, we would see house prices fall or at least stabilise, without any need for all the measures discussed in this article. NZ’s house price trends have always been driven by net immigration/emigration. Remember when John Key (as Leader of the Opposition) stood in an empty Westpac Stadium in Wellington and said (gesturing at the rows of empty seats), “This is the number of NZers leaving for Australia each year”. That trend has been well and truly reversed while National has been in power, possibly not so much from anything the Government has done, but by the relative decline of employment opportunities in Australia and the Middle East as commodity prices have fallen.

  13. Dear Geoff,

    i love to read your analysis on NZ. Having lived in Germany for 45 years and been a Steuerberater (roughly equivalent of a chartered Accountant) home owner, landlord and tenant there, I might add some things.

    In my perspective, whereas you get most facts right, there is some misunderstanding in the interpretation, that I’d like to confront with an alternative view.

    1. Price rise
    this I feel is a plain misunderstanding. House Prices in the city centers have been very up (Munich, Frankfurt, Hamburg, all on about or over Auckland level). This has been balanced by country houses loosing much value in the same time. Similar to NZ, but more pronounced.
    At the same time, house prices in Germany started and had to be higher than in NZ, as without a lot of investment going into insulation and heating systems, German winter is not survivable.
    A lot of German house prices go into Architects, NZ wooden frame building has been generally cheaper than German steel reinforced concrete frame building.
    Much of the rise in value of NZ housing in the last decades just reflects the (belated) catch up on state of the art building standards.
    As of today, you simply can not compare house prices Germany-NZ, as the ground in Germany in the cities is much more expensive, owing to much higher population density, and the quality of the houses (cost per square meter) is much higher (triple glazing, very high insulation, are the norm, as are expensive cellars).

    2. Cooperatives
    Generally correct, but cooperative members can vote (usually for representatives). It is regulated to 1 vote per head (maximal 3) no matter how many shares you have. The Cooperatives started with the rise of the organised workers end of the 19th century, mainly because there was no other means to get housing and worker housing then was real bad. A development to industrialization that NZ never had at the same scale. The cooperatives are still strong, but much less so than in the past. Cooperatives usually built and own apartment houses, a few built small terrace houses, but in most regions the cost of sections is just too high.

    3. Rates or property tax.
    Here Germany is at its worst. This tax is about 10 % on average compared to NZ rates, which makes owning a property quite cheap. The indication of prices has been stopped in the 60s claiming, that it would not be worthwhile and too much effort (funny, NZ councils can do that on a regular basis). Landlords lobby is quite happy with that of course. The tax is based on the properties age, making a 100 m2 luxurious apartment from 1900 much cheaper in tax than a recently built 35 m2 apartment. It is a ridiculous system. Property tax does make sense, as it is a sure way to get some gain to the public, as the real gains of property via usage, speculation, hidden tenancy are hard to tax.

    4. Stamp tax
    A real bad thing. House sales compared are MUCH lower than in NZ and so is mobility. As every sale is now taxed at 3.5-5.5 % (plus MUCH higher transaction cost, you have to have a notary public for another 1.5 % for no good but to make notary publics rich) to buy and sell a house. That means, if you don’t up the house value by 10 % minimum, you loose money. This makes population static. It makes it not worthwhile to move, even if a new job in another city pays more, as with high income tax, you need to work for decades just to pay the cost to move (if you don’t move from a high value city to a lower value one, aka Auckland to Tauranga). I am positively impressed at the mobility of New Zealanders and the efficient way the market is organised here.

    5. Cultural Attitude
    Sorry, but I have to say, your conclusion is very wrong, to think that a low ownership rate is a sign of people not caring about owning their house. The truth is that it is the very dream of about any German to own his house or at least his apartment. The standard proverb is, that “every US-american dreams of owning his business, every German dreams of owning his house”. The sad truth is, that very few people in Germany can ever make it. At income tax and mandatory social security (not tax financed) is over 50 % on average and house prices MUCH higher on average than in NZ, only the richer 20 % of society can afford to buy. It came as a revelation to me, that in NZ there is this discussion about young families being able (or not) to buy their home. What a great truth (in respect to fertility rate that is much higher in NZ than in Germany) and what a luxury. NO young family that does not get financed by its parents can ever dream of owning their house in Germany, which is quite sad in comparison and has a huge impact on peoples lifes. This is, why Germans coming to NZ are so happy, the sole fact of moving gives a big boost to life quality, because here you can afford a house after 10 years of good work, not an apartment after a lifetime…

    6. Economic merit
    German average investment is less in housing, but also no higher in stocks. The difference makes not for money going in better investments, but only for a richer banking sector in Germany, as Germans on average have more money in low interest bank papers (term invests). All that happens, is that those who work for their income have a lower standard of living and the rich get richer. Owning your own house outright togehter with a moderate rent is probably a much better way to make for a good old age, than most other systems (and certainly the German pension structure, that will yield only pensions at NZ rate in almost any projection with the shrinking population WITHOUT the majority of the pensioneers owning their house). Germany as opposed to NZ will have a lot of poor old in 15-20 years, because the care for the old is NOT financed by common ownership of real estate but by the current payments of working people only, a system breaking down when the baby boomers get to be pensioners and the workforce diminishes.

    7. Conclusion
    In direct comparison, I feel Germany has certainly more to learn from NZ than the other way around.
    NZ is certainly just lucky to have more space per person, a warmer climate and rich natural energy resources, that together with original government housing and cheaper building standards made housing cheaper just because the cost is lower.
    House prices are now accelerating, because they where (and still are) cheaper (per m2, not looking at the quality) than in Europe, the US or the asian boom centers (Singapoore) and the immigrants can pay those prices. A Factor completely different to Europe. At the same time, building standards are now half sane (double glazing and some insulation being required), which drives cost a little up, and so are prices.
    The result is still a much higher standard of life compared to Germany on average from what I see.
    There are things to be done, like taking at least something like the German tax on speculation (tax the full speculation gain at personal tax rate if a house you do not live in personally (i.e. one max) is sold before the end of 10 years). Easy to do and brings down too hectic reactions of the markets while providing the public with some share of the profit by people who can easy pay it. Or a flat tax of 5-10 % on house selling, if the owner does not show, he made less (that is an alternative in the German parliament pipeline, so far blocked by the German landlord lobby).
    The biggest thing to do in my view would be better mandatory legal standards to housing, i.e. better insulation not only for new houses, but gradually on old houses too to get rid of the shit, that was built between the 70s and 90s. Something like you have to show that you have double glazing when you sell your house….
    And for the issue of getting density higher, a revision of the cost of splitting a section is necessary. The cost in NZ for this is a scandal, Surveyors taking 10th of thousands of dollars for some simple measurements. This is only worthwhile if the sections value is millions. Bring the cost of surveying and splitting sections down and you create an incentive to create more cheap ground in areas of demand at zero cost to the public. In Germany, by law, if a section is initially measured up, the surveyor has to put some permanent (concreted in) marks in the ground in every corner (moving those is a criminal offence). From this it is very easy and cheap to make changes. That would be a start….
    And bringing down administrative cost is another issue. In NZ you need to aply for a ressource and a building consent, at the very same authority. Why? Cant the authority do that in one act. If there are dificult laws to reconcile, the Council is surely in a better situation to do that, than the building privat person. Even bureaucratized Germany can do that. NZ is much less bureaucratic (read: more efficient) in about every respect, than Germany. Getting a building (and ressource) consent is one of the few exceptions.

    Sincerly yours

    Tilman Walk

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