What can the UK learn from the German housing market?

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A new paper compares the German housing market with that in the UK, highlighting possible lessons to be learned and missteps to be avoided

A new paper from progressive think tank the Institute for Public Policy Research (IPPR) suggests the UK could learn lessons from Germany, both in terms of successes and failures, when it comes to the housing crisis.

The report – authored by Bill Davies, Ed Turner, Susanne Marquardt and Charlotte Snelling – compares factors of supply and demand in both the UK and German housing markets. It finds higher rates of house-building, a much less volatile housing market, and a larger private rented sector in Germany than the UK, and goes on to explore the reasons for these differences.

On the supply side, they found that 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. As a result, 30 million new homes have been built across East and West Germany since 1951, compared to just 16 million in the UK.

Housing completions in Germany now approach 250,000 a year, whereas the UK struggles to exceed 170,000 a year.

Renting a more attractive option in German housing market

In terms of demand, Germany has a more conservative mortgage market with greater restrictions on loan-to-value ratios; a tax system favouring long-term property ownership while discouraging speculation; and a combination of longer tenancies and more rent control, which combine to make private renting an attractive alternative to home ownership.

The German housing market is much less volatile than the UK – house prices since 1995 have risen by 50% in Germany, in the UK they have gone up by 400%. Tighter mortgage lending and a more stable rental market have driven a more balanced approach to housing tenure, reducing the demand for owner-occupied homes.

However, the authors say there are also areas where UK policymakers can learn from Germany’s mistakes.

For example, although Germany has delivered more affordable homes in the last 30 years, the delivery model of equivalent 20-30-year covenants has led to a sharp drop in the availability of affordable rented homes. Private rented accommodation can be hard to access in Germany, too, with lengthy search and application procedures.

Housing supply problem less acute than in UK

Germany appears more successful in turning planning permissions into housing completions, even though both countries are nearing the level of planning permissions needed to meet their housing supply targets.

Germany’s land supply is more responsive than the UK’s, with local authorities playing a more proactive role in the land market.

The report also states the scale of the future housing supply problem in Germany is more modest since household numbers are set to decline after an initial projected population increase. On the other hand, the UK population is forecast to grow by more than 250,000 households a year for the next 20 years.

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