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Ser Scot A Ellison

The German model for homes and living spaces: pushing people away from treating houses as investments

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Saw this from Forbes this morning:

https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/eamonnfingleton/2014/02/02/in-worlds-best-run-economy-home-prices-just-keep-falling-because-thats-what-home-prices-are-supposed-to-do/&refURL=&referrer=#28c613d6ad07

From the article:

Quote

Although conventional wisdom in the English-speaking world holds that bureaucratic intervention in prices makes for subpar outcomes, the fact is that the German economy is by any standards one of the world’s most successful. Just how successful is apparent in, for instance, international trade. At $238 billion in 2012, Germany’s current account surplus was the world’s largest. On a per-capita basis it was nearly 15 times China’s and was achieved while German workers were paid some of the world’s highest wages. Meanwhile German GDP growth has been among the highest of major economies in the last ten years and unemployment has been among the lowest.

On Wiles’s figures, German house prices in 2012 represented a 10 percent decrease in real terms compared to thirty years ago. That is a particularly astounding performance compared to the UK, where real prices rose by more than 230 percent in the same period. (Wiles's commentaries can be read here and here.)

A key to the story is that German municipal authorities consistently increase housing supply by releasing land for development on a regular basis. The ultimate driver is a  central government policy of providing financial support to municipalities based on an up-to-date and accurate count of the number of residents in each area.

 

 

 

SSE not the article:

I tend to be a free market guy.  But I freely acknowledge its shortcomings.  People always get left behind in the shuffle and that's simply wrong.  Pragmatically speaking if the German model can be shown to be superior and keeping more people in better positions and literally cause a "rising tide that raises all boats" perhaps it should be adopted in more places than just Germany.

That said one point of the article did give me pause.  The author mentions that municipalities are always allowing new land to be developed.  What is the environmental impact of such extensive development?  And how does that impact the German methodology?

 

Edited by Ser Scot A Ellison

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That situation may be true in rural and possibly also suburban areas. The price developments in East Germany also have to be looked at separately. In the urban areas of Munich or Hamburg, though, prices have been absolutely soaring. At the same time, Germans have also seen a decrease in real wages over the same time span, which means that maybe, demand plays into the equation.

As for the extensive development, that is indeed a problem, although less so in terms of an environmental impact as much as from an infrastructure perspective: People in rural areas have trouble getting medical care or child care services, average internet bandwidth is among the lowest in the West, and traffic policy is too focused on cars

Edited by theguyfromtheVale

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Okay... this article just confuses me... the housing prices in urban areas are literally going through the roof in Germany, mostly because the housing sector here was heavily privatized and it turns out the free market is far too slow building new houses as fast as it should in order to satisfy the very high demand. Though at least the local governments seem to regret this, I have heard a lot of talk about reconstructing the former public housing sector in order to fight the rising prices head-on.

I don't know, the article seems oddly enthusiastic and the numbers really... don't seem right when regarded from an urban perspective. He might be right that renting houses increases mobility and it's actually a pretty decent system along with our regulations, well, at least as long as your landlords don't try to bully you out of your home because they can raise the rent ever higher in between different tenants...

I guess it's more of a statement that everywhere else the system is even worse...

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My suspicion is that because the study looks at a 30 year span (and probably only uses West German data for the pre-1990 period) that the low (and after 1990, falling due to lack of demand) East German rents are pushing the average downwards. I may be entirely wrong about this though.

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