I come from a place where owning real estate is a perfectly acceptable retirement plan.
An investment in a Vancouver condo or house is such a sure-fire win (or at the very least, guaranteed stable investment) in the minds of many that a local architect once described the city to me as “the safety deposit box of the world.”
That is perhaps one of the reasons—among many others, of course—that the most recently published census data in 2006 showed that nearly 50 percent of Vancouver residents are homeowners. In greater Vancouver, that percentage swells to over 70. And that number can only be rising, given the current trends in development, with the number of owner-occupied units being built far exceeding the number of new rental units (which were actually declining at the time of the census). Owning property is, simply put, the end goal of a massive percentage of the population in my city.
This generates a lot of problems for renters—for people like, well, me. It means astronomical rents and impossibly low vacancy rates.
But, much to my chagrin as a renter, it also means that for a very decent-sized portion of the population rising property values are, in general, a good thing. It may mean that their property taxes grow, but so too do their assets.
This is the case in a lot of major cities. In London, nearly 60 percent of households are owned outright or are currently being bought with a mortgage or loan. Even in New York, the city of renters, a third of all households own their own dwellings.
In the end, they all benefit from the rise of real estate prices.
It goes without saying, of course, that this only holds true when times are good. When times are bad—and yes, the world of real estate has seen some bad, bad times in the past few years, exemplified most strongly by the U.S. foreclosure crisis—owners obviously lose out.
But when you pull back and look at Berlin’s housing demographics, it becomes immediately clear why rising property values are such an enormous theme in this city: because a whopping 85 percent of them are renters.
This is a relatively common phenomenon in Germany as a whole. The Germans are not, so to speak, an overly risk-taking bunch. While North Americans, for instance, tend to keep their nest eggs chained to volatile and somewhat uncontrollable housing and stock markets, Germans are much more likely to keep their assets invested in life insurance products, cash and short-term deposits, and bank deposits, for instance.
But Dr. Nikolaus Wolf, the economic historian I interviewed in my two recent posts on the history of Berlin’s deindustrialization and how it has affected the past and present of the city’s real estate, explained the high number of rents to me in a bit of a side note to our interview, as even more of a certain cultural phenomenon.
“Ownership rates in general are quite low in Germany. This is particularly so in the big cities, and particularly in Berlin,” he said.
“There is not a negative stigmatization here if you are a renter. If you compare that to the UK—there it’s actually kind of a negative signal if you’re not a house owner. In Germany that’s not true. You would find plenty of, say, university professors that don’t own a house, and nobody thinks that’s odd. That’s normal,” he said.
Wolf attributes this, in part, to the various stringent forms of rental regulations throughout the country that not only ensure that the rental properties remain in quite good shape and are improved over time, but that also make renting an apartment a very secure situation. Whereas it’s quite normal in many places around the world (Vancouver, London, and New York included) to rent on the basis of short-term leases, generally speaking once you’re in an apartment in Germany, it’s incredibly difficult for a landlord to get you out. (As an interesting side note, the Lab’s curators have recently been learning a lot about similar regulations and their effects on development in Mumbai. It will be interesting to compare these when the Lab lands there next.)
“It’s actually attractive for people to stay there because you can plan over long, long time horizons. You can actually stay your entire life in a rented flat and not be threatened to move out,” said Wolf.
So while half of my city’s population is rooting for their investments to grow at the expense of the other half (who are, in most cases, paying the owner’s mortgages for them through built-in rental suits known as “mortgage helpers”), as are 60 and 30 percent of Londoners and New Yorkers, respectively, almost nine out of ten Berliners have nothing to gain and everything to lose from the real estate boom.
I’m curious, Berliners: What do you see as the benefits and disadvantages of renting? Buying? If both were equally possible, which would you choose, and why?
Photo: GaijinSeb via Flickr.