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Most Germans don’t buy their homes, they rent (qz.com)
176 points by allerhellsten on Oct 24, 2016 | hide | past | web | favorite | 403 comments



So in Germany, the interest on a mortgage is non tax deductible. The article doesn't mention it but I understand that property owners are also liable for capital gain tax if they hold the property less than 10 years.

I think that makes sense. There is no reason to favor individuals investing into an unproductive investment (property) over productive investments (stocks and bonds, which enable companies to raise money to start new projects, create jobs, etc). Over-borrowing to bid the maximum amount one can to buy a nineteenth century house doesn't create any job for anyone, it just transfers wealth to the hands of the seller.


In Switzerland, this is even more extreme and there are even fewer home-owners. The Swiss can deduct their mortgage payments from their income, but you are taxed the virtual income of renting your house to yourself. Furthermore, the capital gains tax on real estate is up to 40% on short-term transactions (less than two years) and there is no capital gains tax on stocks. Furthermore, there's a wealth tax disincentivizing you from holding low-return assets such as real estate. And returns on real estate are very low (like 3% or so), mostly because it is seen as a safe investment by pension funds. All these factors add up.


Well rent doesn't create any wealth either, you're just paying monthly a landlord so he doesn't have to work.

If you want to create value, you should make sure that housing prices (both renting and buying) stay low. This way not only wealth can go to other investments, but more people can take the risk to start a business if they don't have the risk to be unable to pay their rent or mortgage.


Being a landlord sucks, you don't know what you are talking about. Tenants are terrible for wear and tear on your house. Since they don't own the house they don't treat it with care. Lots of maintenance and tenant problems that need solving.


$2400 a month for a 1br apt built in the 60s covers a lot of wear and tear, especially when you have maintenance staff making $10/hr doing all the work. If I add up all of my maintenance costs over the past 5 years, I'd be very surprised if it totaled over $1k (paint that they charged me for, a small window, a small drywall patch, carpet that they charged me for) .

It's also hard to feel bad for home owners renting half of the property they live in to cover their mortgage while their property values increase 10% a year. Apartment residents meanwhile are building zero equity and eroding their chances of ever owning property.

Real estate is a hugely profitable business due to the perpetual license granted by the government to extract infinite rent from the property.

I have friends who just pay professional management companies to do billing, maintenance, and lease management for their properties. All they do is write a check to the management company and they get to keep all the profits. No, I don't think what they're doing is a real job, they just happened to have enough money to afford a few down payments on houses, and now they're getting something for nothing.


I have friends in some of the rental neighborhoods in my locale. How do tenants destroy the outside of houses, make roofs leak, or fail to turn on the heat?


oh I have some experience with this. The answer is a marijuana grow op - it was my dads place but I don't believe we were ever compensated after the police raid...

Bad tenants are probably over represented in the rental pool since they're looking for a new place all the time.


That's one good thing about large-scale home-ownership: people tend to take better care of things they own, so overall costs to society for housing may be lower that way. It also makes people more invested in their communities, in theory.

I was a landlord for a while during the realty boom. It really did suck. However, it varied wildly by tenant: some tenants took good care of the place, others didn't. So when a tenant left and I had to get a house ready to re-rent, some were a relative cakewalk, while others required a ton of work (like one idiot who drilled a bunch of giant holes in the walls for cables for their A/V equipment).

The worst part about it was being on the hook for major repairs, and having them happen at unpredictable times.


> paying monthly a landlord so he doesn't have to work.

Try telling that to a landlord. Being one is a job in itself - or you have to pay someone else a good chunk of money to do the work for you.


That's because it is an amateur business with people doing it in a way that does not scale. Large scale renting is vastly more efficient.


In the UK a mortgage if you can get one is way cheaper than renting for the equivalent property.


Not in London.


I suppose that it's emotionally satisfying to denigrate people for having something you want, but does it truly make a useful contribution?


> There is no reason to favor individuals investing into an unproductive investment (property) over productive investments (stocks and bonds).

I beg to differ. I think that real estate, like farming, has critical societal benefits that are worthwhile to develop and maintain.

Namely, it is very difficult to raise a family of four in a mutual fund. Investing in a home may is absolutely "productive."

See, there are significant societal benefits to home ownership that you are not considering. For example:

1. A paid off home is a social safety net against homelessness for an entire family and many of their social circles. Even if all of them are unemployed, all of them have a roof over their heads.

2. A paid-off home frees up cash flow. It allows the owner to divert his earnings into other activities or investments or reduce the amount he has to earn monthly.

3. Real estate can be borrowed against. Try that with stocks. If you are an entrepreneur, your home is likely the asset you will use to acquire bank financing for your business.

4. With unskilled / low-skilled jobs vanishing left and right, homebuilding is one of the few markets which still relies entirely on a giant low-skilled workforce. It's one of the few sectors that can keep a lot of people productively employed. I think there are valid arguments against stimulating homebuilding to reduce unemployment among low-skill workers, but there is nevertheless a societal logic here.

5. In a time when wealth is centralizing as never before, investments in real estate distributes wealth locally. I think there are valid arguments against public policy to distribute wealth, but there is a societal logic here.

6. Finally: taxing a home is very counterproductive to the well-being of the middle class and the poor. I'm sure in Germany the interest on a mortgage isn't tax deductible as you say, but I'd also guess that steps are taken to refund the property taxes for the lower classes. Otherwise you simply tax the poor out of their homes - a form of confiscation.

I think there's a lot of sense in NOT taxing one's first home, at least not if it's below a certain reasonably high value. All things considered, home ownership is empowering. A second home or income-generating rental property is a different story, but one's domicile should be unconfiscatable by the state.


>1. A paid off home is a social safety net against homelessness for an entire family and many of their social circles. Even if all of them are unemployed, all of them have a roof over their heads.

Until you can't afford to pay the taxes, utilities, insurance, and maintenance. My grandma bought her house outright with my grandpa's life insurance money. No mortgage ever. It was a terrible choice because she didn't have the money or wherewithal for maintenance or utilities. 30 years later the house was literary falling apart. As you can imagine, the utility bills for a house with gaping holes in the roof were astronomical. It was a positive feedback loop. She lived with massive anxiety about shit getting old and breaking. We all really hoped her house would stay upright until she died. It did, thankfully. She would have lived a much better quality of life in an apartment.

>2. A paid-off home frees up cash flow. It allows the owner to divert his earnings into other activities or investments or reduce the amount he has to earn monthly.

Renting frees up cash flow sooner thus allowing interest to compound much more.

> Real estate can be borrowed against. Try that with stocks. If you are an entrepreneur, your home is likely the asset you will use to acquire bank financing for your business.

You can borrow against your 401(k). Then there's the people who borrow against their 401(k) to buy a home, yes, those exist... I personally know some.

Anyways, I own a home, I'm not anti-home ownership. I just can't stand the myths about home ownership.


> Until you can't afford to pay the taxes, utilities, insurance, and maintenance

The utilities it's what gets to you first. My parents used to be middle-class people in the late-1990s Eastern Europe until they both lost their jobs when the one big steel-factory in my home-town got closed down. In a matter of a just a couple of years they had to sell our family car and our city apartment (where we were all living), because utility bills have the nasty habit of coming in your mail-box even though you're out of a job. We only managed to got through all this because my parents still had a half-finished house in the countryside which has been their primary residence for more than 15 years now (and is still unfinished) while I got to go to college and managed to earn some financial assistance from my school for the first couple of years (and then found a job during school).

I know that the usual HN user comes from an Western country and has never had to deal with very big societal changes that can see political systems disappear over night, high-double-digit or triple-digit inflation or real-estate values collapsing to 5 or 10% of their initial value, but these will eventually happen in there, too.


> Western country... very big societal changes...

It's already happened. Contrary to popular belief, Western countries are not uniformly rich and successful places where everyone drives a Ferrari and owns three houses.

This stereotype is really annoying to those of us who suffered through the industrial collapse and saw the society of whole regions destroyed (larger than most eastern European countries.)

* https://en.wikipedia.org/wiki/Rust_Belt * https://en.wikipedia.org/wiki/Deindustrialisation_by_country... * https://en.wikipedia.org/wiki/Stagflation * https://en.wikipedia.org/wiki/History_of_the_United_States_(... * etc.


I know about the Rust Belt meltdown and also about what happened to Northern England and Scotland during the Thatcher years, but trust me when I'm telling you that high inflation and the whole damn country (nor merely a region) being on the brink of collapse feels at least a hundred times worse.


Yes, I'm sure the collapse of the state was quite terrible. Nobody is trying to diminish the horror of that experience.

The point is that "westerners," even HN readers, are not all a bunch of naive rich people who have never experienced and cannot understand large scale social change.


I was happily living in an owned home, paying off the mortgage (with very low interests mind you!) but I ended off selling it, and staying resident as a tenant for the buyer!

Reasons aside, while my monthly expenses have increased a bit (not terribly much) I've been much happier and care-free now. The hundreds that I would put away for inevitable fixups and maintenance, I can now put in stocks, index funds. I personally can't hold the hammer the right way in my hand so it's been costly.

It's not customary in Finland to take second mortgages against house so having money in stocks is vastly more easily liquidable as well.


> Namely, it is very difficult to raise a family of four in a mutual fund.

It is difficult to ski without skis. But most people don't buy skis, they rent them. Renting skis do not mean that no skis will be manufactured. There is a need for house, houses will be constructed, irrespective of whether people will over-bid on them or not.

> A paid off home is a social safety net against homelessness

Stocks and savings are equally a safety net against loss of primary income.

> Real estate can be borrowed against

Borrowing against your home to finance your business is no different than selling some stocks to invest into your business. In both cases you are using previous savings.

> I think there's a lot of sense in NOT taxing one's first home

Why? Again you are assuming that the alternative to owning a home is renting one and having no savings. The cost of housing (renting) would be much lower in a country without massive over-bidding on property. There is no reason to give a tax benefit to this particular type of investment (property) over any other types of investment.


>Stocks and savings are equally a safety net against loss of primary income.

Until you have a 2007 collapse again (predicted by some to happen again soon), where you both lose your job and a massive amount in stocks. Savings have been at extremely low rates for a long period of time in the US.


At about the same time the housing market got decimated as well. It also comes back in more variant ways.

One extreme downside of thinking of your home as an investment vehicle is how poorly it is diversified. It is almost exactly directly correlated to the local job market...and to macro trends like the MBS issues we saw in 2008.


> One extreme downside of thinking of your home as an investment vehicle is how poorly it is diversified. It is almost exactly directly correlated to the local job market...and to macro trends like the MBS issues we saw in 2008.

This is what I cannot understand about people who advocate buying homes in the United States for small-time investors - how can you not see this? How does it make any sense to divert almost all of your cash flow into a single, massively leveraged, illiquid investment? Miss a few payments on your mortgage and you are totally wiped out (and without a place to live!). At least stocks can bounce back and maybe you can get 30% back on bad bonds. And no one is stopping you from holding cash or TIPS.

If you are wealthy and a house is a small part of your portfolio the impact of the possible downsides is qualitatively different, but as a small-time investor tying up most of my wealth into home ownership on the hope that "house prices always go up" (which really means treating the future generation as suckers that will pay inflated prices for your home) and that the risk of mortgage default does not exist does not make sense to me.


I don't think most Americans buy houses as investments. There are other reasons: You usually find yourself in a better neighborhood with fewer hassles if you buy vs. rent.

Stocks and bonds aren't any better anymore--the bottom could drop out again anytime and leave you with half or less of what you previously had.

We're in a crap storm of epic proportions in this country, but we avoid the reality of it.


My experience and intuition suggests that the opposite is true, and that you'll generally end up in nicer places and in better neighborhoods if you rent. Looking at current house rental listings in Oak Park, I see several in nicer neighborhoods that are less than my rent; in other words: I believe I pay a premium to to own here.

That was my experience in Ann Arbor as well.


This isn't the case in most of New Jersey or Pennsylvania. Cost to rent a crappy 2 bedroom apartment (with the people below blowing smoke up into your bedroom) is the same as a 3 bedroom house, property taxes, and insurance. It really is location, location, location as they say.


Can we test this? I'm ready to be convinced with evidence! Let's use a specific market, and just look at the listings.


Well in my home town you can look at Zillow to see home prices (http://www.zillow.com/homes/for_sale/Warrington-PA/56739_rid...) all of these are priced to give around or below $1200 mortgage all told (taxes,fees,insurance even if you went in with a low down payment). Here are the apartments that are available (http://www.apartmentguide.com/apartments/Pennsylvania/Warrin...)

$1200 is really the minimum for a 2 bedroom apartment here. There are a few that are maybe $100 - $200 lower, but I wouldn't want to live there.


> > A paid off home is a social safety net against homelessness > Stocks and savings are equally a safety net against loss of primary income.

Landlords and letting agencies can be kind-of funny beasts, they're not necessarily happy to have an unemployed guy as a tenant even if he owns a pile of shares.


So? It's not as if they can kick you out of the house you live in. Not in Germany, anyway.


How would they know you are unemployed if you are still paying rent? It might be harder to rent in tge first place without an income, but every landlord I've dealt with has asked for a wage statement or a documentation of assets showing that you could afford to live there.


>It is difficult to ski without skis. But most people don't buy skis, they rent them. Renting skis do not mean that no skis will be manufactured.

That's a ridiculous analogy. Renting vs. buying skis is like renting a hotel room vs. buying a condo when you spend a weekend in a different city. There's a good reason hotels are profitable businesses: no one wants to buy a home if they're going to spend 2 weeks or less in a location.

A better analogy is cars: what kind of moron would rent a car for commuting to work every day? No one, because it'd be a massive waste of money. Rental cars are for people who only need a car occasionally, or who are traveling by air and can't bring their own car with them. Otherwise, it's much cheaper to just own your own car, so you aren't paying tons of money to some company in the form of profit.

>Stocks and savings are equally a safety net against loss of primary income.

The 2008 crash disproves this, as does every stock market crash throughout history. Right at the moment you need that money the most, because the crash caused you to lose your job, your stock portfolio has tanked. This isn't the case with houses: if you own your house outright, you're safe (as long as you keep paying property tax, which is minimal in many places), and even with a mortgage, the terms of the mortgage are constant so you can budget for the payment and keep that much liquid cash on hand. Rent, OTOH, can change whenever your lease expires, or even at any time if you're on a month-to-month lease.

>The cost of housing (renting) would be much lower in a country without massive over-bidding on property.

And which country is that? Somalia? Every time I've looked at rents in Europe, they're much higher than here in the US, along with cost of living in general, even after our price inflation in the wake of the 2008 crash.

The simple fact is that, when you rent, part of your rental price goes to pay for profit for whoever owns the property. If there were no (or little) profit in it, no one would bother being a property owner. When you own something, you take the middleman out of the equation.

Do you also think it's a good idea to rent things like computers, printers, phones, furniture, appliances, clothes, cars, etc.?


Most people don't go skiing every day or enough to justify the cost of purchase, but for those who do they most certainly purchase one or more pairs of skis.


Can confirm. Living in Norway. Everyone has skis.


the other reason would be the whatever you subsidize you just get more of that. So in an market based system prices generally rise until they have balanced out the gains from tax deduction (interest & prop tax).

Also, given the amount of labor force mobility in US now vs 30 years ago it anyways does not makes sense to force people to 'settle down'.


> 1. A paid off home is a social safety net against homelessness for an entire family and many of their social circles. Even if all of them are unemployed, all of them have a roof over their heads.

The state provides this safety net in Germany. When both my parents were unemployed, we didn't have to move out of our apartment. The unemployment benefits were enough to pay the rent.

> 2. A paid-off home frees up cash flow. It allows the owner to divert his earnings into other activities or investments or reduce the amount he has to earn monthly.

Having to pay off a home binds cash flow at first, compared to renting.

> 3. Real estate can be borrowed against. Try that with stocks. If you are an entrepreneur, your home is likely the asset you will use to acquire bank financing for your business.

Can you borrow against a house you have not paid off yet? I think you shouldn't be able to, since the house is already a security for your mortgage. If you use your money to buy a house and then borrow to start a business, that seems horribly inefficient to me.

> 4. With unskilled / low-skilled jobs vanishing left and right, homebuilding is one of the few markets which still relies entirely on a giant low-skilled workforce. It's one of the few sectors that can keep a lot of people productively employed. I think there are valid arguments against stimulating homebuilding to reduce unemployment among low-skill workers, but there is nevertheless a societal logic here.

Houses are still being built when everyone rents, they are just large apartment complexes. In Germany, the low-skilled workers you are concerned about are mostly immigrants from poorer countries in Europe, they would move somewhere else if the housing industry stopped employing them.

> 5. In a time when wealth is centralizing as never before, investments in real estate distributes wealth locally. I think there are valid arguments against public policy to distribute wealth, but there is a societal logic here.

In Germany, the state distributes wealth directly. (see 1.)

> 6. Finally: taxing a home is very counterproductive to the well-being of the middle class and the poor. I'm sure in Germany the interest on a mortgage isn't tax deductible as you say, but I'd also guess that steps are taken to refund the property taxes for the lower classes. Otherwise you simply tax the poor out of their homes - a form of confiscation.

You are assuming the poor own their homes to begin with, this is not usually the case in Germany


You said a lot but I had a hard time getting past the first sentence:

>> 1. A paid off home is a social safety net against homelessness for an entire family and many of their social circles. Even if all of them are unemployed, all of them have a roof over their heads.

> The state provides this safety net in Germany.

Why do you think it's a bad thing for people to be empowered to not need a state safety net to provide them with jobs?

If "most everyone" owned homes outright, then "most everyone" could be easily insulated from such a significant state burden.


> 3. Real estate can be borrowed against. Try that with stocks.

if you're using a taxable margin account(1), your broker will almost certainly be happy to let you borrow some fraction of your stock's value as cash, without any paperwork. depending on the value of your account and the amount being borrowed, the rates might even be decent, compared to a HELOC. (after all, their risk is a lot lower, as they can liquidate your stocks on a moment's notice. much easier than foreclosing on a house. and while you're in debt to them, they can loan your stocks out to other people, which is valuable to them.)

(1): holy crap don't sign up for a margin account without fully understanding what you're doing.


5. In a time when wealth is centralizing as never before, investments in real estate distributes wealth locally. I think there are valid arguments against public policy to distribute wealth, but there is a societal logic here.

I think this is a good point. Honestly, I don't know the economics of how property ownership is distributed in the US, but as a result, I can't say why we aren't all renting from a small handful of giant land owners, who can control entire cities or even regions. For this reason, though I know that the homeowner subsidy is regressive in many ways, and that home ownership isn't necessarily the most productive investment strategy, I'm hesitant to just get rid of it.


We are in fact all renting from a handful of giant land owners. The banks that hold the mortgages.

Now, you could argue those themselves have ownership distributed because they are public companies so therefore those mortgages are in fact benefiting shareholders, but banks own the majority of homes in America. And if you pay it off and don't pay taxes, the government does.


Most brokers allow you to borrow money against stocks. It's typically called "margin."


Buying stock on the open market also doesn't create any job for anyone, it just transfers wealth to the hands of the seller.

Basically, unless you are investing in an IPO, the company doesn't see a dime from the ongoing trading of it's stock. So the vast majority of investors are not creating jobs by buying stock. Similarly, most bond investors are not buying new issue bonds, they are buying bonds from the current owner of the bond.


In isolation, sure. In aggregate though, increasing demand raises the value of stock, which reduces borrowing costs and encourages companies to expand, which can sometimes create jobs.

Not just stock: companies are constantly comparing alternative sources of capital. Any increase in demand from investors for any particular source of capital (bonds, stocks, loans, etc...) will tend to make that capital available at a lower cost to the company.

I have not thought about whether aggregate increases in the demand for housing have the same positive effect on firms, though you could argue that increasing housing values creates home equity and the mortgage interest deduction encourages homeowners to borrow against that new equity and invest the proceeds in ways that will generate a higher return than the interest rate - marginal tax rate, such as stocks. But that happens a lot in economics, many seemingly conflicting forces can lead to the same effect.


How do you figure the value of stock increasing reduces borrowing costs? I don't know of ANY financial institution that bases the interest rate of a loan on the value of a company's stock. It is, in every case I've seen, based on their credit rating.

You could have a stock that's through the roof, but if you don't pay your bills on time that means absolutely nothing to me as a financial institution. On the flip side your stock could be in the gutter, but if you are financially viable and pay your bills on time, I couldn't care less.

Generally speaking there is a correlation between stock price and "health of the company", but not always.

Finally - stock price increasing creates jobs???? Source? I have never, in my life, heard of a company of any size hiring people because their stock went up. That's the most ludicrous thing I've ever heard.


Companies often issue common stock long after IPO. Tesla famously did this earlier this year in order to finance an accelerated release schedule for the Model 3. Companies undergoing temporary financial trouble also issue common stock. The major banks issued large amounts of common stock during the 2008 financial crisis. Most have not yet repurchased the issued stock.

Technically and in the extremely specific case, yes, buying stock on the market doesn't create jobs for anyone. However, the liquidity of stock in the aggregate is one part of the confidence of the financial system. Upon IPO, buyers of the stock need to know they can sell their stock on the market after it fulfills their objectives.


Yeah, I purposely ignored the edge cases of selling treasury stock or existing companies making new issues.

An existing company making a new issue is kind of unusual because it dilutes the value of existing shares which is harmful to existing shareholders. generally a bad thing.

Selling Treasury stock does get new cash in the hands of the company, but usually that was because at some point the company had excess cash and invested it in it's own shares in the form of a buyback, less often the company is still holding shares from it's own IPO. It later needs the cash and re-sells the stock, hopefully at a better price.

I would argue though that the day to day trading of common stock on the open market is the more general rule not a "extremely specific case". Normally, if I go to make a trade in my account, it is not a new issue and would be a coincidence if it was at the time a company was selling treasury stock.

no argument in stock liquidity being a measure of confidence, but not really to the point I was addressing.


I agree with everything you said.

I wanted to mention liquidity because I (wrongfully) thought your post implied it wasn't particularly important; is indeed paramount for the stock market to work at all.


I am not sure that is true as even for stocks, on the other side you have asset managers, hedge funds or insurance companies who participate both in the primary and secondary markets. Of course, you will have similar bubbles forming in stocks than you have in property. But overall it is a way more productive investment.

Bonds barely trade on the secondary markets. When you invest into a fund that buys bond, it's pretty much 100% primary market (i.e. new issuances).


For property you still have ongoing maintenance to pay for, and real estate agents, and the title company, etc. so there are jobs created due to the buying, selling, and ownership of property. If I by 100 shares of IBM in my self-directed account at Charles Schwab there likely isn't a single human being involved in that transaction after I click the buy button. Granted, somebody wrote the code that drives all of that.


But this maintenance would happen anyway whether you own or rent.


At a much slower rate.

If the paint in my personal home starts peeling, my incentive to fix it is higher - I don't want to walk down the hall and see peeling paint.

If the paint in a corporate-owned tenement starts leaking, what incentive does the corporation have to repair it? They will do the bare minimum to prevent me suing them for breach of contract. A tenant is unlikely to sue over peeling paint. And they actively discouraged from re-painting, as they will likely lose their security deposit should they paint in any color other than generic off-white.


> If the paint in my personal home starts peeling, my incentive to fix it is higher - I don't want to walk down the hall and see peeling paint.

> If the paint in a corporate-owned tenement starts leaking

LOL. It's the opposite effect. If I own the place, and The paint is peeling, and I have to fix it... then maybe I'll just live with it until it gets worse, or I plan to sell. If it was a rental, then I complain to the landlord to fix.


Are you married? Own a house? ;)

What incentive does the landlord have to fix minor problems? It costs you more to move/sue than it costs him to sit on the problem.


Yeah, not married, so there is not that particular stakeholder motivating cosmetic repairs.

As a landlord I want my current and future tenants to respect the valuable asset I have entrusted to them and maintain a good relationship. Fixing the little things is important in a "broken windows theory" way.

"the cobbler's children have no shoes"


if there was no secondary market people likely wouldn't buy into the IPO, as there would be no way to get rid of the stock later

so it clearly adds value to the original seller


Yes, but that wasn't the point.


I had heard that the mortgage deduction was designed to incentivize the population to settle down. A population that is settled is more invested in the community, less likely to cause trouble, and more likely to pay taxes. Although, in today's workforce, lack of mobility can be a liability.


According to Priceonomics,

> the deduction began as an unplanned technicality. When the federal government first levied income taxes in 1913, Congress allowed Americans to deduct from their taxes the cost of all interest payments. This is standard policy for corporations: the government only wants to tax profits—not money spent on loans for tractors or a new office. In 1913, the government allowed deductions on all interest—probably because all interest payments were business-related. No one took out car loans in 1913 or paid interest on credit card debt, and the majority of mortgages were for farms.

https://priceonomics.com/the-case-against-everyones-favorite...


That's not really accurate, you could deduct interest and leases for a very long time. Pretty sure that went away as Vietnam war spending ramped up.


Most of the benefit goes to the wealthy (at least, the portion of the population with the highest incomes; I'm not interested in arguing about whether households earning $200,000+ in high expense areas are wealthy or not).

http://www.taxpolicycenter.org/model-estimates/individual-in...

For someone earning $500,000 a year, a $5,000 tax break is a $5,000 tax break, it isn't going to do much of anything to their behavior.

Considering that mortgages usually require a down payment, you could also make the argument that the benefit overwhelmingly accrues to the financially stable. People that can't get the down payment together aren't going to be stabilized by a benefit they can't access.


This is 100% a digression, but personally, I'm a fan of using "high-income" as a term in place of wealthy. I understand wealth to be having lots of assets: having a high income can cause you to be wealthy, but you can also be wealthy without currently having a high income.

I'm very sensitive to this at the moment, because "wealthy" is used as a term when people talk about CA income taxes, which can be frustrating since in reality, much of the wealth in California is enormously under taxed (thanks to Prop 13), which basically amounts to the continuing siphoning of wealth from the young to the old.


This.

Just got my tax bill and I see I'm paying a percentage of my home value for things like school districts, etc.

Why I as a relatively new resident who has not benefited from these services yet is paying a disproportionate percentage of the taxes by a massive amount compared to people who have benefited from these services for decades while paying a pittance due to their locked prop 13 tax rates is beyond infuriating.

Doubly so when those long time owners have captured absolutely massive value through collecting rents and massive asset appreciation.

I'm all for paying my fair share for services in my community. This is not my fair share. At the very least it should be equal if not based on how long people have lived there.


So are you recommending to invest savings on stocks and bonds rather than a house? I mean, I wont argue / refute you reasoning, I just simply dont have the knowledge to do a proper analysis. Ill just say that my 78 years old parents, that not even finished high school, always told me to first buy a house, then think about the rest. Being an owner feels like the best decision Ive ever made. If something happens to me, I have the safety that my family have a place to live in.


You could have savings and investment you could use to cover a lower rent the rainy days.

House prices are only high because everyone is over-bidding to buy them. And that's driving rents up.

Now this is different to the question of whether you should individually follow the crowd in a country where everyone over-bids on property. If you don't, you still pay a high rent to repay the massive mortgage of the guy who bought the property. And in a country like the UK, there is a massive moral hazard: because so many voters are all-in into property, politicians will do anything it takes to ensure prices never go down, even if that means printing massive amounts of money, robbing savers from their investments, having negative interest rates, etc. In that world, it probably doesn't make sense to bet against the central bank.

But as a society I think it is a bad allocation of resources.


Why is there room for rents to go up? Why aren't they in general already around the maximum the market will bear?


As an example, in the UK, social security provided a formula that determined the "permissible rent".

If I claimed housing benefit, they would look at the formula, and tell me "Your housing benefit is a maximum of £x: if your rent is more than that, you have to pay it out of your own pocket".

The formula dictated the maximum rent for state-subsidised housing: almost no tenant claiming social security could afford to pay above the subsidised amount from their own pocket.

However, the formula accounted for rental prices in the region over the previous few years, and effectively acted as a price escalator. All DSS landlords priced their rent at the maximum permitted, and the subsidy therefore regularly increased with their prices. As a result, buy-to-let became very popular, with a number of training courses/presentations pitching this price-escalation practice, which also helped sustain the price escalation.

As rental prices increased for state-subsidised landlords, unsubsidised private tenants also had their rents increased, both sectors mirroring each other.

The government have since introduced caps to various benefits, which may put a stop to the routine escalation, but it's a good demonstration of some of the legislative flaws. For most people, a place to live is high if not top on their priorities, and most debt advice councilors recommend paying rent/mortgage as the top priority, above every other bill, so even given excruciating increases, most people will still pay it.


Because not everyone is poor yet, and rent is among the last things you can save on.


As a native of England and not an economics professor I feel here it's because it's the only alternative to buying (many can't buy) and there's still a juicy percentage of combined monthly wages /not/ spent on rent up for grabs. The market is bearing the increases by not saving, reducing food spend, etc.


so as a society, it would be better to have a handful of house owners collecting the rent of everyone else? Is that a good allocation to you?


Yes. Owning your own home is like cooking your own food. It might be cheaper but only if you don't value your own time or have anything better to do.

There's a reason why even rich, successful businesses rent office space instead of buying. They just can't manage a property as efficiently as the companies that focus on that.


Businesses often sell their real estate on leaseback terms because it allows them to book one-time profits that boost the executive's bonuses or as a way generate cash that private equity firms can easily extract. They don't typically sell to third-party investors, but often finance the debt of the newly created property owner.

For many businesses it absolutely makes sense to own your own property. For example, if mid-way through a 20 year lease on a building the economy goes bust, do you really want to be paying the same rent that was negotiated during boom times? It could destroy you.

There's textbook theory, and then there's reality. The real world is an incredibly complex system with innumerable variables, and can't be reduced to simple concepts like "specialization". It all depends on context. Obviously for most companies it doesn't make sense to own their property. There's no disputing that, and your point stands. But for rich companies, it often actually makes a lot of sense, notwithstanding insiders trying to extract value for their personal benefit.


Facebook, Google, Apple, Microsoft, IBM, HP and many others would certainly not agree with you. They cook their own food, own lot of real estate and I am pretty sure they don't think it's time they lost.

These big companies do not manage one single house (office). They manage a real estate portfolio. Most of big companies have a mix of rented and acquired office space. Ultimately, owning real estate or not is an investment decision.

Some big companies, like HP recently, went from owning most of its real estate to sell large chunk of it ... Reason is to get some cash flow and to rationalise some expenses. But not because someone else could manage better their real estate.


It's not just real estate. I'm not sure about today, but in the 2000s when I worked at Intel, they owned their own jet planes. They had so many employees flying between certain cities they had locations in, that it was more cost-effective for them to operate their own mini-airline.

Outsourcing stuff always costs more, because you have to pay for the profit of the company you're outsourcing to. It's worth it when it's something you don't do that much of, or aren't very good at, but if you do a lot of it, it's worth it to do it yourself.

For an extreme example, think about printing: is it worth it to outsource all your computer printing needs to a specialized printing company? Or should you just buy a laser printer for $100-500 and do it yourself? It doesn't take very much printing for it to be a massive waste to pay someone else to print stuff for you.


That's because they have a lot of superfluous capital and cash flow that needs investing somewhere. If your profits aren't like Apple's it's often smarter to rent and use the capital for something else.


> It might be cheaper but only if you don't value your own time or have anything better to do.

No way. My family of four eats around $250 of food every week. That works out to $3 per person per meal.

The other expenses would have to total more than $600 before we would break even eating fast food every day. The food we make at home is considerably better than fast food, so I think it would cost an extra $1000 to eat out than cook at home.


It takes ten minutes to earn $10 doing software engineering. In no universe am I cooking a better meal in less time.


Can you spend 10 extra minutes and earn an extra $10?

This mode of thinking is interesting, but it's usually overrated as a way of deciding on time value. Most people have a job that takes some time and pays some money, but they can't arbitrarily work a little longer for a little more money as they desire.

This isn't to say your time value might not be high enough to justify not cooking... but it's usually a complex calculus, that involves assessing what you would actually do instead of cooking (for many people, that might just be zoning out in front of the football game), and figuring out the expected future value of it (eg spending the time reading a book may provide you with future intellectual or financial wealth). But then you also have to factor in the human growth from cooking: maybe you'll be a happier person if you cook more frequently.

This is quite a web, but I guess that's the point in my opinion. Annual salary divided by minutes worked in a year feels like a slam dunk way to make these decisions, but it's really not rich enough.


Yes, I was a contractor billing in 15 minute increments until a couple of weeks ago. I haven't cooked so much as an egg since college.


If you strictly want to maximize your money, you're probably making the best choice for yourself.

For many of us, time with family, friends, hobbies, is a relaxing and physically/mentally/emotionally healthy thing to engage in, rather than trying to exploit every waking hour for income.


You're not wrong, however the parent was specifically replying to a post that justified home cooking with financial considerations and didn't even go into the quality-of-life aspect at all.

I think the takeaway is that if you prefer coding over cooking then that's justifiable from a financial and time efficiency point of view. If you prefer cooking and the presumed family quality time over (even more) coding then that's also very reasonable.


Unless you're spending all your waking hours maximally, the time savings of not-cooking versus cooking is not a well-considered trade off in the GPs post.

Just the transit time for a meal out is already going to cost them a great deal more productive time than cooking would. They don't mention Soylent or frozen meals, which are really the only viable way to spend your time more productively than either meal prep or eating out.


The whole math changes if you either don't live in silicon valley or cook for more than one person (or cook for more than one meal).


So instead of spending time with the family, friends, and hobbies you'd rather slave away in front of a stove to save $600/mo?


I don't slave. It takes me 30 minutes or so to have a complete meal most nights. But only, perhaps, 10 minutes of my time. I start the rice as soon as I get in from the gym. Meats and vegetables get prepared after my shower. If it involves the stove, they're done in approximately ten minutes for most of my recipes. If it involves the oven, I may spend up to ten minutes in total on prep before tossing them in to bake.

I guess I don't make the most involved meals, but they certainly taste good.

EDIT: Besides, why can't the time I spend cooking be with my family or friends? Not like my home is big, if my girlfriend doesn't want to be in the open floor plan kitchen/living room/dining room and would rather hide in the bedroom, I guess she can. Would be awkward. Similarly for when friends are over. It's not like I need intense concentration while I cook, just enough to not burn/cut myself or burn the meal.


So you'd rather spend all your time in the evenings transiting to a restaurant, waiting around for a table, waiting around for your order to arrive, getting hurried by the server so they can get a new customer in, then transiting back home?

Eating out at a nice sit-down restaurant takes a huge amount of time. I can cook myself a meal at home and eat it in much less time than going out.

The only way it's faster to eat out is if you get fast food takeout, which is absolutely shut nutritionally and will put you into an early grave.

You sound like all the dummies who think I'm wasting time by changing the oil in my car myself. It takes me less time than making an appointment, driving all the way to the dealership, then sitting there and waiting for them to do the work (which probably takes longer than me because they have a bunch of cars to work on and their scheduling isn't perfect, just like a doctor's office), then driving back home. I can do it myself in my garage in 15 minutes. I can't even drive to my nearest dealership in that time. On top of all that, you have to figure how much work time I'm missing in the process, since auto shops aren't open weekends or evenings usually (and especially not dealerships).


What do you do with your old oil?


Any auto parts store will take it. They have a giant metal vat in the back room; you just bring your old oil in, and they tell you to go dump it yourself. I have an Autozone next to the grocery store I normally go to, so it's easy to just swing by and dump it while I'm already out.


Not gp, but I store the old oil in a closed can, back of the shed. While usually there's a waste management charge for oils, in Finland there are occasional events when it's free to deliver oils and whatnot. So I take the few cans then.


The place I take my old oil to they are happy to get it because they sell it. I figure since I'm going to have to take it to them anyway, I might as well let them do it all.


preparing food is one of the more social activities and one which people have been doing together since before they called themselves people. maybe you should try changing how you go about it?


In my calculation, it was $600 per week savings for my family of 4. That's $2400 / month.


Except that, in reality, no one is paying you for that 10 minutes. This is a nonsense claim I see thrown around here all of the time. If no one is willing to hand you a check for every spare minute you have then no, your time is absolutely *not" worth that money.

Taking on contract work is a non-trivial time investment. I can't just work for ten minutes whenever I want to pay for takeout, I will have deadlines to meet, which means less time with my family. I've done it, no thanks.


IMHO it's crazy to think of every minute as either earned money or spent money. Second, very few people can arbitrarily trade any amount of time\effort for any amount of money. That's not how the market works. So how exactly would I go make $30 instead of cooking dinner for 30 minutes each evening? I assure you that whatever answer you have doesn't scale for my free time, or to everyone in the economy.


> So are you recommending to invest savings on stocks and bonds rather than a house?

I don't think he is saying that. As an individual it may be better to invest in the house. Depending on many individual factors. e.g. Capital gains, timeframe, etc.

What I think he is saying is that collectively it is better for society that more people invest in productive activities that generate new wealth.


"What I think he is saying is that collectively it is better for society that more people invest in productive activities that generate new wealth."

It's incredible that we've gone this deep into thread and subthread talking about aggregate economic benefits and not once mentioned families and children.

Never mind the plants you're buying at the nursery - what is the long range economic impact, in the aggregate, of creating additional human beings ?

(which, according to many, works best in a stable environment of ownership)


Owning a house might be good for you (risk free), but bad for society (low productivity). That's how I read it.


>I have the safety that my family have a place to live in.

Unless your family can't afford maintenance, upkeep, insurance, and taxes.


Nothing wrong with investing in a home. However, make sure you aren't putting all your eggs in one basket by not diversifying.

Having 100% of your net worth in your home is very risky and comparable to having 100% of your net worth in a single stock.


>So in Germany, the interest on a mortgage is non tax deductible

Wrong reasoning. It's tax deductable in Switzerland and they rent even way more than the germans


But then you are also taxed on the imputed rent for the property, i.e. you have to pay taxes as if you are renting the property from yourself and the rent that you are paying yourself is taxable income. That greatly outweighs the effect of the mortgage tax deduction.


> (stocks and bonds, which enable companies to raise money to start new projects, create jobs, etc).

Interestingly, us Germans do not like those much either - mostly because of the associated risks and the Notion that "the small guy" cannot win that lind of game.

There was ... some enthusiasm about the stockmarket in the 1990s, but after the Dotcom-Crash and many people who invested in "save, large, local businesses" like the postal service or the Telekom losing a lot of money, that has waned.


The thing is, interest on loans is tax-deductible for businesses (in the US, but I expect more broadly too), like any other business expense. So people may just set up shell corporations to buy the house and get the deduction anyway.

Of course then the capital gains tax treatment would be rather different.


In which way is paying returns on the investment to build housing unproductive, but buying Disney stock is productive?

I think you are measuring with unequal yardsticks here.


That's a ridiculous position.

My ownership of my home provides a lot of active investment activity that wouldn't happen otherwise:

Examples:

- the local nursery benefits from the plants and growing materials that we buy

- investments in home improvements generate contractor man-hours and local material purchases

- as an active participant in stakeholder in the community, I contribute to the governance of the community

- single family homes are valued at a premium to multi family, so I contribute more to local school and municipal services.


How does anything on your list stem from owning vs renting?

Presumably if you were renting

- you would still garden and you or your landlord would still maintain the lawn

- your landlord would still maintain the house

- you would still be living in the community and therefore motivated to participate in it's government

- I don't understand this one at all. Why would a second family suddenly move in if the house was rented?


Residential properties usually have short term leases. You have minimal incentive as a tenant to plant flowers, buy shrubs, etc. You have minimal inventive as a landlord to make the house look any more attractive than it needs to be.

Landlords don't maintain property to the same standard as an individual homeowner, when they do, they use more efficient service models (ie. a single crew with a single set of tools) to do so.

Tenants participate less and have much lower engagement. They have 1 year leases, and have less at stake. In my community, renters participate 60% less in terms of voting. There are 150 members of my local neighborhood association, and per a recent survey, 90% of participants are homeowners. They mostly solicit membership by dropping flyers and advertising in church bulletins. Per census figures, the population of renters is somewhere between 60-70% vs. homeowners.

The last point is that without homeownership, incentives shift to multi-family dwellings because they are cheaper and more efficient. Single family homes for rent are usually an aberration in my experience. As a homeowner in a city that is mostly rentals the per-unit taxable value of a multi-family house is significantly less than a single family.


None of this is true in Germany, so you're arguing a case on faulty premises (like 'x is true under current law, so we shouldn't change the law because x' - ignoring that a side effect, or maybe even a goal, of changing the law would be to make x not true).


"Residential properties usually have short term leases."

Not true in Germany. Most leases are indefinite. As the contractual rent often increases by less than the market there is some incentive to stay put. Also keep in mind that moving in Germany is an expensive proposition as the kitchen is usually not part of the deal.


Germany has a different legal system and tradition. The probability of the US enacting indefinite leases is zero.


1/3 of San Francisco apartments are effectively under indefinite lease.


It's a different story in the US which makes hard to have a comparable conversation unless both parties have intimate knowledge of both environments.

My rent in the US went up $100+ year after year, rent never goes down is the feeling you get and I've never seen or heard of it happening. You never invested anything into the property or building. Buying a home was freedom from that constant rising pressure, moving every 2-3 years to find another move in special and I can finally invest time and effort in my living space.


> Residential properties usually have short term leases. You have minimal incentive as a tenant to plant flowers, buy shrubs, etc. You have minimal inventive as a landlord to make the house look any more attractive than it needs to be.

That's because homeownership is a norm for long-term residents here in the USA. If long term renting were as much (or more) of a norm, an average renter would experience the same incentive to keep the place in an aesthetically pleasing state as an average owner, and landlords would have to make their properties much more attractive in order to have tenants.


Behavior of commercial tenants suggests otherwise.


Can you elaborate on this?

Every office I've ever worked in the continental U.S. was on a long term lease. The organizations I worked for spent large amounts of money to customize work spaces. It is very possible that software firms don't represent commercial tenants, so please give me more information so I can update my viewpoint.


Commercial persons are sociopathic (by definition, pretty much) and don't have concepts of consumption, experience, and pleasure the way real persons do.


I don't actually know the answer to this, but wouldn't you expect everything you say to be true in a society where ownership is the norm and not the case in a society where it isn't?


Your points miss both the financial incentive to make things better for your own asset and long term incentive since oftentimes renting makes one more nomadic. Point by point:

- You might not garden w/ no equitable return on house value (or at least not build a large gardening setup), and landlords feel the same way in reverse (no benefit to them to do anything beyond the minimum once it's inhabited)

- Maintain != improve...BIG difference

- Except you may be more nomadic. Also you missed the GP's use of the word "stakeholder" of which you are considerably less of if you don't own land in the community

- I too don't understand this point...but I think the GP means "multi-family" as in apartments, thereby single-family (i.e. standalone house) is higher "premium" therefore you contribute more. Again, not sure here.


Increasing home ownership lowers economic growth. People tend to move jobs less often and have longer commutes both of which reduces economic efficiency. People also tend to rent places which more closely match their needs further reducing waste. AKA, renting and there is no need for a kids room until you have kids, but when buying you may need to plan for your needs in 5+ years out.

Further, people really do rent the same place for 30+ years when their job and family situation is stable, which incentives similar levels of improvement.


Source?

Housing has driven US GDP growth since WW2 or earlier, so that's a pretty big leap.


Housing != home ownership. Anyway, I have read this a few places, but here is the first link I found. "Regions with higher home ownership created fewer new businesses, had longer commute times, and lower rates of labor mobility." http://www.fool.com/investing/general/2013/05/08/the-deep-do...

Further, GDP is a very short term view of the economy. Daycare is a classic example where going from an informal to formal system nominally increases GDP much more than the net increase in value.


> You might not garden w/ no equitable return on house value (or at least not build a large gardening setup)

The return is the experience and joy of gardening, which occurs whether I own or rent.

> landlords feel the same way in reverse (no benefit to them to do anything beyond the minimum once it's inhabited)

I'm willing to pay more in rent for a higher quality residence. A well maintained garden (or the tools to make one) would certainly count towards quality.

> Except you may be more nomadic. Also you missed the GP's use of the word "stakeholder" of which you are considerably less of if you don't own land in the community

Even if I live in a place for a single week, I don't want to live in a shithole for that week. My experience living in a neighborhood makes me a stakeholder, even if I don't own land there.


When I rented I gardened. I haven't the slightest clue why you believe someone wouldn't garden when they rent. In fact the place I rented I picked because I could garden.


>I haven't the slightest clue why you believe someone wouldn't garden when they rent.

I do. My sister likes to garden, and when she was renting she put a lot of effort into creating a large, beautiful garden.

Then the landlord decided she needed to move her ailing mother closer and terminated my sister's lease. After that my sister didn't bother with a garden until she bought a house.


As a landlord, I'd be pretty unhappy with tenants gardening on my land -- that's just an extra expense as I'd have to maintain it or convert it back when they leave. Maybe if they signed a long lease...


Hence "might" and the parenthetical "or at least not build a large gardening setup". To rephrase, without ownership of the asset, the renter (and landlord after contract signed) is less incentivized to "work the land" for whatever definition of that you have. Sometimes the setup (irrigation, structural changes, etc) is not worth it or not allowed to the renter. Also unfair to use your anecdotal opinion of whether or not to garden to keep from having the slightest clue why other renters might not.


What's this have to do with owning? It's common to rent single family homes too. It's especially common in my part of the country because of the population here.


Only the home improvements is unique to home ownership, the rest happen whether or not you're renting or owning.


Even improvements aren't unique; the last time I moved into an apartment I replaced the wall-to-wall carpet with pine boards, replaced the 50+ year old electric receptacles with GFCI outlets and stripped off the old paint and put on a new coat of primer and paint.


Woah your renting experience sounds like home ownership to me. I've never heard of that in the US that is a lot to put into a place! The max lease allowed by my last complex was 13 months.


When I was renting, I had a 30-day investment in the neighborhood/city.

Now that I own my house, I have a 150k investment in the neighborhood/city.


Also, in 99% of rentals I've seen, the landlords put in the bare minimum to keep tenants there and paying high rents. Homeowners tend to spend money on their houses to make them nicer.


I'm now writing this from a rental apartment and it looks quite nice, it's certainly as nice as I would have arranged it had it been my own. Granted, you can't go wrong with Ikea, some nice German white appliances and generally keeping it as simple and functional as possible. I'm also living in Europe.


One thing you usually can't do, though, is rearrange walls. While very much a proponent of renting vs. buying (I'm in Germany), sometimes the layout of flats is atrocious. We have a tiny kitchen with barely enough space for a single person to work in, a gigantic living room with mostly windows and no walls to put shelves against, and despite it being 90 m² it's only three rooms which will likely prove problematic once we have kids above a certain age.

Sometimes I wonder how such layouts are created. Presumably by people who don't have to live there. Or live a very different life (eating out vs. cooking, maybe). That's one thing you can do better when building a house, although when buying one you could probably change it at great expenses as well.


> an unproductive investment (property)

Why is property unproductive? It produces accommodation, doesn't it?


Investing in land doesn't make more land. Rising land values don't even produce taller buildings, since zoning and neighbors work to preserve the character of neighborhoods.

Investing in manufacturing companies makes more factories.


Rising land values don't produce taller buildings when landowners don't feel the pain of rising land values (see: Prop 13).

A very efficient tax is the land value tax: by untaxing the improvements on land and taxing the land values more heavily, you incentivize efficiency.


Raising land values does in fact produce taller buildings. HIgh land value means land is either scarce or very attractive. With high land value it makes more sense to make a two story building on one plot of land rather than a one story building on two plots of land. That's even in the face of NIMBY neighbors since builders must deal with that no matter what.


somewhat arbitrarily choosing your comment to reply to, I noticed you're picking on the idea of buying a house being an investment, rather than a simple alternative to rent.

For me, the motivation for owning a house isn't so much an investment as it is that renting and owning cost virtually the same, given that one has the means to get on the ladder.

I bought my first house (I'm 30) in north Germany about 18 months ago, we paid 515k and it was recently valued at 700k due to large improvements to the area, and the renovation of an old hospital site which is now luxury flats and houses, the mortgage (2.5% fixed-for-25-years) costs us about the same as renting a flat (100sqm) in the city, and we now have 200sqm of living space and 250 of garden to ourselves, we also now own, rather than rent a parking space (which always annoyed me more than it perhaps should have)

The capital gains tax is an interesting point, given the rent we were previously paying at 1800/month (warm == includes some bills) we'd have been over 20k/year out of pocket just by maintaining the renting status-quo. My wife and I discussed whether it was the perfect house for us, whether we wanted to take a risk on living 20min north (metro) of the city, rather than 5 minutes to the west, and whether waiting 2/3 years was justifiable, we poured about 70k of our savings into legal fees, ground-tax and the deposit for the property, we figured that sitting on our hands for 2-3 years could cost us essentially the same.

Naturally one can't write-off the convenience of renting and being able to terminate a contract and simply move, but I have almost the same freedom to rent out my house should I choose not to live there anymore, although the rental market for houses ~20 min north of the city will make it tricky to cover the cost, then keeping the house turns into a question of eating the capital gains tax, or paying out of pocket a few hundred euros per month to make the difference. I also don't have to pay €4k for a "Markler" to help me find a flat, and fax me a contract, a rather shameful act that persists in Germany, even if you do all the work yourself, the Marker can still get their commission, legally speaking, they often do deals to prevent you pushing the issue to the courts.

Given the duration of my mortgage, the low (fixed) rate, I can look forward to the last 15 years of my useful working career being rent and mortgage free, which might be a bit too late to build a nest-egg, but it's certainly better than being at the mercy of ever-increasing rental rates in an ever-expanding city. (in my opinion)

I think it might be fair to close by saying that Germans are typically fiscally risk-averse, and huge debt, variable rate mortgages, and the uncertainness about maintenance and insurance might be as big a driver as anything else. There's also the cultural shift away from generational houses (think "Home Alone") where many generations live together longer term, I think this is significant.


Being German I want to pPoint out that the article leaves out one cruicial detail: Building your own home puts you into debt for quite literally the rest of your life. We do not like debt.


+1

To explain cultural difference:

- In the US you are considered financially stable if you are always paying your debt/credit on time.

- In the germanic countries you are considered financially stable if you have none.

My US Bank clerk needed a few meetings to convince me that it is good to build go into monthly credits (creditcard) to support my credit score.


I wouldn't go as far as saying always. The banks want a history of loan payments. I'm 30 and just got my first installment loan for a car.

Getting a home loan is difficult. I don't have any bad credit at all but not much installment loan history.


This. One of my greatest shocks when moving to the US: debt is part of your life. You need debt in order to build credit history, which will get you better rates... next time you need debt.

I get warnings for not having more credit cards.


>My US Bank clerk needed a few meetings to convince me that it is good to build go into monthly credits (creditcard) to support my credit score.

Uhmm, can't a bank see your salaries? Because in Turkey they want to see your salaries. You enter to www.turkiye.gov.tr and print out your last 12 months salaries with a validation number and then hand it to your bank. Or you ask from your employer, he ask it from Social Security, travels back to you and you hand it to your bank.

Then they check wheter you had missed to pay back your credit (even to another bank, because they share data). And they check wheter if you were rejected by an another bank (because they share data).

Basically, your score is high if your salary is high.


The US system is kind of broken. They don't equate high salary with high creditworthiness - maybe it's because of the american culture of consumerism (which implies that you might make lots of money, but if you spend it all and are going into debt to fund your lavish lifestyle, then you're not creditworthy). So the American system rates creditworthiness by a history of paying off debt on time (usually credit cards, mortgage, car loan, etc.).

It's stupid.

It would obviously be better if we judged creditworthiness by your bank balance history. But this is apparently hard/impossible to show.


Right. Their models are "trained" on people who have credit card debt. No history of using a credit card? "Ugh, weirdo, don't bother, send them to subprime."

Happened to me too -- I was working at my first job for 18 months but had never gotten a credit card. I had never had debts and was asking for a mortgage less than 2x my salary while making 3x the median income for the area and at its largest employer; still classified as subprime.

What's worse is that I could go to the annual credit report services and get my score, which would show it as 740, but then any actual lender I went to wouldn't see the 740; they'd see "no data", which puts you in the subprime bucket.

I would be auto-rejected even for $500-limit store credit cards.

(It's been since resolved and I've had a credit card for a while but still, very screwy.)


Same for Austria. Then considering that you might change jobs every few years... and the jobs are mostly in the cities, where you can't afford building a house.

We live in a small to medium size flat for 380€/month, including some running costs. Buying it would cost roughly 250k. That just doesn't pay off. Most medium sized houses are about 700k€ in the region, with typical software developer wages at 2-4k€/month before taxes. So 1.5-2.5k€ after taxes. Now go figure how long you will be in debt...

And of course, people are older nowadays when they start to earn. For example, my parents started working with 16. I visited a technical school up to age 19, had to do a year of civil/military service, then worked 2 years to save some money, then did a CS bachelor. A bachelor alone is "no real degree" here, so also doing an MSc. Working while studying to afford the studying prolonged the studies a bit.. and in the end I started with my first real OKish earnings at age 28 when I started with my PhD. So... yeah. At the bank they laughed at my income when asking for a loan for a flat.


> We live in a small to medium size flat for 380€/month, including some running costs. Buying it would cost roughly 250k.

Wow that's a pretty insane rent to purchase price ratio, seems not that dissimilar to Vancouver which is a gong show.


my guess:

it's an old rent contracts and the newly-rent-value would be around 600


Interesting.

In France major cities outside Paris, I'd expect a 150-250k flat to be 600-800 euros/month in rent.

If you pay only 380€ per month for rent, it's really not worth buying.


So what happens to people when they are old , and maybe they're pension isn't that good ?


Sadly they might land in the streets, if they don't have a family to support them.

But this can also happen if you own a house, because there are running expenses for municipal taxes, validating the plumbing every X years, renewal of the boiler system before every winter starts, cleaning the snow or paying someone to do it....


True, but then you can sell it and potentially have enough money to live out the rest of your days (or a significant portion of them).

There was a comment I read here recently about how a mortgage is in some ways a vehicle for forced savings. Not enough to retire on alone of course, but a big check if you ever need it.


The problem is that you need someone willing to buy it, and I can tell you that in the last couple of years that has been a very big issue to Portuguese and Spanish families, which cannot find any buyers.


Yup.

Germany has one of the lowest adoption rates of credit products such as the humble credit card out of nearly all Western nations.

Debt is not liked.

Edit: From the same site, the linked article at the bottom has the answer: http://qz.com/262595/why-germans-pay-cash-for-almost-everyth...

A better link: http://www.businessinsider.com/you-have-to-understand-german...


>such as the humble credit card out of nearly all Western nations

Of course using your overdraft is totally fine, but using the evil credit cards even when paying in full is just like declaring bankruptcy. Doesn't help payment services in Germany that Visa/MasterCard is always considered an evil credit card and debit brands aren't too common.


From the PoV of someone who once co-owned a small business in Germany that accepted card payments:

The reason they are "evil" is that they charge the dealer the by far largest fees. Cache: no fee. EC card: small fee. Credit card: large fee. And of course I can't ask the customer to pay for it, I must have one price for all. It was something like 1% vs. 3% (approximately(!), just to give an idea of magnitude).

It's not even any more convenient. Except for a few places like car rentals, where the credit card serves an insurance function (the rental deposit), there is exactly zero reason to point to convenience. Just use an EC card or a bank card that's attached to the major payment processing networks, everybody has one.

On the other hand, most credit cards cost a yearly fee of 20-70 Euros or so. The only reason I grudgingly pay for one is because I rent a car occasionally.


That's really intriguing. The fees you're describing are the same in Australia (2.9% on AmEx) and don't seem particularly evil at all. A few stores do charge a credit card surcharge here, but the majority of retailers don't anymore.

As a near-annual visitor to Germany, it drives me nuts that I can't use my Australian credit card everywhere (especially at Saturn). I would LOVE to have an EC card, but it seems there's no way easy way for a visitor to Germany to get one. Seems you need a bank account, and there doesn't seem to be a way to get one without a residency permit. It's not like Australia where a visitor can at least buy a pre-paid reloadable Visa Debit card in any post office.

[If I'm wrong about the EC Cards and bank accounts, please let me know, I'd love to use an EC Card like a proper German whenever I visit.]


In the Netherlands it's something like 2.8% for credit cards and a ~0.05 euro flat fee per transaction for EC cards. Huge difference.


For the average German retailer it's around:

0.23% EC

0.5% Maestro/VPay/MasterCard Debit/Visa Debit

0.8% MasterCard Credit/Visa Credit

2.5% Amex

But of course that depends on the size and the negotiation skills of the retailer. I'm always envy when visiting the Netherlands, "PINNEN ja graag" signs everywhere :)


DKB Bank (dkb.de) offers German bank accounts for people living outside of Germany (and they're even free). You'll get a Visa card and an EC card with it.

However, I am not sure if this also applies to Australia or only to other European countries. But if you're really interested it might be worth checking it out. (Also, I think their website is only available in German, so you would need to understand / find someone who understands some German to sign up.)


Wow, thanks for this! That looks really helpful, and they do list Australia in the signup process, so that's a good sign. That's the best lead I've had yet about banking!


Since last year Saturn and MediaMarkt (basically the same company) apparently allow payments via Visa or MasterCard ;)


Oh awesome! I didn't get to visit Germany this year so I missed that news... this will make stocking up on my Rammstein / Oomph / Unheilig CDs so much easier next time :D


Oh wow that's a huge deal. I remember seeing posts on ToyTown about people buying washers/driers with cash because CC wasn't accepted.


>Cash: no fee

Because it just magically transfers from your register to your bank account? :)

>It was something like 1% vs. 3% (approximately(!), just to give an idea of magnitude).

I know, but by now it is down to 0.9% for most retailers so not accepting credit cards is always an interesting decision.

>most credit cards cost a yearly fee of 20-70 Euros or so

When you get a card to collect airline miles or get the card from your bank. Most other banks (Advanzia, Barclaycard, LBB) charge nothing for it, but make up by charging high interest rates. Still most have an interest-free period, which can be beneficial for consumers.

> zero reason to point to convenience.

Regular cards still don't support contactless. Just tapping your card is vastly better than entering your PIN or signing. A lot of retailers in Germany support it.


  > Because it just magically transfers from your register to your bank account? :)
No, there is no fee on that transfer. And please don't tell me "but the effort!". Small businesses gladly go through that "effort". Not everybody is Amazon. You just empty the cash register and bring it to the bank. Not exactly dangerous around here either.

  > Regular cards still don't support contactless
That is not exactly something worth mentioning as great "convenience". Even if you find a store where that is used at all, that's like 0.001% of the effort of going shopping.


>No, there is no fee on that transfer. And please don't tell me "but the effort!". Small businesses gladly go through that "effort".

Well, there usually is a fee. At least here in the US, business bank accounts get cash handling for free up to a certain amount per month. After that you're charged a small fee (as a percentage) on the amount of cash deposited, because the bank sure as hell isn't counting your cash for free.


> the bank sure as hell isn't counting your cash for free

I thought there is a machine for that? Also, isn't it possible just to use an ATM?


Every bank I checked (and I checked DOZENS) charges business customers to count cash beyond a certain amount. For my business, the amount is cash in excess of $20,000/mo. Yes, they do use a machine. Yes, they still do charge you for it to count your money if you bring in more than that threshold in a given month.

This is for business accounts, which have vastly different fee structures than consumer accounts, because businesses have more money, and also because it costs them money (either in employee time, or having machinery available). Do you let your customers use your time and stuff for free? No? Then why should the bank? Hence why they charge.


Well, I think it depends. Accepting capital and selling a fraction is how banks make most of their money. Making that process as frictionless as possible would make sense but if all of them are doing that, then there's probably some cost associated that I can't estimate properly.


> Regular cards still don't support contactless

Oh, I realy miss this. In my country it is impossible to find a normal card, all are contactless by default. Even if you'd like to get a normal one for security reasons you can't - banks don't offer them.


My bank card in Slovenia is contactless. This has nothing to do with it being a credit card or not, although some bank only offer contactless credit cards.


I am aware of that, but the biggest German banks only use their own scheme instead of Visa/MasterCard which doesn't support contactless at the moment.

Visa/MasterCard debits are extremely rare in Germany.


I think, in the US, the credit card "tax" is even higher for new businesses. As much as 6% I've been told. (Nice if someone could verify). You can use PayPal instead, they take a smaller cut, still 2%.


That's quite interesting.

I rent cars quite frequently with the boring free VISA debit card from my normal checking account. I never knew that there are restrictions on which cards can be used for renting.


It's not so much a restriction, and it differs from company to company.

For example, I rented twice this year - I don't own a car and usually use the train - and the first time they wanted my to enter the PIN for the credit card, which I didn't know. A big hassle, they took (real!) money off of my EC card (which I got back afterwards).

The second time I didn't need a PIN (different car rental company), but they helped themselves to almost 800 Euros in alleged damages from my credit card (good thing I had used an online service and opted into the "we pay the deductible", which was 1,000 Euros, on the full insurance I had also selected to get).


>they took (real!) money off of my EC card

Technical limitation of the German debit card scheme, which doesn't support blocking amounts for security, but requires refunds...


Yep. "Don't buy things if you can't pay for then." sounds reasonable, but some other countries seem to disagree.

Not surprised that those countries suffer from government shutdowns over how much the debt ceiling is raised.


In the US, at least, the shutdowns don't have much to do with our actual spending/borrowing habits. It's a structural quirk of government operation that provides a handy perennial disaster to use for political brinkmanship and finger-pointing. Basically "if you don't start being reasonable by caving to my demands, then you're going to cause a government shutdown".


> political brinkmanship and finger-pointing

The difference is that parties that try to pull that in Germany not only loose elections, but are punished so hard by voters that they can't even get over the necessary 5% requirement in the next election.

Have a look what happened to the FDP after they pushed through lower taxes for hotels.


In Germany not passing a new budget wouldn't let to a government shutdown. So it's not an option anyway.


Even if it did, it wouldn't matter, because people would vote those politicians that tried this shit and their party out of office.


Using credit cards does not preclude being able to afford the thing you are paying for. I regularly use my credit card for every day purchases despite having ample money in my checking account. The regular payments allow me to develop a good credit history without much worry.


Also worth pointing out that some credit cards carry huge perks if used as your daily spending method. For example, the Chase Sapphire Preferred card extends some warranties by a year, also covers purchases for 120 days against damage/theft, also will pay back the price difference on an item if the price goes down within 90 days of purchase.

Similar cards carry similar benefits, I'm sure. All you have to do to reap them is get the card, use it instead of your debit, then pay it off appropriately.


Yup, I always pay off my credit card in full each month, and I earn Frequent Flyer points (especially on AmEx). I've earned enough for multiple Round The World tickets. Those are worth far more than any small annual fees I paid on the cards.

And in the event that your card is stolen, a credit card is always better than a debit card, because then money isn't stolen from your own personal bank accounts.


Bingo. Unfortunately the common assumption is that you're not paying it off monthly and paying high interest.


Which, by the way, sounds like an awful concept of how creditworthiness is created.

Signing into some unnecessary additional financial product with comically obsolete interest rates, just to manually repay it in the random timeframe in which the (still unnecessary) credit is free sounds like a bad idea.

It's probably only there to nudge people into paying interest on money they already have.


Credit history is just a history of making payments on-time. You can build a history by making student loan payments, car payments, health care payments etc. Obviously it's only one factor in someone's credit worthiness, however it's not a bad metric. If you pay your bills on-time, it makes sense that a lender would value you higher/safer than someone who does not.


> the random timeframe in which the (still unnecessary) credit is free

Are you talking about the 0% APR period, or the monthly revolving cycle? The latter is absolutely predictable, and if you dislike manual payments you can always set up automatic ones.


Why can't you use a debit card for that? Isn't having enough money in your checking account to reasonably afford all stuff you need to live basically proof of a good credit history? Isn't the best credit history one where you never need credit in the first place?


> Why can't you use a debit card for that?

In practical terms, because in the US the handling of debit card fraud and credit card fraud is vastly different.

In the case of debit card fraud the money is gone from your account and you then spend some months trying to get it back. In the meantime, you don't have that money.

In the case of credit card fraud, you contact the credit card company, they reverse the charges, and then it's their problem after that point, not yours.

Assuming you have any self-discipline at all, a credit card is a _much_ better idea than a debit card in the US.

> Isn't the best credit history one where you never need credit in the first place?

The best credit history, if being used for the sane "will this person make timely payments on this loan?" reason, would consist of a history of timely payments on exactly this type of loan, with no debt outstanding right now.

Never needing credit before may mean you always had lots of money, or that you simply never tried to do anything that involved any large amounts of money and now you want to do such a thing....


You would think, wouldn't you? It's an interesting concept.

If I'm going to loan you $1,000 I'd like to get references, talk to all the other people you've borrowed money from and ask them if you paid it back to show you are able to handle debt. You get other people to vouch for you that you are good on that $1,000. If you have nobody to vouch for you I'd be more hesitant to loan you money. Or ask you for a higher interest rate.

This gives you an incentive to borrow money and always pay it back. In fact just having an open line of credit you aren't using makes you look better. "I have the opportunity to max out my cards but I am not."

Its perverse but it does make logical sense. Its a different kind of responsible.

The other reason people use cards is many cards, as an incentive to get you to use them, give you perks. For example, airline miles, hotel points, cash back, warranty extension, price protection, purchase protection, rental car insurance, etc, etc.


Not according to the credit rating agencies, no, it's not.

Handling debt responsibly is a different skill from handling cash responsibly. When it comes time to buy a home, for example, which 99% of people will need credit to do, the banks want to see that you can handle debt responsibly, since that's what you're taking on.

Edit: Also, see my reply to GP comment that explains some of the other benefits of using a credit card.


"Best" for what, exactly? The only use for a credit history is getting credit, and having none means you're a risky person to lend to.


Disagree might not be the right word, "force" is probably more accurate. In many countries, it would be effectively impossible for most regular people to get basic living needs (like housing and transportation) if they couldn't buy them using some amount of credit.

Obviously it shouldn't be this way, it should be possible to save and buy these things outright. But since it effectively isn't (for many people, in many places) I wouldn't fault people for taking on debt to do things like put a roof over their head or get to work on time reliably.


>suffer from government shutdowns over how much the debt ceiling is raised

On the other hand: The government shutdown because of the debt ceiling seems just like "Stop hitting yourself" on the playground.

And Germany's budget is far from balanced.


>And Germany's budget is far from balanced.

"Germany recorded a Government Budget surplus equal to 0.70 percent of the country's Gross Domestic Product in 2015. "

While it's true that the budget is not balanced, a 0.7%/GDP surplus is pretty darn close.

http://www.tradingeconomics.com/germany/government-budget


The myth of the balanced budget.

The article speaks of consumer debt, I spoke of consumer debt.

Government debt is a different thing, and a government without any debt doesn't sound like a wise thing if it is even possible in such a highly integrated and globalised world.


Nominally Germany has a balanced budget. I agree it isn't really balanced and the big zero is just achieved via some shifting around of things.

However the fact that the government jumps through all sorts of hoops to be able to say the budget is balanced is at least an interesting indicator that it does seem to matter to enough people.


Even government budgets have to adhere to some standardized schemes of reporting. See also rating firms.

Otherwise even the US would have a balanced budget and no debts. (Ignoring the fact that the US is the main force behind trying to change the account rules to make them look less bad.)


> And Germany's budget is far from balanced.

Hmm?

http://www.bloomberg.com/news/articles/2016-08-17/germany-pl...


Government shutdowns in the US are largely theater. The last time they only halted 15% of expenditures.


I can pay for my house--over time. Which is fine because I'm also living in my house over time.


And yet the public debt of Germany is just as high as these credit addicted nations, what does that say?


> And yet the public debt of Germany is just as high as these credit addicted nations, what does that say?

That in the past Germany was not so sensible about its budget.


Gross debt is as high. Net debt is way lower than in the US let alone in the UK, Japan or Club Med countries. (The German Feds and the states own parts of a lot of strategic income producing companies - KfW state investment bank, Deutsche Bahn, Volkswagen etc).


Never seen credit cards outside of the US/UK/Canada...


Here in the Netherlands credit cards are used almost exclusively for online purchases. If you're a (brick) store owner and you would like to accept credit cards at your payment terminal you pay a hefty premium for that transaction. It's usually around 5% of the total amount.

Debit cards, that's another story. Most people pay with their debit cards instead of cash. It's convenient, even more so since the introduction of contactless bank cards.


I use them in continental Europe and Asia all the time. Maybe they're not as common but they certainly aren't anything like unheard of even if they're not as universal as in the US.


They are used all over the world, including in France. Not sure what are you talking about...

Except if you live in some rural area...


I don't know many people who use credit cards in France. Practically everybody use the so-called CB which is a debit card (either immediate or deferred, usually deferred), not a credit card. It doesn't allow you to accrue debt: the balance is always re-paid in full, and the linked bank account (usually a checking account) will go red in case of overspending.

That said there are definitely credit cards, usually linked to big retailers (Auchan, etc.), but are they that popular?


From what I see, most people use the CB, but: "Euromonitor International, a market research company, estimated that there were just 34 million French credit cards in circulation" (0.5 per person, in contrast the US has ~4 cards per person).

Average credit card spending per French annually is $300 -- so quite insignificant compared to Americans (which would be almost half their annual salary if not more).


A credit card in France is not the same as a credit card in the USA or Canada. In France, a purchase paid with a VISA/Mastercard is taken directly from your checkings bank account.

Yes it is called "carte de crédit" i.e. credit card but when you think about it, it is not actually credit.

In Canada, paying with VISA/Mastercard is considered as credit i.e. debt. You can pay with VISA even if at the present moment, you do not have the cash in your bank account. Banks, VISA and others like this because they will then be able to charge you 25 to 35% of the amount at the end of the month if you do not pay in time.

It does not matter then to compare average spending or number of transactions since it's two different meanings.


In the US, it is common to use a bank card to pay for a purchase using funds in your account using a credit card network.

So the card says "Visa", the transaction runs through Visa and the money comes directly out of the bank account. It's also common to use a different payment network (debit) and to have a card that pays for the purchase on credit. Annual rates are currently 13%-23%, so the monthly interest is 1%-2%.


Do you have any reference for the French "cartes de crédit" not being the same as the credit cards elsewhere?


disclaimer : I'm french

Strictly speaking a credit card is a "carte de credit", however between the simple translation with english, the similarities between the form factor etc, A LOT of French (especially not used to the US credit card) will call their debit card 'carte de crédit'

Their is a lot of confusion on this, but most of the time french people use debit card. In fact I think banks almost don't advertise credit card, only companies offer this (airlines/supermarket)

On the technical side, there is no difference most people have visa/mastercard


mtw's message was in reply to someone talking about credit cards, as opposed to debit cards ("most people use the CB, but"). But maybe he didn't notice. And I don't know if the figure quoted there is good. Elsewhere [1] I found 20 million credit cards, instead of 34.

[1] https://www.fca.org.uk/publication/market-studies/ms14-6-2-c...)


We never use them as credit card in France. It took me a loooong while to understand, when I lived abroad, why the cashier would always ask me a question when I used my card to pay. In fact I understood later that they were asking if I wanted to use debit or credit. And that felt really odd to me.

And it still does. I still don't know what would have been the point to make a loan to buy a bag of potatoes, but well... Cultural differences.


The loan comes with a lot of benefits. (e.g. point rewards, protection, etc.). Why is it bad if you loan money if you can pay it back right away? I am sure you have asked your friends for money once when you were out and ran out of cash just to pay them back later that evening?


If you actually have cash or access to cash (aka a debit card) on you, that'd be really weird to do though.


I meant people use debit card instead. Sure, I can use my us credit card in France after te weird you-need-a-signature-? look, but no-one has credit cards there :-)


> Sure, I can use my us credit card in France after te weird you-need-a-signature-? look

I thought chip-and-PIN was the standard over there?


Cards without a chip require a signature; cards with a chip have their own preference as to whether they prefer chip-and-signature or chip-and-PIN (i.e., it's a preference of the card, not the terminal).


Chip-and-signature cards are annoyingly common in the USA, but I though chip-and-PIN cards were standard in that part of the world.


Chip-and-PIN are absolutely the common thing. Hence why the terminal informs the staff member that a signature is needed (because of being presented a chip-and-signature card) they get confused: they aren't used to it happening, at all!

I've had the exact opposite in the US, getting asked if I'm sure I'm okay with entering my PIN having presented a chip-and-PIN card, seemingly expecting me not to know my PIN.


Pretty much agreed.

My rather simple (and completely argumentative) explanation is that Germans generally are less enthusiastic about taking on debt to finance things. Psychologically I'd say it's rooted in the fact that the results of hyperinflation are very much in the minds of people and there's a tendency of "don't borrow if you can save for it". Since the only realistic option for buying houses is taking on debt, less people do it. I feel this mindset is slowly going away though. Another point in favor of this "theory": credit cards are relatively uncommon compared to other countries (that's also changing imo).

I feel like home ownership is even less of a useful concept these days with ever shifting jobs so I think we accidentally stumbled upon the right strategy.

Edit: There's also quite a few buildings that are owned by a "Wohnungsbaugenossenschaften" (basically a https://en.wikipedia.org/wiki/Cooperative for housing)


It's not about inflation, since inflation is actually good for you if you're in debt (as your debt is not adjusted to the inflation, your debt is effectively shrinking by the inflation).

People are still buying and building houses here, especial in rural areas. It's mostly the cities where things simply have become unaffordable for most people.


> It's not about inflation, since inflation is actually good for you if you're in debt

Like with many things, the devil is in the details. I'd say a 1 to 5% inflation rate is preferable, a 5 to 10% inflation is livable rate, 10 to 20% is starting to get tense, more than 20% and then everything is suddenly more expensive and you risk don't having money to get you through the month. Yes, some of your nominal debt might go down, but, then again, you still probably have to buy gas every couple of days (which is most probably imported, so its price has gone up), with more expensive gas comes more expensive merchandise (things like food, clothes and the like) because carrying stuff around consumes gas, your heating and electricity bills will also probably double of triple in value in a matter of a couple of years, and so on and so forth (not to say that you can forget about more-than-basic stuff like having a vacation abroad).


If I am not mistaken the word "debt" either has the same root or derives from the word "sin" in Protestant tradition.


Not so much Protestant tradition as Germanic languages. The German word for debt "Schuld" also means guilt, fault, and blame.


Note that in German the word is generally used in plural when talking about debt and singular when talking about guilt/blame.

"My fault" -> "Meine Schuld"

"My debt" -> "Meine Schulden"

I think both also behave as mass nouns, so there's rarely any ambiguity.


Interesting. In Polish OTOH "debt" is a separate word, but I just realized that "to owe someone" and "to be guilty" is the same verb.


I know some incredibly debt-averse Americans, and they all consider mortgage debt to be "good" debt. They still try to minimize it, and pay it off as quick as they can, but they all would recommend reasonable mortgages.


Part of that might be tax incentives for mortgages, which another commenter claims Germany doesn't have


The UK doesn't have tax incentives for mortgages any more, but they're still popular.

I think the big distinction is that -- unlike nearly anything else you might buy on credit -- houses don't really depreciate. Even without the overall rising house prices, relatively few people value a 20 year old house at a meaningful premium over a similarly-sized 40 year old house. So it's comparatively easy to justify as an asset counter-balancing the debt.


Houses can certainly depreciate if you don't keep them up to date (e.g. a house with no electricity in 1920) or at least take care of them. The land beneath them, on the other hand...


There are two way to look at what you are calling "debt" though. In the United States you are allowed to write off the interest on your mortgage from your taxes. This often has the effect of making what you pay for housing every month either cheaper or very close to the same amount you would pay to rent a house.

Housing is a constant expense. If you rent practically speaking you are in debt to your landlord every month. In the US and many other countries on the list where home ownership is prevalent although you are in debt to the bank you are also paying yourself in a round about way in the form of equity(principal) that you have in the house. So you are actually saving rather than spending which is generally financially conservative.

As the poster above you mentioned Germany doesn't incentivize home ownership via tax breaks and I think thats the key difference.


Home ownership is actually seen as a long-term investment in Germany (although I feel that recently more people come to realize the numbers don't really add up). Land ownership in particular is considered a good thing and most people have a strong aversion to selling off land they inherit.

However home ownership is also considered a luxury. Not only is there not as much of a tax incentive as in the US and not only does it require you to take on life-long debt, but there are also a lot of expenses the landlord would have to pay for but a homeowner has to pay out of their own pocket.

The obvious example are routine maintenance like roofing and plumbing, but also drainage or the cost of public works: if the house sits on a street corner and both streets get modernized, you may end up having to pay for both.

The expenses when renting on the other hand are much more predictable: you just pay the rent and utilities and whatever one-off costs come up have to be spread out via an increase in the utilities bill or swallowed by the landlord.

So if you want to build or buy a house, you're expected to save money for paying for these fun surprises as well -- because having to take out a loan is a sign of poor planning, if the bank even grants you one on top of the financing for the house itself. Add everything together and home ownership becomes nothing more than a luxury.


What about cars? Are Germans more likely to buy or lease a new car? Or do more people buy used cars with cash?


It's culturally frowned upon to buy expensive cars or other luxury goods on credit unless absolutely necessary.

My grandmother taught it to me this way: credit is for necessities; for everything else you save. Also: low quality products are more expensive than high quality products in the long run (because you have to replace them more often).

So as an example, if you're in a tight spot and an expensive household appliance (or your car that you need for your job) breaks, it's okay to take out a loan or financing. But if you're already good and it's just a quality of life thing (e.g. a bigger TV when you already have a working one) you save money until you can afford it.

That said, in recent decades a lot of young people have started getting financing for things like bigger TVs or mail order products. This is generally seen as a lower-class problem and has been prominently featured on TV programmes about indebted teenagers and such (a decade earlier when TV was more relevant).

I'd say lifestyle financing is a thing these days, but it's still frowned upon by most people because it's not considered sustainable and basically a form of delayed personal bankruptcy.

(A note on "lower class": the term probably has different connotations in different cultures (and even in different parts of society); I'm specifically talking about people from a low educational background who make minimum wage in low prestige jobs or rely on social welfare.)


> (A note on "lower class": the term probably has different connotations in different cultures (and even in different parts of society); I'm specifically talking about people from a low educational background who make minimum wage in low prestige jobs or rely on social welfare.)

"Unterschicht" (=lower class) is pretty similar in meaning to "trailer-park white trash" in American English.


I should request German citizenship :-)


New cars tend to be leased, but more often than not (at least in the price ranges "family sedan" and up) this is formally a company car, even if it is not used for business purposes at all. This is primarily driven by a full set of smoke and mirrors on the taxation level, that probably grew because it's what keeps the domestic market going for German car giants.

In the case of "formally a company car", leasing is not perceived as personal debt at all but just as a car that is much nicer than what you would buy on your own and that you happen to loose when you quit your job.

Privately held new cars are the realm of those who can easily afford to pay up front (e.g. a large fraction of those are bought by are retirees in burn those savings as long as you can mode) and those who are at the same time in the top percentiles of both madness for cars and willingness to go into debt (these people certainly do exist, just in slightly but noticeably lower numbers than elsewhere).


Can you elaborate a little more on the "company car" thing? It sounds interesting. Does it mean that you basically get a car from your employer as part of the job benefits, but in reality you cover the cost (which is deducted from your salary)? How does it work?


Pretty much like that, it gets deduced from salary and not only insurance and maintenance but also fuel expenses often (sometimes? always?) go through that black box that shields the user from full awareness of car ownership cost. The taxation aspect is complicated enough that everybody has an opinion wether it makes a difference or not, but nobody is entirely sure. Many users will claim that there is no benefit, but secretly hope there is. It might have a bigger impact on the employer side where I suspect that these costs are something entirely different than salaries in terms of bookkeeping, to the point where in some companies you might be able to negotiate a bigger total if you take a party of it as a car (big maybes, this is me trying to get a consistent mental model of why these arrangements are so crazy popular, if you ask me this is either a shameful subsidy for those who need it least our an entirely pointless overcompication of something that could be so simple).

Oh, and a fun anecdote further illustrating the craziness of it all: there's an organization now that sued for eligibility of all kinds of vehicles, so if my employer had such a programme I could get my next fancy bicycle through them! (But as an inner city renter, my bike ownership is limited by storage anyways, and pretty much maxed out already)


If you have a company car that is free for full personal use, driving around, on holiday etc. then the car is paid for and given to you by your company. Insurance, service and often gas is paid by the company.

On the flipside, 1% of the car's list price as well as 0.03% for every km distance between your residence and place of employment is taxed per month. So for 20km distance, it would be 1.6% of the car's list price. That is added as income onto your monthly salary for tax calculation, and those taxes then deducted from your actual cash salary.


Thanks, much better explanation than mine.

To readers that might think otherwise: while this certainly is a powerful setup to give Tesla a hard time in the market (if you only paid personally relative to initial cost, nothing at all for consumables, would you still want to go electric?), it clearly predates them. I have personally (and legally, I was told) burnt company fuel in "daddies car" (which he did not own) back in the 90ies.


You buy the car you can afford. I would only take a credit if I wanted to buy or build a house.


In 2014, 27% of all car purchases in Germany were financed.


Which includes leased company cars. So yes, people don't finance their cars.


You can also buy new cars with cash!


Agreed. Building a house also locks you money. In Berlin you can spent easily 300k to get a 3 BHK apartment.

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