The recent house price jolt in some German cities reportedly coincides with strong buying interest by foreigners (see FT weekend edition from August 3). This trend is not so different from other global cities, such as London where three quarters of buyers are reportedly from abroad (dito). Are wealthy foreign buyers causing German cities to become unaffordable to German dwellers? Here is a view that could liven up your Stammtisch debate.
First, compared to other countries, home ownership in Germany is exceptionally low and tenant regulations strong, limiting the impact of house price inflation on many German dwellers. Recent research has shown that low ownership rates are associated with lower unemployment, possibly as tenants are more mobile than home owners. This suggests that rental demand could be elastic enough to contain rent-to-income ratios, limiting the...
