German house prices in 2012 represented a 10 percent decrease in real terms compared to thirty years ago. That is a particularly astounding performance compared to the UK, where real prices rose by more than 230 percent in the same period…
A key to the story is that German municipal authorities consistently increase housing supply by releasing land for development on a regular basis. The ultimate driver is a central government policy of providing financial support to municipalities based on an up-to-date and accurate count of the number of residents in each area.
The German system moreover is deliberately structured to encourage renting rather than owning. Tenants enjoy strong rights and, provided they pay their rent, are virtually immune from eviction and even from significant rent increases.
Meanwhile demand for owner occupation is curbed by German regulation. German banks, for instance, are rarely permitted to lend more than 80 percent of the value of a property, thus a would-be home buyer first needs to accumulate a deposit of at least 20 percent. To cap it all, ownership of a home is subject to a serious consumption tax, while landlords are encouraged by favorable tax treatment to maximize the availability of rental properties. (emphasis added)
While housing prices in Germany have increased somewhat as of late as investors flee to the relative safety of the German market, the overall trend is downward. To be sure, there’s a complex array of policies referenced in the excerpt above that work in concert to keep housing affordable. If you look around America, you can find bits and pieces of these policies in action. Texas has many of the same restrictions on lending as the Germans, for example.
If we were in Texas, we’d simply build outward from the city: cul-de-sacs as far as the eye could see would keep housing affordable. But we Cascadians are hemmed in by geography and a crippled by a love of the natural environment. So we must build up, instead of out. Still, the same general rules apply: sufficiently increase supply and housing prices will fall.