How germany avoids the property bubble trap

How does this sound? An outside staircase leads up to this modern villa. Built on a near quarter-acre block, it boasts four bedrooms, three bathrooms, floor heating, garage, sauna, pool and a landscaped garden, complete with a fish pond. The suburb is green and leafy, yet it's only a short trip to the central business district by car or train. But the best thing is the price: this dream home could be yours for just under 600,000 euros. And it can be found in one of the nicer suburbs of the German capital, Berlin.

So what is it that has kept house prices so stable in Germany? An analysis of the market shows that low German property prices are not a new phenomenon. We are not looking at a market that had suddenly suffered a big house price crash. Quite the reverse is true: Germany's housing market has never had a big boom.

Before the global financial crisis, property markets in many countries went red hot with price increases. Between 2000 and 2007, real house prices increased by 94 per cent in Spain, 84 per cent in New Zealand, 80 per cent in Britain and 65 per cent in Australia. In Germany, real house prices actually fell by 18 per cent over the same period.

The constant supply of land for development has ensured a steady supply of housing. This, in turn, has not only kept house prices low, it has also prevented any kind of property speculation. If you know that future housing supply will have a dampening effect on house prices, you will only buy a house if you actually want to live in it. 

The reason Germany has such strong housing supply is not obvious. Planning and building regulations in Germany are not less complex than elsewhere. When it comes to planning for development, however, Germany's complicated regulations do not matter much. That is because the interests of house buyers, builders, developers and town planners are in sync.

Buyers obviously want to buy something they can afford. Builders and developers would like to provide it to them today rather than tomorrow. And German town planners know that the best way they can help their councils is to make sure that the planning and building process works as smoothly as possible.

Source: Sydney Morning Herald