Germany has an unusually low home ownership rate by European standards. Renting here isn't the state you occupy before buying; for many people it's a permanent form of housing.
From that follows an extensive tenancy law with strong protection for sitting tenants, and that law produces effects rarely considered together in the debate.
Why ownership is so low
Several historical reasons. The vast post-war reconstruction created a large rental stock with state support. Tax treatment, unlike in many neighbouring countries, didn't particularly favour owner-occupation. And high transaction costs — transfer tax, notary, agent — make purchase expensive.
There's also a cultural component: renting in Germany doesn't carry the connotation of instability it has in countries with weaker tenant protection. If you rent, you can generally stay.
Security of tenure and its side effect
German tenancy law strongly protects existing tenancies. Landlord termination is possible only in narrow circumstances, and rent increases within a running contract are capped.
That's excellent for people in their flats. But it has a consequence rarely stated openly: a large gap opens between existing rents and new-contract rents.
Somebody who has lived in the same flat for fifteen years often pays considerably less than someone moving into comparable space today. That creates a lock-in effect: moving becomes expensive even when the flat no longer fits.
Older people therefore frequently stay in flats that are too large, because a smaller new one would cost more. Young families find nothing, because the stock doesn't rotate. That isn't misbehaviour, it's an entirely rational response to the incentives.
Why too little gets built
The obvious answer to housing shortage is new construction, and the figures have lagged political targets for years. The reasons are varied.
Construction costs. Materials and wages have risen substantially, alongside demanding requirements for energy efficiency, sound insulation and accessibility. Each requirement is individually defensible; together they drive costs considerably.
Land prices. In conurbations the site accounts for a large share of total cost. Building land is scarce and partly held speculatively.
Permitting time. Procedures take a long time, vary sharply between municipalities, and tie up capital.
Interest rates. The rise in financing costs has made unviable many projects that previously penciled out.
The result is that new build happens mainly in the higher price segment, because little else pays. That's precisely where demand is weakest.
Rent controls
The instrument discussed most. The basic idea: on reletting, rent may not exceed a defined margin above the local comparative rent.
Empirical assessment is mixed. Studies find some dampening of rent increases in regulated segments, alongside avoidance behaviour and effects on supply. The magnitude is contested in the literature.
A recurring finding in international research on rent regulation is that it benefits sitting tenants and can reduce supply over the long run. How strongly that applies in the German context, with its numerous exemptions, is open.
What's uncontested: it doesn't solve the underlying problem, because it acts on price rather than quantity.
The rent index
A detail with enormous effect that almost nobody knows about. The local comparative rent is derived from rents agreed over recent years, with the observation window set in law and extended several times.
The longer that window, the more older, lower rents dampen the figure. The shorter it is, the more current market rents feed through.
This apparently technical parameter determines a great deal of money, and it's hard-fought at every reform — usually without the public understanding what's at stake.
What would help
One further mechanism deserves attention because it operates below the level of policy debate: modernisation costs passed to tenants.
Landlords carrying out qualifying improvements may pass a portion of the cost into the rent permanently. The intention is to make investment in the building stock viable, particularly energy retrofits, which are necessary and expensive.
The effect on a sitting tenant can be substantial and permanent. A thorough retrofit can raise a rent by an amount that has nothing to do with market movement and everything to do with the works.
This produces an awkward conflict between two goals that are both legitimate. Energy efficiency in the existing housing stock is essential and will not happen without someone paying for it. Affordability for existing tenants is equally a stated goal. The current arrangement resolves that conflict largely in one direction, and the alternatives — subsidy, or landlords absorbing the cost — each have obvious problems of their own. It is a genuinely hard question that tends to be discussed as though it were an easy one.
Broad consensus among specialists regardless of political direction: more needs to be built, particularly in the affordable segment, and procedures need to be faster.
The route is contested. More subsidised housing, easier conditions for private developers, municipal housing companies, densification, conversion of commercial space — there are arguments for all of it.
What's missing from the debate, in my view, is honesty that all these routes take years. Housing construction responds extremely slowly, and anyone promising quick relief is promising something the sector structurally cannot deliver.