The Alternative Financialization of the German Housing Market

MB Aalbers, G Wijburg. 2017

Notes
- German housing market were subtly affected by the global financial crisis since the
housing prices and mortgage debt stagnated and declined, however in the past few years
house prices have been rising rapidly.
- Financialization is often operationalized in terms of increasing mortgage debt and the rise
in securitization of mortgage debt, resulting in higher house prices and higher level in
personal debt. This paper also focus on house ownership rates, credit scoring of
prospective borrowers and the relation between supreme lending, overindebtness and
foreclosures
- We here focus on the increasing dominance of financial actors and practices in the
German rental housing market, resulting in a structural transformation of this market, its
landlords and its tenants—thereby contributing to the recently developing literature on
the financialization of social and rental housing
- Waves of financialization in German:
1. Mid 1980s and late 1990 when Western German banks sought to expand their
mortgages activities in western and reunified germany, but then the reunification failed
and German housing market collapsed
2. started in 1999 and ended around 2009 the wave of financialized privatization and
ended when large parts of the former social housing sector were sold to provate equity
firms and hedge funds.
3. The aftermath of GFC and is characterised by a housing boom in German cities and the
market entry of a small number of very large real estate companies that are listed on the
stock exchange
- The paper structure: 1) discussing non financialization of the german housing market and
introduce our alternative framework of analysis (political economy approach). 2) three
waves of financial expansion
- Under the state socialism of post-war East Germany, the construction, management and
financing of housing was largely state-run and part of a planned economy and mostly
comprised of rental housing.
- In 2006 around 23% of the total German housing stock was owned by large commercial
and public housing companies that rent out their units privately or publicly; 37% of the
housing stock in Germany was owned by smaller individual landlords and around 40% of
the German housing stock was owneroccupied
- Homeownership in german is relatively low (only reached 27% in 1950s, 40% in the 1980s,
and 53% in 2013)
- Considerable part of mortgage loans in Germany are provided by public and cooperative
banks at relatively conservative conditions and without strong interference of capital
markets, fixed interest rates, high DP, and aligning the size of mortgage loans to the
liquidation value rather than to the current market value of a house. mortgage banks in
West Germany have traditionally focused on providing loans to housing associations and
private developers of large tenement buildings. A considerable part of the German
mortgage market, therefore, has been focused on refinancing collective mortgage loans
through covered bonds (Pfandbriefe) and other financial assets that remain on the
balance sheets of mortgage banks and are actively managed. Reforms in 2000 has opened
up mortgage to commercial banks
- Non financialization of German housing market marked by the nonexistent growth of
mortgage credeit and housing proces during 1990, it has not been exposed to
overleveraged and over indebted financial system
 - BUT it is become more exposed to the global market with the new market tendencies
toward liberalization and privatization through arrival of private equity funds and other
global financial actors and there is also regional disparity of homeownership marking the
unstability of housing market
- Waves of financial expansion in the german housing market
wave Characteristics Critical juncture
First wave Marketisation of the Slowed down by the shock
liberalisation mortgage market by West of German unification and
and marketisation German Banks; german the dotcom bubble
(1986- 1999) unification as a window of
opportunity
Second wave Enbloc privatization of the GFC and the halt to large
Financialized privatization public housing sector; portfolio transactions
(1999-2009) creation of an investment
market for equity funds
and other investors
Third wave Housing boom in German Possibly a rise in interest
Financialization and cities; entry of listed real rates; or housing crises in
demographuc change estate companies select cities
(2009-present)
Conclusion