Germany also faces ever more unaffordable housing

The economy of Germany has been seeing good times as Chic would put it and this morning has seen an indicator of this. From Destatis.

 The debt owed by the overall public budget (Federation, Länder, municipalities/associations of municipalities and social security funds, including all extra budgets) to the non-public sector amounted to 1,965.5 billion euros at the end of the fourth quarter of 2017. ……..Based on provisional results, the Federal Statistical Office (Destatis) also reports that this was a decrease in debt of 2.1%, or 41.3 billion euros, compared with the end of the fourth quarter of 2016.

We talk of Germany being a surplus economy and here is another sign of it as it applies to itself the medicine it has prescribed for others.

 Net lending of general government amounted to 36.6 billion euros in 2017…….. When measured as a percentage of gross domestic product at current prices (3,263.4 billion euros), the surplus ratio of general government was +1.1%.

Of course all of this is much easier in a growing economy.

 For the whole year of 2017, this was an increase of 2.2% (calendar-adjusted: +2.5%),

Thus the national debt to GDP ratio will have declined and I am sure more than a few of you will have noted that the total debt is a fair bit smaller than Italy’s for a larger economy. This parsimony has of course been helped by European Central Bank purchases of German Bunds which means that even five-year bonds have a negative yield ( -0.07%). Of course there is a chicken and egg situation here but 469 billion Euros of bond purchases in a growing economy lead to yields which would lead past computer models to blow up like HAL-9000 in the Film 2001 A Space Odyssey.


Whilst we are looking at surpluses there is this ongoing saga which continued last year.

Arithmetically, the balance of exports and imports had an effect of +0.8 percentage points on GDP growth compared with the previous year.

Ironically Germany did actually boost its imports ( 4.8%) but its export performance ( 5.6%) was even better. This meant that the same old song was being played.

According to provisional results of the Deutsche Bundesbank, the current account of the balance of payments showed a surplus of 257.1 billion euros in 2017.

If we allow for the inaccuracies in the data and the latest “trade wars” debate mostly raised by President Trump has highlighted the issues here with some countries thinking they are both in surplus/deficit with each other the German surplus is a constant. This poses quite a few questions as of course on one line of thinking it was a cause of the credit crunch.

The International Monetary Fund (IMF) and the European Commission have for years urged Germany to lift domestic demand and imports in order to reduce global economic imbalances and fuel global growth, including within the euro zone.

As time has passed it is hard not to wonder about how much Germany could have helped its Euro area partners via this route. Of course a catch is that it would have to want what they produce which gets forgotten. Also I find a wry humour in organisations like the IMF and EC telling Germans to “spend,spend,spend” to coin a phrase and consume more and yet also warn regularly about climate change.

Labour Market

There is another sign of success if we note this.

The adjusted unemployment rate was 3.6% again in January 2018……….Compared with January 2017, the number of persons in employment increased by 1.4% (+631,000 people). Roughly 1.6 million people were unemployed in January 2018, 160,000 fewer than a year earlier.

So we see that the quantity numbers for the labour market are very good as the unemployment rate chases that of Japan. However if we move to the quality arena things look a little different. From Bloomberg.

The scramble for qualified workers has become an existential issue for companies across Germany, which are offering enticements ranging from overseas sojourns and ski outings to subsidized housing and sausage platters.

Let us park the issue of whether the sausages are delicious and consider the cause of this.

After years of robust growth, unemployment has dropped to a record low of 5.4 percent, and the country has 1.2 million unfilled jobs—nearly equivalent to the population of Munich. Manufacturing, construction, and health care are particularly stretched, and 1 in 4 businesses may have to hold back production as a result of the labor crunch, the European Union reports.

So our HAL-9000 would predict wage growth and of course if it was in a central bank it would be flashing “output gap negative” and predicting stellar wage growth. Meanwhile back in the real world.

The corporate largesse hasn’t dramatically boosted salaries, at least so far. Compensation in Germany rose 13 percent in the last five years as unions moderated wage demands to help their companies maintain an edge in the face of growing global competition.

There is another similarity here with Japan in that the financial media have been telling us that wages are about to soar or sometimes that agreements have been signed. So they must spend their lives being disappointed as whilst the German figures are better than Japan’s they are not what has been promised.

If we look into the detail of the report we see that in spite of strong circumstances companies these days seem to prefer one-off payments rather than wage rises. Have we changed that much in response to the credit crunch as in being less certain about the future or not believing what we are told in this case about economic strength? There is some logic behind that in an era of Fake News stretching to diesel engines and indeed hybrid performance if we consider areas especially relevant to Germany, Maybe wages measures should switch to earnings per hour.

the country’s biggest union this year accepted a lower increase in salaries in exchange for the right to work fewer hours.

But America already does that and it has not changed the picture but maybe still worth a go.

House Prices

I note that in February the Bundesbank picked out house prices and told us this.

According to current estimates, price
exaggerations in urban areas overall in 2017
amounted to between 15% and 30%. In
the big cities, where considerable overvaluations
had already been measured earlier,
the price deviations are likely to have increased
further to 35%.

Price “exaggerations” is a new one but presumably is being driven by this.

According to figures based on bulwiengesa AG
data residential property prices in urban
areas in Germany continued to increase
sharply by around 9%, and hence at a
somewhat faster pace than in the three
preceding years, when the increase averaged

Indeed there may well be issues similar to the British buy to let problem.

As in 2016, the rate of inflation for rental
apartment buildings in the towns and cities
as well as in Germany as a whole was markedly
higher than for owner- occupied housing.


So we have good times in many respects as after all many would see rising house prices as that too. Of course I do not and let me now throw in the impact of easy monetary policy at a time of economic growth.

The average mortgage rate, which had already hit
an all- time low in the preceding year, settled
at 1.7%, which was slightly above its
2016 level.

Interestingly the cost of housing is soaring relative to wages however you try to play it.

The continuing sharp price rises for housing
in urban centres were accompanied by a
significant increase of 7¼% in rents in new
contracts, which are chiefl y the outcome of
rent adjustments in the case of repeat occupancies.

This poses a question for what would happen if later in 2018 we see an economic slowing as suggested by weaker monetary data and some lower commodity prices? We will have to see about that but much further ahead is the issue of Germany’s demographics which combine a low birth rate, rising life expectancy ( economics is clearly the dismal science here) and an aging population. This leaves the intriguing thought that travelling towards it just like in Japan leads to negative interest-rates, low wage growth and a trade surplus…….Yet the public finances are very different.

Cash is King

Something else that Germany shares with the UK. From the Bundesbank March report via Google Translate.

The value of accumulated net issuance of euro banknotes by the Bundesbank rose between the end of 2009 and the end of 2017 from € 348 billion to € 635 billion. Since 2010
On average, the Bundesbank gave an average of € 35.8 billion in euro banknotes a year.
This corresponds to an average annual growth rate of 7.8%.

Yet we keep being told that cash is so yesterday whereas we may still be in the adventures of Stevie V

Money talks, mmm, mmm, money talks
Dirty cash I want you, dirty cash I need you, oho
Money talks, money talks
Dirty cash I want you, dirty cash I need you, oho


24 thoughts on “Germany also faces ever more unaffordable housing

  1. hello Shaun

    Germany or Japan – I’d rather have their balance of payments !

    As posted a while back , why countries are inflating their housing assets is puzzling

    I mean does Germany or Sweden need to do this ?

    that they are is indicating something


    • As posted a while back , why countries are inflating their housing assets is puzzling

      I mean does Germany or Sweden need to do this ?

      that they are is indicating something

      The answer is simple: make the “stack-and-pack” housing, preferred by Agenda 21, the only affordable future option.
      Govt. has no intention, never mind possibility, of generating the electricity required to replace the 26million cars powered by the internal combustion engine, so the populace is to be herded into eggboxes within close proximity to railway stations, with electric cars being prohibitively expensive to own/use by ordinary people.

      • Forgot to add: Germany’s electricity policy is a far worse mess even than ours, as he has put nuclear power beyond reach.

    • It is just what is known as the liquidity trap – the point where changes in rates have no real effect on demand, but make borrowing so cheap that money pours into assets – not least because most inflation measures do not include those movements. Back in 03 I was in Austria and was asked to explain why we did not join the euro. I said then that the reduction in rates would push us through the liquidity trap (4% for us by my reckoning) and we would get a housing bubble. We and they are far below it now (Germany is more like 2.5% by my reckoning). So, it is an outcome of monetary policy.

      • Hello Dave,

        thanks for posting – I do look forwards to your foray into this blog of Shaun’s

        liquidity trap – aye , but why the mad rush of some into this obvious trap ?

        I was always told never to blame malice when incompetence will do

        perhaps that’s too harsh and really this is just mediocre management ie , akin to the Peter principle ………



        • It is because they have all been brought up on monetarist theory, which wrongly proposes that the liquidity trap kicks in at only just above 0% and Japan in the 90s seemed to justify this. They thought that any rate cut to that point would merely enhance consumption demand through additional borrowing for spending. As I said about a week ago, they cannot now admit they were wrong – and if we jailed people for incompetence, we would need many more jails!

  2. How much is it a European UNION and a Common MARKET, when you compare Germany to Greece? Further EU integration will only happen if it does not cost money, mainly Germany’s !

    • Hi Foxy

      Currently that particular flag is being flown by Mme Lagarde of the IMF.

      “Lagarde laid out her vision of a strengthened European currency union during a visit to Berlin, portraying a successful euro area as an antidote to populism and protectionism. Efforts to reduce barriers to capital flows are most advanced and governments are “almost there” on a backstop for the bank resolution, the IMF managing director said.

      To prepare for the next crisis that she said will inevitably come, Lagarde proposed setting up a “rainy-day fund” in the euro area to bolster its defenses against shocks. With Germany’s new coalition in place and the regional economy booming, she called on governments to agree on a package including all three policy areas by the end of 2018.” (Bloomberg).

      How many times have we seen proposals heading towards a fiscal union?

  3. The Euro has given the German economy a huge dowry by diluting the strong DM.

    However, the obverse of this is that it makes things much more difficult for most in the EZ and this steady divergence in performance will ultimately be seen as an unbridgeable chasm within the EZ. Every report of good news in the German economy is another nail in the coffin of the Euro as it makes that divergence all too clear. If there is one thing which will bring the EU down it will be the failure of the Euro and if there is one thing which will cause the failure of the Euro it is Germany and these sort of numbers.

    Furthermore, and as you say, demographics in Germany are not favourable with a rapidly aging population; under these circumstances the support of free movement within the EU, and immigration generally, is hardly a surprise, but which effects on the culture in the longer term are likely to be no less toxic than many other countries within the EU. This is a major and very delicate issue which is already having ructions in German politics and which is probably hardly even started.

    The paradox is that with every bit of good news political and economic turmoil is that much closer.

    • Hi Bob J

      The flip-side of Germany getting a weaker exchange-rate is that many of the other Euro area countries get one higher than otherwise. So on those grounds they would have a case for some sort of fiscal transfer or Germany expanding its domestic demand to balance the trade issue. But so far neither has been forthcoming.

  4. Looks like moving all the post Brexit City of London workers over to Frankfurt isn’t going to be that easy given the lack of housing, nevermind school places in all those English speaking schools that Germany has so many of….

    It is interesting that the skills shortage in caring jobs and construction hasn’t led to an increase in wages in the UK as well. It seems that our collective teutonic conscious just does not value these skills and roles.

    • Hi bootsy

      One of the more intriguing features of at least some of the focus going onto Germany is that it too has infrastructure issues. We are often given the impression that such problems are a UK feature but if we spread our net a bit wider across the Atlantic at least new bridges do not fall down here. We got very upset about one wobbling a bit.

      As to wages then so far they are the dog which has not barked…..

    • Looks like moving all the post Brexit City of London workers over to Frankfurt isn’t going to be that easy.

  5. As I said above, it is a function of the euro interest rate dropping below liquidity trap levels in order really to save the idle southern Europeans from their excessive state indebtedness. It is always difficult for Germany as everyone else says they should “do more”, but if they do and their economic (let alone military!) power expands, then they are criticised for being powerful and we get a rerun of WW2 (viz Greece or daily in the Daily Hate and on Conservative Home) when you would have to be pushing 80 now to remember much about it.

    Germany was pushed into the euro and Greek membership of it by France as the price of reunification – it certainly played into German fears of its own strength, so I think they accept issues like rising house prices as a consequence of their membership of Europe. The argument that it has enhanced their economy by devaluing the DM is fallacious both for that reason and because I have yet to hear anyone seek to buy a German car, because it is cheap (especially after we flushed the GBP down the toilet). Remember how UK industry said e1.30 would be an appropriate rate for entry? Germany has balanced its budget, but its infrastructure is creaking But I suppose those Polish builders will be looking at Germany as an option as the GBP falls and the anti-immigrant temperature rises in this country.

    Merkel was right and brave to take in the refugees, because of this demographic problem, which we refuse to face up to – I rather wish that she had run a campaign here for young Brits to take up vacant positions as apprentices (Azubis) in everything from hairdressing to engineering. There is the language issue, but it does seem to be a problem for Europeans coming here – oh, except the UK national psyche about languages and German in particular. Is this really 43 years old? It would have been a great advert for free movement.

    There we come to the nub of it. Four years after the Fawlty Towers episode, i wrote a small leaflet advocating following Germany’s example on skills and productivity. i also noted the attitude of German industry and its unions compared with ours. They have previously agreed to suppress wages for competitive reasons as both could see the long-term benefits and you can of course also cut hours if you are already so productive that you produce in 4 days what the average Brit produces in five. Of course, it is always easier to blame the Germans for your own failings – as Ruth Lea, then chief economist at the IoD said: “The Germans and Dutch educate their workforces – we have to work longer hours”.

    Germany will work its way through the issues – the AfD is largely a busted flush already (much like UKIP in the European parliament). Ironically, it is we, who will be following Adolf’s 1927 dictum that “the more economic difficulties increase, the more immigration will be seen as a burden”. I rather wish I were younger with a better command of German – I would be packing my bags. I suspect many, who voted Brexit have forgotten this

    “We had no way of staying afloat
    We had to leave on the ferry boat
    Economic refugees
    On the run to Germany”

    Wouldn’t it be so much better if we got rid of all the barriers and all played by the same rules, so that we could all work together and take advantage of the opportunities. Just a thought really ….

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