Dreaming of a home: Equity as an obstacle to home ownership

Francisco Amaral, Gereon Staratschek, Jonas Zdrzalek and Steffen Zetzmann

No 200, Kiel Policy Briefs from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Housing (un-)affordability has become a defining social and economic challenge in German cities, shaping both wealth accumulation and intergenerational inequality. We decompose affordability into two components: the ability to service monthly mortgage payments and the ability to meet the upfront cash requirements for purchasing a home. Combining data on re-gional mortgage financing conditions, household incomes, and house prices from 1980 to 2024, we find that mortgage payments relative to income have changed little over time. In stark contrast, upfront costs relative to income have risen sharply: whereas households in 1980-1990 needed savings of less than two years of annual income to cover the equity re-quirement for an apartment purchase, households in 2015-2024 require more than three years. These results show that focusing on mortgage costs alone severely understates the decline in housing affordability. Instead, rising entry costs have become the primary constraint on homeownership, reinforcing advantages for households with existing wealth or familial financial support.

Keywords: Housing affordability; Homeownership; Wealth inequality; Erschwinglichkeit von Wohneigentum; Wohneigentum; Vermögensungleichheit (search for similar items in EconPapers)
JEL-codes: D31 G51 R21 R31 (search for similar items in EconPapers)
Date: 2025
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