By most measures, the US is the world’s quintessential liberal market economy, characterized by a high reliance on market solutions and minimal welfare protections. Germany, by contrast, is the archetypal social market economy, with a tradition of strong government involvement in markets paired with a generous social safety net.
Yet there’s one major, multi-trillion-dollar exception: housing finance.
Since the Great Depression, the US has steadily expanded policy support for homeownership. This has culminated in one of the most extensive and generous policy frameworks for financing homeownership among rich democracies, with billions of dollars in tax breaks and trillions in state-backed mortgages. While the comparatively modest American welfare state has retrenched in many areas, government support for owner-occupied housing has gone through the roof.
The German state adopted a similarly interventionist approach in the post-WWII period, establishing programs to finance the construction of both owner-occupied and rental housing. However, by the mid-1970s, the most acute housing shortages had been resolved and German policymakers scaled back housing programs. Today, Germany provides one of the leanest systems of housing finance support among rich democracies, with limited state assistance for financing either owner-occupied or rental housing.
Explaining the Divergence
In his new book, Through the Roof: Housing, Capitalism, and the State in America and Germany, Alexander Reisenbichler takes a deep dive into this puzzle. Through comparative-historical analysis, he offers a novel explanation of how distinct economic models — demand-led in the US and export-oriented in Germany — gave housing programs fundamentally different economic roles. In the US, policymakers used housing finance programs to fuel growth through rising property values, credit, and consumption, facilitating further policy expansion. In Germany, where industrial exports — not housing — drive growth, policymakers retrenched such programs once shortages were overcome, redirecting resources toward other growth-generating areas. This has resulted in divergent housing policy paths, which have in their own ways contributed to today’s housing affordability crises and wealth inequality in both countries.
Through the Roof: Housing, Capitalism, and the State in America and Germany is out now with Cambridge University Press!
