Through the Roof: Housing, Capitalism, and the State in America and Germany

Housing is at the core of the defining challenges of our day: racialized inequality and poverty, financial instability, and a crisis of affordable accommodation across Europe and North America. It is one of the global economy’s largest asset markets, responsible for global economic booms and, as the housing crash of 2008 demonstrated, busts. In good times, it is a massive generator of private wealth: housing is the most important asset most households will ever own. However, the spoils of homeownership wealth are unevenly distributed. For some households, homeownership is the fulfillment of an economic dream. For others—particularly racialized minorities—unaffordable housing costs have been the source of nightmares, such as economic exclusion, foreclosure, eviction, or poverty.

Yet, despite housing’s role in the economy, personal wealth, and inequality, scholars have long treated housing as a technical and apolitical arena. It is, in fact, a deeply political one, as housing outcomes are the product of political choices—to subsidize the cost of home ownership or to subsidize rental housing, to control rents or not, or to expand or restrict access to credit. These choices, and the policies flowing from them, differ immensely among wealthy democracies that have adopted radically different policy approaches to housing. This book explains that divergence. 

Through the Roof investigates the unexpectedly divergent housing policy trajectories of two economic powerhouses: the United States and Germany. Two puzzles motivate the study. First, the United States, the ideal type of liberal capitalism, developed a government-sponsored housing model that includes generous housing programs, such as sizable tax and mortgage subsidies. The American government not only spends billions of tax dollars on homeowners—such as through the mortgage interest deduction—but also directly backs 9 trillion US dollars in mortgage debt through government-sponsored agencies like Fannie Mae. In short, government support for homeownership is massive, while rental support is a footnote in the history of American political economy. By contrast Germany, the quintessential type of regulated capitalism, only offers a few tax and credit programs for homeowners and rental investors alike. It is America, not Germany, that socialized housing finance. Why? 

The second puzzle is historical. Both countries started in the same place, offering sizable housing programs for homeownership and/or rental markets in the mid-twentieth century. However, their policy trajectories diverged over time. The American story is one of policy expansion, meaning that policymakers incrementally expanded housing programs, especially those for homeownership, from the Great Depression onward. The German story, in contrast, is one of policy retrenchment. German policymakers adopted housing programs for both homeowners and rental markets after WWII but scaled them down over time, even against strong interest group pressure. Why?

Through the Roof argues that different economic growth regimes—demand-led in the United States and export-led in Germany—produced contrasting political interests that resulted in diverging housing policy trajectories. The U.S. economy is demand-led and relies heavily on consumption and credit; housing is the key sector generating such demand, credit, and consumption. From the Great Depression, American policymakers have concluded that housing programs fuel demand by lowering mortgage rates, which in turn stimulates housing demand, housing prices and housing wealth, and thus consumer lending and spending. Rising house prices are central to the functioning of this virtuous circle—one in which American homes effectively serve as credit cards—and it has therefore been a longstanding policy priority to protect home values in the United States. American politicians thus repeatedly deployed the power of the state to absorb risk in the housing finance market, with the effects of attracting private capital into housing, guaranteeing profits to financial markets, and lowering borrowing costs for consumers. Despite little agreement in other social policy areas like healthcare, American policymakers have preserved and expanded housing programs largely in a bipartisan fashion as a growth strategy to expand mortgage credit and private consumption. Over time, American housing programs became locked in to the very functioning of the U.S. housing market (and therefore the American economy); take away government support and the systemically-important housing finance system could collapse. Housing, in short, became America’s unspoken national champion, a strategic sector relied on to deliver growth, prosperity, and employment. 

Germany, in contrast, is an export-oriented economy that relies on restraining demand, consumption, and credit in order to secure export competitiveness. The German growth model depends on low wages and inflation. Housing therefore plays a fundamentally different role in the larger economy. After WWII, German policymakers similarly adopted large-scale housing programs—with broad-based support across the political spectrum—yet with a different goal: to guarantee sufficient housing supply in order to keep the cost of living down and wages in check, priorities that benefited the country’s powerful export-oriented manufacturing industries. Once housing shortages ended, German policymakers did what in the United States would be the unthinkable. They retrenched large-scale housing programs—including those for homeowners that are said to be strongly path dependent as they benefit powerful and affluent voters—in the name of fiscal consolidation and structural reforms to boost export competitiveness. These macroeconomic imperatives overcame the pro-homeownership ideology of the German political right and made German politicians more resistant to pressures from the housing lobby. Where American policymakers used state power to channel private capital into housing, German policymakers used the power of the state to channel capital away from housing and into manufacturing. Industrial exports, not housing, are Germany’s national champions.

The book illustrates these arguments by tracing the co-evolution of each country’s housing finance programs and growth model throughout three distinct historical periods:

• The Great Depression (in the United States) and WWII (in Germany) and the postwar “Golden Age” of capitalism.
• The turbulent post-Keynesian period from the early 1970s until the 1990s.
• The Great Recession of 2008-09 and its aftermath, right up to the present day. 

The book is based on extensive primary arhcival sources, interviews with senior policymakers, and an original survey on housing policy attitudes in Germany conducted in 2022.