05 Sep 2023

Young adults in Germany and Italy are unable to afford property

New research sheds light on the reasons for co-housing situations in both countries

Homeownership is commonly considered to be part of retirement planning. The conventional view sees the German homeownership rate much lower than that of its European neighbors. A recent comparison between Germany and Italy by researchers from the Leibniz Institute for Financial Research SAFE, the International Center for Insurance Regulation (ICIR) at Goethe University Frankfurt, and the Vienna University of Technology shows that this finding is largely a measurement artifact.

Traditionally, homeownership rates are measured at the household, not at the individual level. Measuring homeownership rates at the individual level instead, this stark difference largely disappears. The missing link often overlooked in previous studies is co-residence, as co-residing individuals are not counted as own households in household studies. Yet, in Germany, about 27 percent of young adults aged 17 to 40 choose to live with their parents, while a substantial 61 percent of Italians in the same age group continue to share the family home to save on rent.

In a SAFE Working Paper, Nils Grevenbrock, Alexander Ludwig, and Nawid Siassi examine the reasons behind young adults’ motivation to not move out earlier. They find that property is often unaffordable for younger generations and that Germany’s well-functioning rental markets and social housing sector add to the low rate of homeownership of 43 percent. However, not only governmental incentives account for the different rates in the two countries.

Figure: Average labor income

Average labor income
The figure depicts the Italian income profile in comparison to the German income profile. As can be seen, Italian wages are generally lower, but more strikingly, they tend to increase much later in life. Source: Own calculations based on SOEP and SHIW.

Young adults forced to co-reside

“We were struck by the similarity in per capita homeownership rates between Germany and Italy in the early stages of adulthood once the bias in household surveys induced by co-residence patterns is taken into account. This observation led us to look more closely at the role of income profiles, housing policies, and the desire for independence,” explains Alexander Ludwig, SAFE Fellow, Director of ICIR, and Professor of Public Finance and Macroeconomic Dynamics at Goethe University Frankfurt. “We then adapted the German housing and rental market in our model to the Italian situation and found that more Germans, like their Italian counterparts, would continue to live together, because it is not affordable to live alone as a young adult.”

A reason, according to the study, is that Italian wages tend to be lower in the early stages of a career and rise later in life, leading more people to postpone moving out. As rents are high in both countries, young adults cannot afford to move out or buy their own homes under the Italian wage schedule.

Download SAFE Working Paper No. 396

Scientific Contact

Prof. Dr. Alexander Ludwig

SAFE Fellow