New Residential Ownership Models - Can the Dream of the 'Own Home’ Come True Profitably?

In Germany only 45,5% of all residential units were inhabited by their owners in 2014 while more than 80% of households would prefer to live in their own home. One of the stated reasons for the latter is that property is perceived as a good investment opportunity, especially with regard to pensions and old-age provision. While it can strongly be doubted – especially in today’s market conditions in Germany – that residential investments of non-professional individuals will ever reach the risk-adjusted profitability of diversified investment funds, the decision to invest in real estate has strong positive effects on the discipline regarding payments for private pension provision. Another reason speaking for home ownership is the perceived freedom, while the lack of flexibility in relation to changing life circumstances, including mobility requirements for work, speak against it. Last, but not least, the majority of Germans has only below-average net assets and thus simply lacks the equity for a solid real estate acquisition. The question arises whether there are alternative models that keep the advantages of residential ownership for non-professional individuals while minimizing the disadvantages of the ‘traditional’ model? To answer this question, the ‘traditional’ model of residential acquisition and operation over the life cycle is depicted, as are upcoming alternatives, including a new ownership concept that creatively combines established legal, financial and operational constructs with new considerations. Based on empirical research and financial models for typical family constellations, the advantages and disadvantages of traditional and new residential ownership models are compared and discussed. The predominantly conceptual paper indicates that the traditional model of residential ownership for non-professional individuals is not well suited for the current and expectable conditions, including individual flexibility and mobility requirements of people living in multi-storey housing in cities. New models are needed that require some major changes, maybe even legal adaptations, but offer very promising results, not only for the affected individuals but also for the society.