Wealth creation through less regulation

As the current German Bundesbank study on “Private Households and Their Finances” reveals, average net assets in Germany rose between 2014 and 2017 by EUR 18,300 to EUR 232,800. However, wealth remains unevenly distributed. The unequal distribution of wealth is more pronounced in Germany than it is in the Eurozone as a whole, but is less so than in the United States.

It is interesting that above all citizens with real estate and share investments benefited from value increases. In the international comparison though, precisely these asset categories have a weak weighting: German investors are regarded as risk-averse because they avoid equities and tend to favour investments in the form of bank deposits and insurances. Moreover, German citizens more frequently rent their homes rather than own them outright. In this context, both asset categories are especially important for wealth creation: Equities, funds and the corresponding certificates contribute to the broad diversification of money invested and achieve good long-term returns. The advantage of owning property is not only the security this offers, but above all its disciplining effect because those who take out a mortgage to buy a house consistently save a larger proportion of their incomes.

Policies destined to promote sustained wealth creation by broad segments of the population should offer a friendly framework for this. Trends in recent years have, by contrast, done the opposite. Thus, a morass of regulations on investment advisory services means that small investors in particular are turning their backs on securities. And house building is being impaired by more and ever stricter provisions on environmental protection and safety right down to individual car parking regulations. House building therefore lags behind demand, despite extremely low loan interest rates. Housing is becoming ever shorter in supply, more expensive and unaffordable for an ever greater number of private households.

There are without doubt good justifications for investor protection and building regulations. That said, if regulation leads to small investors completely avoiding key asset categories and young families with normal income levels not being able to enter the housing market, then the object must be to cut the superfluous red tape and strike a new regulatory balance. That should promote the creation of wealth and thus contribute to reducing its unequal distribution.

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