The Politics of Entrenchment: Growth Models and Housing Finance Policy in the United States and Germany Open Access
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The financial fallout of 2008-09 demonstrated that housing finance markets can bring the global economy to its knees. Yet, surprisingly little is known about how and why advanced industrial countries offer public support for private housing markets. Why have some countries adopted state-based homeownership models with extensive public support for financing private homes, while others have chosen market-based models with only limited public support? This dissertation addresses this question by analyzing the surprising variation of housing finance models in the United States and Germany from a comparative, historical perspective. Since the early twentieth century, the United States has subsidized mortgage debt and offered billions of dollars in tax breaks for homeowners as part of its state-based homeownership model. To a lesser degree, the postwar German state also supported homeownership through tax breaks and social housing programs, but eliminated these programs in recent decades in exchange for market-based solutions. Today, the housing finance market in the United States, the land of free market capitalism, is much more state-dominated than that of Germany, a social market economy. I argue that macroeconomic growth models explain the opposing trajectories of the United States and Germany. In the United States, the consumption-led growth model has entrenched housing finance policies, as they tend to stimulate demand, credit, and consumption. These synergies forged a broad-based policy consensus that produced the long-term stability and entrenchment of the state-based homeownership model. In Germany, the export-oriented growth model has not entrenched housing finance policies. Policies that stimulate private housing and consumption do little to reinforce the export-led economy, which opened the door for partisan conflicts that resulted in both the retrenchment of homeownership policies and the adoption of market-based solutions. Five historical case studies contrast the politics of housing finance policy in the tax, mortgage, and monetary areas in the United States and Germany from the early twentieth century to the present. The empirical research draws from in-depth fieldwork in both countries, including dozens of interviews with top government officials and interest groups, primary archival documents, and government records. This dissertation contributes to our understanding of how macroeconomic growth models shape the politics of the welfare state.