The Politics of Entrenchment: Growth Models and Housing Finance Policy in the United States and Germany

The global financial crisis of 2008-09 demonstrated that housing is a key feature of the world economy, and a source of financial risk for ordinary people. Yet, little is known about the differences in public policies supporting homeownership across countries. Why does the United States offer much stronger government support for homeownership markets than other advanced economies, such as Germany, which has retrenched its support for homeowners in recent years? This paper argues that the key to understanding these phenomena lies in the politics of entrenchment of economic growth models and housing finance policy. In the United States, the entrenchment of its consumption-led growth model and housing finance policy strengthened a coalition of policymakers and interest groups promoting the expansion of policy support for homeowners. In Germany, the absence of entrenchment of its export-led growth model and housing finance policy made policy support for homeowners vulnerable to retrenchment, opening the door for rival policy coalitions on the left and right to fight over these policies. The paper illustrates the argument by contrasting the expansion of policy support for homeowners in the United States in response to the 2008-09 financial crisis with the retrenchment of homeowner support in Germany in the mid-2000s. This research contributes to bodies of work on economic growth models in comparative political economy and the public-private welfare state.