Growth Models and Housing Finance Policy in the United States and Germany Alexander Reisenbichler

The Politics of Entrenchment: Growth Models and Housing Finance Policy in the United States and Germany Alexander Reisenbichler B.A. in Social Sciences & Philosophy, March 2010, Leipzig University M.A. in Political Science, May 2013, The George Washington University A Dissertation submitted to The Faculty of The Columbian College of Arts and Sciences of The George Washington University in partial fulfillment of the requirements for the degree of Doctor of Philosophy January 19, 2018 Dissertation directed by Kimberly J. Morgan Professor of Political Science and International Affairs The Columbian College of Arts and Sciences of The George Washington University certifies that Alexander Reisenbichler has passed the Final Examination for the degree of Doctor of Philosophy as of December 14, 2017. This is the final and approved form of the dissertation. The Politics of Entrenchment: Growth Models and Housing Finance Policy in the United States and Germany Alexander Reisenbichler Dissertation Research Committee: Kimberly J. Morgan, Professor of Political Science and International Affairs, Dissertation Director Henry J. Farrell, Professor of Political Science and International Affairs, Committee Member Abraham L. Newman, Associate Professor, Georgetown University, Committee Member ii © Copyright 2017 by Alexander Reisenbichler All rights reserved iii Dedication To my grandparents. iv Acknowledgements I have incurred many debts writing this dissertation, as this project benefited enormously from the support of many individuals and institutions. The Department of Political Science at George Washington University provided a terrific and supportive environment for developing this dissertation. And the generosity of the many experts, academics, archivists, and government officials that I met on both sides of the Atlantic was indispensable for completing this project. The research on the American case would not have reached its depth without the support of many institutions. At the George Washington University, the Institute for European, Russian, and Eurasian Studies (IERES) offered financial support and became my second intellectual home alongside the political science department. Similarly, Johns Hopkins University’s American Institute for Contemporary German Studies (AICGS) provided financial support and helped me open the door to Washington’s think tank and policy world. I thank these institutions for their support, and continued friendship and collaboration. The empirical research in Germany would have been impossible without the financial and research support of a large number of institutions and individuals. I would like to thank the Horowitz Foundation for Social Policy for its financial support. I also thank Karin Goihl and the Berlin Program for Advanced German and European Studies at the Free University Berlin for their generous support that financed a year-long research stay in Germany. I also thank the Berlin program cohort for commenting on parts of this research, and I was honored to be part of this outstanding group of aspiring scholars. I v would also like to extend a hearty thanks to Susanne Lütz and the scholars and staff at the Center for International Political Economy at the Free University Berlin for hosting me during my time as a fellow in Berlin. The intellectually stimulating discussions, many laughs, and lasting friendships are greatly appreciated. Anke Hassel and the Hertie School of Governance in Berlin also opened their doors during the early stages of this project. There are many other individuals who have supported my research, teaching, and professional development. At the George Washington University, I thank Harvey Feigenbaum, Harris Mylonas, Bruce Dickson, and Martha Finnemore. I’d also like to thank those who have taken the time to offer feedback when I presented parts of this research at academic conferences and workshops, such as Karen Anderson, Konrad Jarausch, Geoffrey Gertz, Paulette Kurzer, Jonah Levy, Nathalie Morel, Paul Nolte, Waltraud Schelkle, Herman Schwartz, and Christine Trampusch. Working with my dissertation committee was a truly rewarding experience. Kimberly Morgan was a source of inspiration. From day one, she has been a mentor to me, providing guidance throughout graduate school and this dissertation. Her encouragement to explore this research question -- and faith that I could come up with an answer -- pushed me intellectually and got me deep into the empirical weeds. Without her thorough feedback and intellectual exchanges on draft after draft, this dissertation would not have reached the level it has. I thank her for her continued mentorship, generosity, and collaboration over the years. Henry Farrell and Abe Newman have pushed me to sharpen and think bigger about the argument and implications of this dissertation. Henry Farrell’s door was always open for me, and I greatly appreciate him helping me strategize next steps at each stage of my academic career. I thank Abe Newman for the many exchanges with vi him on this dissertation and many other projects -- and for making the way over from Georgetown to Foggy Bottom on several occasions. Intellectually, my dissertation committee has fundamentally shaped the ways in which I think about political economy and long-term political processes. I thank my committee members for providing a roadmap for how to move this project forward beyond the dissertation stage and for supporting my academic career well beyond this dissertation. Finally, I also thank Steven Teles at Johns Hopkins University and Sarah Binder for reading this dissertation and offering valuable feedback that will help me move forward this project. My family and friends offered the perfect balance of keeping my eyes on the prize of completing this project, while also putting things into broader perspective. On both sides of the Atlantic, I thank my friends for putting up with too many discussions about this project and, more important, the many fun hours away from it. My mom and grandparents have supported me for as long as I can remember. I thank them for their love and support, for cheering every small achievement along the way, and for understanding that my journey has taken me far away from home. Words cannot express the gratitude I feel toward them. vii Abstract of Dissertation The Politics of Entrenchment: Growth Models and Housing Finance Policy in the United States and Germany 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 viii 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. ix Table of Contents Dedication……………………………………………………………………………….. iv Acknowledgements………………………………………………………………………. v Abstract of Dissertation………………………………………………………………... viii List of Figures…………………………………………………………………………… xi Chapter 1: The Politics of Entrenchment…………………………………………………. 1 Chapter 2: On the Chopping Block: Homeownership Tax Policy in Germany, 1950s-2010s………………………………………………………….…………. 56 Chapter 3: Third-Rail Politics: Homeownership Tax Policy in the United States, 1910s-2010s………………………………………………………………….... 109 Chapter 4: Subsidizing Homeowners or Renters? Social Housing Policy in Germany, 1950s-2000s………………………………………………………... 151

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