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The quest for affordable owner-occupied housing in Germany

The quest for affordable owner-occupied housing in Germany Even though housing prices in Germany are low by international standards, housing in urban areas has become less affordable. Since 2018, certain families aspiring to become homeowners may apply for a capital subsidy (Baukindergeld) that contributes to their down-payment. This paper analyzes whether this subsidy is an appropriate policy instrument to achieve the desired goals.Design/methodology/approachThe paper presents an equilibrium model with two types of households (low- and high-income) and two types of houses (low- and high-quality) to examine equilibrium prices before and after the introduction of a subsidy.FindingsThis subsidy not only makes owning less affordable for the lower-income household but also increases the prices of more expensive houses that are not within reach of lower-income households.Research limitations/implicationsBecause this policy has just come into effect in 2018 and no data are available yet, the implications of the model are yet to be tested.Practical implicationsThe implications of the subsidy run counter to its intentions as house prices will rise even further. Other policies or fewer regulations for new construction may be more effective.Social implicationsAn instrument aiming to relieve financially weaker families, this subsidy will increase prices for all house types, assuming continuing supply shortages observed in the German urban housing markets.Originality/valueThis is the first paper on Germany’s new homeownership subsidy. The model is general enough to be used with any explicit demand and supply functions and is thus applicable to other markets with low supply elasticities. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of European Real Estate Research Emerald Publishing

The quest for affordable owner-occupied housing in Germany

Schmidt, Carolin E.
Journal of European Real Estate Research , Volume 12 (3): 15 – Nov 20, 2019
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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1753-9269
DOI
10.1108/jerer-10-2018-0046
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Abstract

Even though housing prices in Germany are low by international standards, housing in urban areas has become less affordable. Since 2018, certain families aspiring to become homeowners may apply for a capital subsidy (Baukindergeld) that contributes to their down-payment. This paper analyzes whether this subsidy is an appropriate policy instrument to achieve the desired goals.Design/methodology/approachThe paper presents an equilibrium model with two types of households (low- and high-income) and two types of houses (low- and high-quality) to examine equilibrium prices before and after the introduction of a subsidy.FindingsThis subsidy not only makes owning less affordable for the lower-income household but also increases the prices of more expensive houses that are not within reach of lower-income households.Research limitations/implicationsBecause this policy has just come into effect in 2018 and no data are available yet, the implications of the model are yet to be tested.Practical implicationsThe implications of the subsidy run counter to its intentions as house prices will rise even further. Other policies or fewer regulations for new construction may be more effective.Social implicationsAn instrument aiming to relieve financially weaker families, this subsidy will increase prices for all house types, assuming continuing supply shortages observed in the German urban housing markets.Originality/valueThis is the first paper on Germany’s new homeownership subsidy. The model is general enough to be used with any explicit demand and supply functions and is thus applicable to other markets with low supply elasticities.

Journal

Journal of European Real Estate Research – Emerald Publishing

Published: Nov 20, 2019

Keywords: Affordable housing; Demand subsidy; House price distortion; Low-income housing

References

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