The Effect of Real Estate Purchase Subsidies on Property Prices

Carla Krolage

No 333, ifo Working Paper Series from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: This paper assesses to which degree housing purchase subsidies are capitalized into property prices. Using a large-scale micro data set on German house prices, I exploit the introduction of a new subsidy scheme in the state of Bavaria. My difference-in difference estimations at the Bavarian interstate border indicate that the prices of single-family homes increased by approximately 10,000 euros more in Bavarian border regions. This is consistent with a full capitalization of the subsidy. No effect is found for apartments, whose purchasers seldom qualify for the subsidy. A heterogeneity analysis confirms that the price effect is larger in segments of the real estate market with a higher exposure to the subsidy scheme. I also provide suggestive evidence that the subsidy scheme slightly stimulated construction activity. Overall, my results indicate that instead of making house purchases more affordable for families, the subsidy scheme led to a rise in house prices and mainly benefited sellers of properties.

Keywords: Real estate market; housing subsidies; property prices (search for similar items in EconPapers)
JEL-codes: H22 H24 H71 R31 R38 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-eur and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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