What Happened to the East German Housing Market? – A Historical Perspective on the Role of Public Funding –

Claus Michelsen and Dominik Weiß

No 20/2009, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: The paper analyses the development of the East German housing market after the reunification of the former German Democratic Republic and the Federal Republic of Germany in 1990. We analyse the dynamics of the East German housing market within the framework of the wellknown stockflow model, proposed by DiPasquale and Wheaton. We show that the today observable disequilibrium to a large extend is caused by postunification housing policy and its strong fiscal incentives to invest into the housing stock. Moreover, in line with the stylized empirical facts, we show that 'hidden reserves' of the housing market were reactivated since the economy of East Germany became market organized. Since initial undersupply was overcome faster than politicians expected, the implemented fiscal stimuli were too strong. In contrast to the widespread opinion that outward migration caused the observable vacancies, this paper shows that not weakness of demand but supply side policies caused the observable disequilibrium.

Keywords: housing market transition; housing subsidies; housing supply; East Germany; Transformation des Immobilienmarkts; Subventionen für Immobilien; Wohnraumversorgung; Ostdeutschland (search for similar items in EconPapers)
JEL-codes: D5 H2 R21 R28 R31 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: What happened to the East German housing market? A historical perspective on the role of public funding (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:iwh-20-09

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