Regional Supply and Demand Fundamentals in the German Housing Price Boom

Lars Brausewetter, Stephan Thomsen and Trunzer Johannes ()
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Trunzer Johannes: Leibniz University Hannover, Institute of Economic Policy, Königsworther Platz 1, 30167 Hannover, Germany

German Economic Review, 2024, vol. 25, issue 1, 1-36

Abstract: Over the last decade, German housing prices have increased unprecedentedly. Drawing on quality-adjusted housing price data at the district level, we show that regional fundamentals explain up to two-thirds of between-region and 77 to 87 percent of within-region variation in price growth. Price increases were driven mainly by co-movements in local demand fundamentals, notably population density and skill level. However, we further reveal systematic variation unrelated to fundamentals: overvaluation of top 7 cities, path dependency, and spatial spillovers. We infer that speculation, investor preference for liquid markets, and bounded rationality contributed substantially to the recent housing price boom in Germany.

Keywords: rental prices; housing market; Germany; regional disparities (search for similar items in EconPapers)
JEL-codes: R23 R31 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/ger-2023-0063

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