Abstract
In Germany, unlike many other countries, a real estate bubble did not develop in the 2000s. The stability of the German real estate market is the result of a combination of specific institutional features. Firstly, government intervention in the real estate sector led to a diversified supply of housing in all housing segments. Although the government has reduced its active role in the sector in recent decades, the established structures continue to prevail. There was a sufficient supply of rental dwellings, so that households only decided to purchase their own homes when it appeared beneficial. Secondly, a relatively conservative system of real estate financing has contributed to the stable development of the real estate market. Those factors appear to have reinforced each other and to be beneficial for the system as a whole. The most important financial investors in the real estate market are open or closed real state funds. These have, until now, been relatively unattractive for international investors due to a lack of transparency and the way they are taxed. While this has meant that less capital has been available, it may have sheltered the German market from foreign capital inflows that could have led to Germany also developing a real estate bubble. Since the Great Recession there have been signs that a real estate bubble could develop in Germany in the future due to very low interest rates, a distrust of monetary forms of wealth and the limited supply of appropriate property in bigger cities.
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Notes
- 1.
Scandinavian and English-speaking countries follow the homeowner model, with owner-occupation ratios of 60–70%, high transaction levels and more favourable credit facilities, supported by highly liberalized financial markets. Spain , Italy and Greece follow the Southern European model. It is characterised by very high levels of ownership (80%) caused by constrained tenure availability. The private rental sectors in these countries were weakened by high inflation levels in combination with restrictive rent controls. A significant social rental sector has never developed in these countries. This is explained by the prevailing welfare regime , which is characterised as ‘family-based’, so that the state does not play a large role in the provision of welfare benefits, including social housing (Giucci and Strubenhoff 2003, pp. 20–21).
- 2.
Wohngemeinnützigkeitsgesetz.
- 3.
In the Profit Housing Act tax benefits for housing associations with a non-profit status were connected to a variety of constraints. The aim of the company and the use of its funds were restricted to the provision of housing. The prices had to be oriented at the costs, so that profit maximization was hampered. A maximum dividend of 4% on the nominal capital was allowed. Larger profits had to be reinvested. Additionally, the provision of housing was primarily focused on persons in need (Hain 2008).
- 4.
1. Bundesmietengesetz.
- 5.
Gesetz zum Abbau der Wohnungszwangswirtschaft und über ein soziales Miet- und Wohnrecht.
- 6.
1. Wohnungsbaugesetz (WoBauG).
- 7.
However, if associations wanted to make use of the subsidies they had to calculate their rent according to their costs, so that the subsidies were passed through to the renter in the form of lower rents.
- 8.
2. Wohnungsbaugesetz (WoBauG).
- 9.
However, there is a slow trend towards more owner-occupied housing visible. The ownership rate increased from 39% in 1993 to 43.2% in 2008 (Statistisches Bundesamt 2012c).
- 10.
First and second Act for the Protection against Termination of Lease (Wohnraumkündigungsschutzgesetz) and Act on Rental Rates (Miethöhegesetz).
- 11.
Termination for variation of contract is basically a cancellation of the renting contract by the landlord with the offer of establishing a new contract with different conditions, e.g. a higher rent based on minor modernisations.
- 12.
Wohnraumförderungsgesetz.
- 13.
Wohngemeinnützigkeitsgesetz.
- 14.
Data in this section was provided by the Deutsche Mieterbund e.V. if not indicated otherwise.
- 15.
Deutscher Mieterbund e.V..
- 16.
Gemeinnützige Deutsche Wohnungsbaugesellschaft mbH.
- 17.
Bundesversicherungsanstalt für Angestellte.
- 18.
Altschuldenhilfegesetz.
- 19.
Erblastentilgungsfonds.
- 20.
Statistisches Bundesamt.
- 21.
Since the banks have lots of other activities, where some are not even showing in the balance sheet, this rough estimation probably overestimates the share of real estate related financial services.
- 22.
Empirical analyses showed that a 1% point increase in the short-term interest rate leads to a fall in house prices of 6.4% within a 2-year period in the UK . In Germany, prices only fall by 0.2%. The higher interest rate volatility for both existing and new real estate loans in the UK , for example, leads to a much stronger real estate cycle then in Germany (Gesellschaft für Immobilienwirtschaftliche Forschung 2009, p. 10).
- 23.
The collateral value (Beleihungswert) is the value of the land and the building which can with a high degree of certainty be obtained at any point in time in the future.
- 24.
Kreditwesengesetz (KWG).
- 25.
Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).
- 26.
‘ Kreditanstalt für Wiederaufbau (KfW).
- 27.
Pfandbriefe.
- 28.
Beleihungswert.
- 29.
For example the bank ING DiBa asked for an interest premium for loans above 60% of the collateral value of 0.10% points, above 80% of 0.35% points and above 95% of 1% point (ING 2012).
- 30.
Before 2005 mortgage banks had the exclusive allowance to issue mortgaged-backed covered bonds , but were in turn limited in the kind of business they were allowed to conduct. In 2005 a legal change, connected to the replacement of the Mortgage Bank Law by the Covered Bond Law, allowed most banks to acquire a license to issue mortgaged-backed covered bonds , without having to restrict their business. Therefore, those special banks lost in importance after 2005.
- 31.
The three funds and the associated banking groups are: DWS— Deutsche Bank /Real I.S.—Savings Bank Group/KGAL— Commerzbank , BayernLB, HASPA Finanzholding and Sal. Oppenheim.
- 32.
Special funds are funds constituted mostly for institutional investors . They are not open to the general public.
- 33.
Amount of shares that is held by small investors and that actually is available for trade.
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Detzer, D., Dodig, N., Evans, T., Hein, E., Herr, H., Prante, F.J. (2017). The Real Estate Sector and Its Relation to the Financial Sector. In: The German Financial System and the Financial and Economic Crisis. Financial and Monetary Policy Studies, vol 45. Springer, Cham. https://doi.org/10.1007/978-3-319-56799-0_14
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