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

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  • Michelsen, Claus
  • Weiß, Dominik

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.

Suggested Citation

  • Michelsen, Claus & Weiß, Dominik, 2009. "What Happened to the East German Housing Market? – A Historical Perspective on the Role of Public Funding –," IWH Discussion Papers 20/2009, Halle Institute for Economic Research (IWH).
    • Handle: RePEc:zbw:iwhdps:iwh-20-09
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    Cited by:

    1. Kholodilin, Konstantin A. & Michelsen, Claus & Ulbricht, Dirk, 2018. "Speculative price bubbles in urban housing markets," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 55(4), pages 1957-1983.
    2. Joseph DeSalvo, 2017. "Teaching the DiPasquale-Wheaton Model," Working Papers 0117, University of South Florida, Department of Economics.
    3. Marius Claudy and Claus Michelsen, 2016. "Housing Market Fundamentals, Housing Quality and Energy Consumption: Evidence from Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    4. Dagmara Kociuba & Maciej Janczak, 2024. "Effects of the Disbursement of EU Cohesion Policy 2014–2020 Funds on Improving the Energy Efficiency of Buildings in Poland and Germany," Energies, MDPI, vol. 17(17), pages 1-23, September.
    5. Konstantin A. Kholodilin & Claus Michelsen & Dirk Ulbricht, 2014. "Speculative Price Bubbles in Urban Housing Markets in Germany," Discussion Papers of DIW Berlin 1417, DIW Berlin, German Institute for Economic Research.
    6. Mihail Eva & Alexandra Cehan & Alexandra Lazăr, 2021. "Patterns of Urban Shrinkage: A Systematic Analysis of Romanian Cities (1992–2020)," Sustainability, MDPI, vol. 13(13), pages 1-23, July.
    7. Dominik Weiß & Claus Michelsen, 2011. "The improvement of housing conditions in post com-munist Germany – Market Mechanisms and Subsidy Impacts," ERSA conference papers ersa11p505, European Regional Science Association.
    8. Konstantin Kholodilin, 2015. "Speculative Bubbles in Urban Housing Markets in Germany," ERSA conference papers ersa15p67, European Regional Science Association.

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    More about this item

    Keywords

    housing market transition; housing subsidies; housing supply; East Germany; Transformation des Immobilienmarkts; Subventionen für Immobilien; Wohnraumversorgung; Ostdeutschland;
    All these keywords.

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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