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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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  • Claus Michelsen
  • Dominik Weiss

Abstract

This article analyses the development of the East German housing market after 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 well known stock-flow model, proposed by DiPasquale and Wheaton. We show that the disequilibrium observable today is to a large extent caused by post-reunification housing policy and its strong fiscal incentives to invest in the housing stock. Moreover, in line with the stylised empirical facts we show that 'hidden reserves' of the housing market were reactivated since the economy of East Germany became market-organised. Since initial undersupply was overcome faster than politicians expected, the fiscal stimuli implemented were too strong. In contrast to the widespread opinion that outward migration caused the observable vacancies, this study shows that not weakness of demand but supply side policies caused the observable disequilibrium.

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  • Claus Michelsen & Dominik Weiss, 2010. "What happened to the East German housing market? A historical perspective on the role of public funding," Post-Communist Economies, Taylor & Francis Journals, vol. 22(3), pages 387-409.
    • Handle: RePEc:taf:pocoec:v:22:y:2010:i:3:p:387-409
    DOI: 10.1080/14631377.2010.498686
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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. 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.
    5. 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.
    6. 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.
    7. 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

    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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