Measuring Economies of Scale in German Housing Companies

During the last few years, several startling mergers have affected the German housing market. This raises the question whether such a concentration process is rational from an economic point of view. A justification of this practice could be the realization of economies of scale, assuming that the average cost for housing companies will reduce perceptibly with the size of the firm. According to Mansley, Ambrose, Fuerst and Wang (2016), economies of scale also exist for European Real Estate Companies. However, they conjecture, that the benefits of increasing scale derive in particular from internal growth, not from M&A activities. Furthermore, they suggest, that the benefits of economies of scale are greater for small companies than for larger companies. We analyze, whether these general across sector findings can be verified in the special case of the German housing industry. Due to eminent data problems, we discuss the possibilities and limits of different methods of measuring economies of scale, such as the cost estimation-approach, the profitability-approach and the survivor-approach.