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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

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 well-known stock-flow model, proposed by DiPasquale and Wheaton. We show that the today observable disequilibrium to a large extend is caused by post-unification 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.

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Bibliographic Info

Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 20.

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Date of creation: Dec 2009
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Handle: RePEc:iwh:dispap:20-09

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Keywords: housing market transition; housing subsidies; housing supply; east germany;

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Cited by:
  1. 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.

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