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The improvement of housing conditions in post com-munist Germany – Market Mechanisms and Subsidy Impacts

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  • Dominik Weiß

    ()

  • Claus Michelsen

Abstract

The objective of this paper is to explain the mechanisms that have lead to the remarkable improvement of the East German Housing Market during transition after the political change in 1989 and the reunification of Germany in 1990. Theoretical analysis suggests, that housing policy of the former GDR did not maximize consumer`s utility. Socialistic housing and construction policy limited the welfare with and distorted construction costs and rent control. The reason for that was not alone a lack of quantity but also a lack of quality and diversity. Therefore we argue that diversification of quality and te-nure in the post communist era enhanced the welfare of consumers. We propose that welfare on the East German Housing market was significantly increased by creating a new variety of housing types and qualities which fits better with different preferences of the households. A filtering model predicts theoretically the observable trends of seg-mentation and the development of a higher diversity of housing market segments. But additionally to the transition a bunch of subsidies were set up during transition. There-fore the paper is focused on the interdependency between housing market subsidies, the supply cost function, the qualitative development of the housing stock and the choice of demand. Empirically we observe the change and qualitative improvement of housing conditions in East Germany during transition and quantitative effects like increased vacancy risk in a shifted hierarchy of housing qualities.

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa11p505.

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Date of creation: Sep 2011
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Handle: RePEc:wiw:wiwrsa:ersa11p505

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  1. Arnott, Richard J. & Braid, Ralph M., 1997. "A filtering model with steady-state housing," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 27(4-5), pages 515-546, August.
  2. Sweeney, James L., 1974. "A commodity hierarchy model of the rental housing market," Journal of Urban Economics, Elsevier, vol. 1(3), pages 288-323, July.
  3. Claus Michelsen & Dominik Weiß, 2009. "What Happened to the East German Housing Market? – A Historical Perspective on the Role of Public Funding –," IWH Discussion Papers, Halle Institute for Economic Research 20, Halle Institute for Economic Research.
  4. Isaac F. Megbolugbe & Allen P. Marks & Mary B. Schwartz, 1991. "The Economic Theory of Housing Demand: A Critical Review," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 6(3), pages 381-393.
  5. Braid, Ralph M., 1981. "The short-run comparative statics of a rental housing market," Journal of Urban Economics, Elsevier, vol. 10(3), pages 286-310, November.
  6. Charles Ka Yui Leung & Wei Wang, 2007. "An Examination of the Chinese Housing Market through the Lens of the DiPasquale- Wheaton Model: a Graphical Attempt," International Real Estate Review, Asian Real Estate Society, Asian Real Estate Society, vol. 10(2), pages 131-165.
  7. Boss, Alfred & Rosenschon, Astrid, 2008. "Der Kieler Subventionsbericht: eine Aktualisierung," Kiel Discussion Papers, Kiel Institute for the World Economy (IfW) 452/453, Kiel Institute for the World Economy (IfW).
  8. Edward L. Glaeser & Erzo F. P. Luttmer, 1997. "The Misallocation of Housing Under Rent Control," NBER Working Papers 6220, National Bureau of Economic Research, Inc.
  9. Olsen, Edgar O, 1972. "An Econometric Analysis of Rent Control," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 80(6), pages 1081-1100, Nov.-Dec..
  10. Alex Anas & Richard Arnott, 1989. "Dynamic Housing Market Equilibrium with Taste Heterogeneity," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 834, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Braid, Ralph M., 1984. "The effects of government housing policies in a vintage filtering model," Journal of Urban Economics, Elsevier, vol. 16(3), pages 272-296, November.
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