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Real Estate Booms and Price Bubbles: What Can Germany Learn from Other Countries?

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  • Christian Dreger
  • Konstantin A. Kholodilin

Abstract

When speculative price bubbles on real estate markets burst, the effects for the real economy are often devastating taking the form of substantial losses in production and employment. This paper discusses the degree to which institutional frameworks can prevent speculative bubbles from emerging and expanding. Comparing experiences in different countries indicates that, in Germany, institutional regulations are more likely to counteract the risk of undesirable developments. Despite the recent substantial price increases, no speculative bubble can be identified in Germany so far-but the risk has increased. In times of the euro area debt crisis, real estate is regarded as a safe investment, which boosts demand. And although a reintroduction of the former subsidy for owner-occupied home purchases would create new housing space, it could also lead to price hikes in the property market. A particular problem is the banks' recent tendency to grant mortgages to households on the basis of lower and lower equity capital.

Suggested Citation

  • Christian Dreger & Konstantin A. Kholodilin, 2013. "Real Estate Booms and Price Bubbles: What Can Germany Learn from Other Countries?," DIW Economic Bulletin, DIW Berlin, German Institute for Economic Research, vol. 3(6), pages 16-23.
  • Handle: RePEc:diw:diwdeb:2013-6-3
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.422751.de/diw_econ_bull_2013-06-3.pdf
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    References listed on IDEAS

    as
    1. Vieider, Ferdinand M. & Chmura, Thorsten & Martinsson, Peter, 2012. "Risk attitudes, development, and growth: Macroeconomic evidence from experiments in 30 countries," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2012-401, Social Science Research Center Berlin (WZB).
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    More about this item

    Keywords

    Speculative bubbles; real estate market; fundamental development;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • 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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