Convergence in German Regional Housing Markets

The aim of this paper is to analyse the convergence of housing prices in German regions using spatial regional data. We provide empirical analysis on the pa­nel data set of 397 German regions for the period 2004–2020 taking into account their relative geographical location and prices. The main contribution of our paper is the analysis of convergence in housing prices, considering the historical aspects of the divergence of German regions. We discover if the housing prices become more homogenous over the years or not and also study the effect of various factors on the housing market. We build spatial econometric models for both selling and rental price, taking into account such demand factors as unemployment level, pendulum migration ratio, wages, number of employees, gross regional product, migration flow for regions, emigration and immigration for Bundeslander. Additionally, we consider the effect of price and determinants of neighboring regions. As the result of the analysis, we can conclude that factors which lead to personal income growth affect the price growth rate positively and vice versa. Emigration lowers the demand together with the price growth rate. Immigration contrary rises the demand and price growth rate. In the paper, we show that convergence among German regions exists over past years, mostly for rental prices, as the speed for them is higher. The practical significance of the current work is its applicability to regional economic and migration policy formation. Moreover, the analysis can be extended to the housing policy of other countries in order to allow cross-country comparisons.