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What happened to the East German housing market? A historical perspective on the role of public funding

  • Claus Michelsen
  • Dominik Weiss

This article analyses the development of the East German housing market after 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 disequilibrium observable today is to a large extent caused by post-reunification housing policy and its strong fiscal incentives to invest in the housing stock. Moreover, in line with the stylised empirical facts we show that 'hidden reserves' of the housing market were reactivated since the economy of East Germany became market-organised. Since initial undersupply was overcome faster than politicians expected, the fiscal stimuli implemented were too strong. In contrast to the widespread opinion that outward migration caused the observable vacancies, this study shows that not weakness of demand but supply side policies caused the observable disequilibrium.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/14631377.2010.498686
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Article provided by Taylor & Francis Journals in its journal Post-Communist Economies.

Volume (Year): 22 (2010)
Issue (Month): 3 ()
Pages: 387-409

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Handle: RePEc:taf:pocoec:v:22:y:2010:i:3:p:387-409
DOI: 10.1080/14631377.2010.498686
Contact details of provider: Web page: http://www.tandfonline.com/CPCE20

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  1. Robert P. Albon & David C. Stafford, 1990. "Rent Control and Housing Maintenance," Urban Studies, Urban Studies Journal Limited, vol. 27(2), pages 233-240, April.
  2. Edward L. Glaeser & Joseph Gyourko, 2005. "Urban Decline and Durable Housing," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 345-375, April.
  3. 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.
  4. Boss, Alfred & Rosenschon, Astrid, 2008. "Der Kieler Subventionsbericht: eine Aktualisierung," Kiel Discussion Papers 452/453, Kiel Institute for the World Economy (IfW).
  5. repec:zbw:iwhwiw:4-07-4 is not listed on IDEAS
  6. Denise DiPasquale & William C. Wheaton, 1992. "The Markets for Real Estate Assets and Space: A Conceptual Framework," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(2), pages 181-198.
  7. Kenneth Y. Chay & Michael Greenstone, 1998. "Does Air Quality Matter? Evidence from the Housing Market," NBER Working Papers 6826, National Bureau of Economic Research, Inc.
  8. DiPasquale, Denise, 1999. "Why Don't We Know More about Housing Supply?," The Journal of Real Estate Finance and Economics, Springer, vol. 18(1), pages 9-23, January.
  9. Hoyt, William H. & Rosenthal, Stuart S., 1997. "Household Location and Tiebout: Do Families Sort According to Preferences for Locational Amenities?," Journal of Urban Economics, Elsevier, vol. 42(2), pages 159-178, September.
  10. William C. Wheaton, 1999. "Real Estate "Cycles": Some Fundamentals," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 209-230.
  11. Blum, Ulrich, 2007. "Honeckers langer Schatten oder die aktuelle Wirtschaftsschwäche Ostdeutschlands," Wirtschaft im Wandel, Halle Institute for Economic Research (IWH), vol. 13(4), pages 109-116.
  12. Cheshire, Paul & Sheppard, Stephen, 1995. "On the Price of Land and the Value of Amenities," Economica, London School of Economics and Political Science, vol. 62(246), pages 247-67, May.
  13. Knight, John R. & Sirmans, C. F., 1996. "Depreciation, Maintenance, and Housing Prices," Journal of Housing Economics, Elsevier, vol. 5(4), pages 369-389, December.
  14. Donges, Juergen B. & Engels, Wolfram & Hamm, Walter & Möschel, Wernhard & Sievert, Olaf, 1990. "Wirtschaftspolitik für das geeinte Deutschland," Kronberger Kreis-Studien 22, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.
  15. de Leeuw, Frank & Ekanem, Nkanta F, 1971. "The Supply of Rental Housing," American Economic Review, American Economic Association, vol. 61(5), pages 806-17, December.
  16. 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, vol. 10(2), pages 131-165.
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