The Relative Costliness of Housing Categories. Evidence from Germany

Analysing the housing market from a macroeconomic viewpoint bears the problem of dealing with a highly segmented market. Particularly in Germany, the alternatives buying vs. renting housing space need to be considered at least partly as competing possibilities. Further, a differentiation needs to be made by defining housing categories, e.g. apartment, terraced house or (semi-) detached house. Beside others, a question of particular interest is the relative price of a specific housing category compared to possible alternatives. To derive an answer for this question, a data set with average and top level price information for six housing categories from 125 German cities is used. After standardising the data rows, an Index for the housing costs is developed for each city. This does not indicate the average amount of money people pay for housing service in the particular city. In fact, the indictor can be used as measure for the housing service expensiveness. An aspect of further information is the derivation of the relative costliness of a particular housing category, given a specific city. For Germany the structural and geographical differences of this relative costliness are shown. One can easily find arguments to explain category specific costliness deviations from the city specific average. However, taking into account the intransparencies of regional real estate information and the not purely rational behaviour of the participants, a good part of the deviations can be imputed to the imperfect market for housing services. If so, the deviations from a city specific expensiveness level should slightly diminish over time due to the bettering of information standards. It is shown that this is the case for the majority of the cities and for all housing categories. The stability of this trend is so remarkable that propositions about the future price development of housing categories have to take into account these findings.