Low Homeownership in Germany - A Quantitative Exploration
Citation: Leo Kaas, Georgi Kocharkov, Edgar Preugschat, Nawid Siassi (2017) Low Homeownership in Germany - A Quantitative Exploration. CESifo Working Papers (RSS)
Internet Archive Scholar (search for fulltext): Low Homeownership in Germany - A Quantitative Exploration
Download: https://www.econstor.eu/bitstream/10419/173051/1/cesifo1 wp6775.pdf
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Summary
Germany has among lowest homeownership rates (44% in 2010) among wealthy countries. Authors explore how 3 policies impact this (social housing with broad eligibility, high transfer taxes, and no mortgage interest deduction) by modeling German households under a more U.S.-like regime without those policies, as well as the welfare impacts of those policies.
Policy variations explored:
- Transfer tax from 5% to 0.33% (U.S. average)
- Make mortgage interest payments income tax deductible
- Eliminate social housing sector
Combined counterfactual effect leads to 62% homeownership (similar to 67% in 2010 U.S.), shifts household wealth from financial to real estate, and increases household wealth by 8%. However, the impacts of greatly reduced transfer tax and debt deductibliliy decrease welfare because they increase demand for housing, making it more expensive, with most of the welfare decrease borne by non-wealthy. Abolishing social housing decreases demand for housing, decreases housing price, increasing welfare, though least (but still positive) for the poorest households. Also explore a direct housing subsidy to low income households as a replacement for social housing, and find welfare increased at all levels.
Authors claim theirs is first macroeconomic model of German housing market as well as contributing rare study on aggregate effects of social housing (rare due to smallness, and strictly income-restricted nature of social housing in U.S.).
Theoretical and Practical Relevance
Complements and cites Implications of US Tax Policy for House Prices, Rents, and Homeownership which models elimination of debt deductibility for U.S.
Does not seem to address potential negative of direct income-based housing subsidy relative to broadly eligible social housing -- higher effective marginal tax rates on low income households as incomes disqualify for subsidy.
