Exploring Spatial Disparities in Residential House Prices on a County Level in Germany
Total Page:16
File Type:pdf, Size:1020Kb
Exploring spatial disparities in residential house prices on a county level in Germany Abstract. In the segmented German residential real estate market, house price levels differ substantially among counties. This thesis explores a variety of drivers that may explain spatial disparities of house prices between German counties. Supply and demand for regional house price levels include different aspects as economic, socio-cultural, infrastructural, real estate, and regulatory drivers. An OLS model is built to investigate the associations with house price levels on a county-level. A distinction is made across space between 16 federal states and 401 German counties. Further, I characterize differences across regions where I pay special attention to a variety of drivers, including the urban-rural sprawl. I find that not all drivers have equal dominance levels for regional house price levels. Findings not only reveal that personal income is positively and average age of the inhabitants is negatively associated with the regional house prices, but also that urban and western counties are positively associated with house prices. Keywords. German house prices, residential price variations, urban-rural divide, spatial disparities Christoph Klare Master Thesis Real Estate Studies Final Version COLOFON Title A cross sectional analysis of German regional house prices and associations Version V9 Author Christoph Klare Student number S4115155 Supervisor Prof. dr. ir. A.J. (Arno) van der Vlist Assessor Dr. M. (Mark) van Duijn E-mail [email protected] Date Nov 18, 2020 Word count 15635 Words Disclaimer: “Master theses are preliminary materials to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the author and do not indicate concurrence by the supervisor or research staff.” Contents 1. Introduction .................................................................................................................................. 1 1.1 Motivation ............................................................................................................................... 1 1.2 Literature review.................................................................................................................... 2 1.3 Research problem statement .............................................................................................. 4 2. Associations influencing house prices ..................................................................................... 7 2.1 Demand drivers ..................................................................................................................... 7 2.2 Supply drivers ...................................................................................................................... 10 2.3 Other external drivers ......................................................................................................... 10 2.4 Stock-Flow model ............................................................................................................... 11 2.5 Hypotheses .......................................................................................................................... 13 3. Data & Method ........................................................................................................................... 14 3.1 Data sources........................................................................................................................ 14 3.2 Regional housing markets in Germany ........................................................................... 15 3.3 Descriptive analysis ............................................................................................................ 18 3.4 Real Estate Ratios .............................................................................................................. 25 3.5 Model development ............................................................................................................ 29 4. Results ........................................................................................................................................ 32 4.1 House price differences across federal states ............................................................... 32 4.2 House price differences across counties and urban areas .......................................... 34 4.3 Regional house price drivers ............................................................................................ 36 4.4 Chow Test ............................................................................................................................ 40 5. Conclusion.................................................................................................................................. 44 References ..................................................................................................................................... 46 Appendix A (Definitions) ............................................................................................................... 50 Appendix B (Descriptive Analysis and Ratios) .......................................................................... 52 Appendix C (OLS Results and Tests) ........................................................................................ 62 Appendix D (Assumption testing) ................................................................................................ 77 Appendix E (Stata Syntax) ........................................................................................................... 83 1. Introduction 1.1 Motivation House price differences are an often discussed issue in German society. House prices differ substantially within Germany. For example, official German statistics reveal that in 2017 the average house prices in metropolitan areas are substantially higher than the average house price of rural areas in Germany (Destatis, 2020). For housing seekers, the price level is an important determinant for the decision to buy. The question arises as to what drivers are associated with these house price differences. This paper explores the main associations that drive house prices between counties (Definition in Table appendix A, Table A.1). Interested parties should receive a deeper understanding, why one area is more expensive than the other one. By revealing what associations determine regional prices, for instance the average dwelling size in square meters, housing seekers can balance their preferences and have a deeper understanding of why one county is more expensive than the neighbouring counties. As an illustration, the German newspaper FAZ (for Definition, see appendix A, table A1) reports that municipalities within Germany can have up to 13 times higher square meter prices than other regions (Papon, 2019). Consequently, due to the fact that in recent years a substantial party is interested in buying their own property, a high share of the population is possibly interested in the main associations that drive house prices. The implications of regional house price differences are far-reaching as it is associated with migration as a driver as well. The increasing trend of migrating to new counties is among others connected to demographic drivers as for example job prospects and better infrastructure for young families are demanded (Bleck & Wagner, 2006). This leads to migration from rural to urban areas as well as from eastern to western regions (Diekmann, 2019). The question may arise, how regional migration balances affect the house price levels and whether other drivers stimulate house prices differently on a regional level. When people choose a new place to live, the demand for homeownership also increases more unequally within Germany, affecting local house prices. In 2018 the average homeownership rate in Germany was at 51.5% with a geographical disparity (Trading Economics, 2020; Zumbro, 2014). One of the stylized facts of housing markets is that regional house prices may vary considerably. Including national and international investors on the demand side to buy 1 residential real estate, the real estate market has become more unequally distributed and untransparent. Investors typically prefer urban regions because of personal risk and profit structures (Fabricius, 2015). The imperfect German real estate market reasoned the new subsidy program “GRW” (see appendix A, Table A1) which started January 1st, 2020 in order to create an equilibrium of economic power including house prices throughout Germany. Therefore, it also supports broadband expansion in rural areas for private persons and other subsidies and infrastructural measures to attract investors (BMWI, 2020). Thus, the question arises what drivers are associated with regional house prices? 1.2 Literature review This research connects to the literature on regional house price differences. The following subchapter lists the contributions provided by several scientists that examined different house price levels, separated into paragraphs for demand, supply and institutional factors. For further considerations the house prices will represent the perceived housing values as a proxy, yielding a common basis for comparisons for the following literature review. Similar to the research questions of this paper, Blanco et al. (2015) address the regional house price differences in Spain. More specifically, the authors attempt to find price levels in the different regions of Spain, meaning that in this case groups of