German housing market: Baukindergeld to promote home ownership for families

With Germany’s citizens finding it increasingly difficult to pay the sharp increase in rent and purchase prices, particularly in the growing big cities, housing has become a political issue. The high prices are putting a strain in particular on families that are keen to buy in order to secure the living space needed for their offspring. A 120 m² privately-owned new apartment, including ancillary costs such as land transfer tax and notary fees, costs around EUR 500,000 in a metropolis. This figure rises to as much as EUR 750,000 in the seven big German cities and is considerably higher again in good locations or expensive cities such as Freiburg or Munich.

In their coalition agreement, the three ruling parties that are in power since mid-March – CDU, CSU and SPD – agreed on various measures to make living more affordable again. One of these measures is the Baukindergeld which has just been passed within the framework of the closed-door meeting held recently at the Zugspitze in Bavaria. Families should be given EUR 12,000 per child, with retrospective effect as from the start of January 2018, provided the parents’ income does not exceed a limit of EUR 75,000 taxable income plus a EUR 15,000 supplement per child. This would help an estimated 200,000 middle-income families to overcome the equity hurdle. However, it will also require a loan initially, because the subsidy amount will be paid out over a period of 10 years.

Nonetheless, the government’s gift – EUR 24,000 for two children – sounds good at first glance. The question is whether the target can be reached in practice? It accounts for nearly five percent of the aforementioned purchase price of EUR 500,000, which more or less equates to the land transfer tax. The share is somewhat higher if a cheaper existing property is purchased. However, it would be even less for new-builds in Frankfurt, Munich or Stuttgart. It sounds more like a deadweight effect, as the small subsidy portion is very unlikely to be a decisive factor in purchasing a property in the conurbations. The picture is different in the underdeveloped provincial regions. Buyers are often scarce here as a result of migration, so that houses can sometimes be bought at five-figure prices. The Baukindergeld can account for a quarter or even one third of the purchase price here. The sellers will welcome this. On the other hand, low-income families encouraged by the subsidy to buy might possibly regret their decision at a later stage, because they cannot afford the upkeep of their properties in need of repair.

The examples show that the Baukindergeld is not a solution to the fundamental problem of the sometimes extremely high prices in the expensive cities. With interest rates of less than two percent at present, the support is not that necessary in the less expensive regions. It creates deadweight effects at best that are also put into perspective if the sellers “factor in” the Baukindergeld. The home-ownership subsidy of a few years ago – one of Germany’s most expensive subsidies – led to similar mismanagement. It would be better if first-time buyers were exempt from paying land transfer tax and efforts were stepped up to facilitate cheap construction. The key cost drivers are the scarcity of and therefore expensive land zoned for building in the conurbations, as well as the increased requirements for construction and energy efficiency.

 

 

 

Rate this article


Thank you for your rating. Your vote:
There is no rating yet. Be the first! Current average rating: 0

Leave an answer

Your e-mail address will not be published. Required fields are marked *