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Journal Publication: Regional Supply and Demand Fundamentals in the German Housing Price Boom

Journal Publication: Regional Supply and Demand Fundamentals in the German Housing Price Boom

Lars Brausewetter, Stephan Thomsen and Johannes Trunzer have published a study with explanations on the development of German housing prices and rents over the last decade in the German Economic Review.

Over the last decade, German housing prices have increased unprecedentedly. Drawing on quality-adjusted housing price data at the district level, we show that regional fundamentals explain up to two-thirds of between-region and 77 to 87 percent of within-region variation in price growth. Price increases were driven mainly by co-movements in local demand fundamentals, notably population density and skill level. However, we further reveal systematic variation unrelated to fundamentals: overvaluation of top 7 cities, path dependency, and spatial spillovers. We infer that speculation, investor preference for liquid markets, and bounded rationality contributed substantially to the recent housing price boom in Germany.

The study is published online first and can be accessed via this link.