Michael Voigtlander is head of competence field financial markets and real estate markets at Institute of German Economy Cologne e.v. In this guest post he commented on plans of federal government to link Baukindergeld to a maximum size of flats.
The federal government has rediscovered property as a subject, rightly so: in times of low interest, living in a home is often cheaper than in rented flats. In addition, residential property is a good complement to old-age provision. But to promote home buyers and builders, Baukindergeld is wrong instrument.
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It is already causing problems: in Coalition agreement, only two billion euros are earmarked for Baukindergeld in this legislature. According to calculations by Institute of German economy, costs would be 3.2 to 3.6 billion euros.
Now you are trying to reduce costs. The federal government is considering paying Baukindergeld only if a family with two children does not buy more than 120 square meters of living space. For each additional child, living space may rise by 10 square meters. In fact, cost would n go down to estimated two billion euros, with about 60,000 families going out empty. The budget objective would refore be achieved.
Prof. Dr. Michael Voigtlander
is head of competence field financial markets and real estate markets at Institute of German Economy Cologne e.v.
In terms of content, however, it is hardly comprehensible why a house with 120 square meters is promoted, but a little bigger. Especially since prices for residential property are very different: in Munich re are 120 square meters of luxury, but in many rural areas it is difficult to find family houses below this size. Many people are moving out of city because y want more space – and se budgets, which, by way, relieve cities, should not be promoted now? In addition, this area limitation will stimulate creativity of construction companies and architects: if living space is limited, for example, usable area as for storage spaces is not limited, concepts are quickly developed, as can be later Create living spaces.
The government has realised that buying a home often fails due to a lack of start-up capital. Only for incidental costs of fees for broker, notary, land register entry and basic purchase tax, you have to pay up to 15 percent of purchase price depending on state. In addition, you need just as much equity to get a loan, so you have to save about 30 percent of purchase price. With a purchase price of 250,000 euros this already makes 75,000 euro – but only eleven percent of tenants have more than 50,000 euros in savings.
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But Baukindergeld has too few supporters, for good reasons. According to previous ideas, a family with two children and an income of up to 105,000 euros should receive a total of 24,000 euros from state. This is fatally reminiscent of home allowance and Baukindergeld will cause similar problems. Finally, promotion in metropolitan areas will be more expensive, especially scarce land plots, and thus ultimately benefit property owners and project developers. In less tense regions, however, new building is being stimulated – although in many districts already today more single-family houses are built than actually needed.
The fact that no allowance is paid for children born shortly after purchase of real estate is also difficult to make. After all, many couples are moving to a home because y are planning a family. The area boundary now sets crown on whole. It’s time to finally pull rip cord and stop project. In fact, re are better alternatives to Baukindergeld.
Households could, for example, be relieved of a reform of labour costs. As in case of rentals, purchasers could also pay for broker who ordered it – usually seller. This could increase price competition among brokers and thus reduce commissions.
By means of credit Ausfallgarantien, own capital requirement could be significantly reduced. If se were linked to long interest rate commitments and minimum repayments, risks to state would be very limited.
It would also make sense to reform basic income tax in accordance with British model. In doing so, an allowance is linked with a level tariff, so that buyers of more favourable real estate are relieved, while purchasers of very luxurious properties are more heavily charged. In contrast to Baukindergeld, all se measures would only be provided at low cost to state but at least as effective.
