Housing Affordability in Germany “The Influence of Future Demographic Trends”

1. Housing Affordability in Germany“The Influence of Future Demographic Trends” Dipl. Vw. Stefanie Forster-Kraus IREBS Institute, University Regensburg, Germany

2. Agenda • Affordability in Germany • Demographic change in Germany • Influence of demography on housing affordability • Empirical analysis • Conclusion

3. Affordability in Germany affordability rate: rent +service charges net income 40,22% 40,60% Hamburg • The German housing market (2006): • renter market • owner: western part 44,7% • eastern part 33,4% • space p.p.: western part 54qm • eastern part 45 qm • average affordability rate: 35% • gross rent p. qm: western part 6,38€ • eastern part 5,68 € • common charge: west 4,2% • east 8,1% Berlin 32,71% 34,79% Essen Leipzig 41,52% Frankfurt 29,99% Regensburg Stuttgart 41,74% Munich 43,40% Source: IVD Mietbelastung 2008/09; Datenreport 2008

4. Demographic Change in Germany (1) People live longer; More years to spend as a pensioner Life expectation (born 2006): woman 82,1 and man 76,6 years Life Expectation German inhabitants leave economical week areas to find jobs in economic boom regions. Simultaneously fewer and fewer foreign migrants come to Germany. - 1,5 Mio people migrate from east to west since 1990 Future calculation: 100.000 and 200.000 migrations per year in Germany Migration Demography Every children generation is smaller as their parents generation and becomes less children  exponential decrease Germany 1.4 children per woman; reproduction rate 2,1 Fertility

5. Demographic Change in Germany (2) „ We will become less and older….“ Source: destatis

6. Demographic Change in Germany (3) „ ...but with geographic differences“ Increase (+)/ Decrease (-) of the Population per 1000 Inhabitants in 2007: • Differences between demographic development in East and West Germany: • since 1990 (reunion) nearly 1,5 Mio. people left the eastern part of Germany • 63% of these migrate group were woman  88 woman per 100 men • population density: 4,34 km²/1000 inh. East Germany: 7,53 km²/1000 inh. • net income per household: 2816€ Germany; East Germany 2255€ (77% from the West niveau) • Jobless rate: 8,2% Germany, East Germany: 13,3% Legend: Source: destatis, Datenreport 2008

7. Influence of demography on housing affordability (1) less worker to save our economy rising number of households rising demand fewer population income housing cost income fewer jobs in rural areas urban renaisance migration to the cities fewer housing help The affordability rate will increase and the demographic development will it strengthen!

8. Influence of demography on housing affordability(2) Results of a rising affordability rate in Germany: more segregation between: suburbanisation won´t stop ...rich and poor more travel housing cost income less money for children ...young and old no social sustainability more housing help is needed

9. Empirical Analyses (1) Mankiw/Weil The Baby Boom, the Baby Bust and the Housing Market (1988) Housing affordability of Renta and Owner Occupied Housing over the Course of the Economic Transformation in the Czech Republic (2007) Robert F. Martin Lux/Sunega The Baby Boom: Predictability in House Prices and Interest Rates (2005) Decomposing Canada´s Growing Housing Affordability Problem: Do City Differences Matter? (2004) Kate Barker Andrejs Skaburskis Review of Housing Supply: Final Report (2004) Philippe Thalmann Amy H. Wolff House poor or simple poor? (2003) Master Thesis: Housing Affordability by Metropolitan Area (2006)

10. Empirical Analyses (2) Börsch-Supan/Ludwig/Sommer Demographie und Kapitalmärkte (2003) Tobias Just/DB Research Demographie Spezial (since 2002) Der Einsatz staatlicher Instrumente in der Wohnungs- und Bodenpolitik des 20. Jahrhunderts (2003) Irene Hagemeier Wiese von Ofen/Brey Affordable Housing in the Federal Republic of Germany (2008)

11. Empirical Analyses (3) • What´s new: • Analysis of variables which influence the housing affordabiltiy ratio with an special look on demography. • For the German case: • Not only a literature review • Calculations will be done on a German data base Research model: The aim of the research is to build a regression model, based on described developments in the German population (i.e. the demographic change, east west migration, low fertility rate...) and on the housing market (i.e. urban renaisance, rising demand, especially in cities...) within a single body of work. The analysis of these aspects in common may show the interaction and determine which of these variables has most impact on housing affordability , especially whtin a metropolitan area. Used variables: Dependent Variable: Housing Affordability ratio (=housing cost/income) Independent Variables: 1. Demographic and Growth Regression 2. Economy Equation 3. Geographic

12. Conclusion • What is the problem? • housing affordabílity is already high • burdens of health care, social charges and tax will decrease the income of employes in the next years • cost of housing grow because of a rising demand on the housing market • public subvention for housing or social security will shrink because of other big burdens the German country faces • Expected results: • A basic analysis of the housing affordability theme based on interactions of different variables. • Which aspect influences the housing affordability rate at most? • Does future demographic developments really have a strong impact on housing affordability? • Will the housing affordability increase? • Will the housing cost gap between living in a city and living on the country side increase? Aim of the paper: To make government and real estate professionals aware of the future situation on the housing market. The concentration in cities and the high costs of housing. Segregation between rich and poor but also between old and young will grow. This should be stoped in the time of huge sustainable visions, where the social aspect of sustainability also belongs too. Try to help to develop solutions for furture affordability problems. –> more affordable and familiy friendly houses

13. Contact Dipl. Vw. Stefanie Forster-Kraus IRE│BS International Real Estate Business School Universitätsstraße 31 D-93040 Regensburg Tel.: +49/ (0)941 - 943 6013 Fax: +49/ (0)941 - 943 6012 Mail: stefanie.forster-kraus@irebs.de