Large-scale new construction as a solution for tight housing markets – at first glance, there is little empirical evidence for this formula for sufficient and affordable housing. In order to create a better data basis for this urgent social and political challenge, the economists Prof. Dr. Fabian Bald and Prof. Dr. Felix Weinhardt from the European University Viadrina Frankfurt (Oder) analyze the unique housing situation that arose in 2010 as a result of the withdrawal of British troops from West Germany and the sale of their properties over the following years.
Their research project "From the military to the market: The economic impact of large supply shocks on the housing market" is being funded by the German Research Foundation (DFG) with around 430,000 euros over three years.
"Our project is about gaining a better understanding of the extent to which more housing really leads to falling prices. If we only look at the increase in supply, prices should actually fall. However, there can also be changes on the demand side that counteract falling prices and could even reverse the effect. Understanding these relationships better is highly relevant in the current tight markets," explains economist Felix Weinhardt.
In order to shed more light on the causal relationship between more living space and falling prices, Weinhardt and Bald use the unique case of a short-term and surprising increase in living space following the departure of British military personnel and their dependents from West Germany in 2010. "In this setting, we observe large supply shocks, which have accounted for a large proportion of the annual new housing supply in many medium-sized cities in North Rhine-Westphalia and Lower Saxony – for example in Cologne, Münster and Osnabrück," explains Fabian Bald, Professor of Regional and Urban Economics, the starting point.
In the DFG-funded project, the professors and their colleagues will look at how house prices in cities have developed after the withdrawal, especially in comparison to comparable neighboring cities where no military personnel had lived. In a second step, they will examine the price developments on an even smaller scale in the neighborhoods around the former "British" areas in order to understand the extent to which the change leads to greater attractiveness of the neighborhoods – and thus perhaps to less sharply falling prices in the immediate vicinity.
With the help of the DFG funding, two positions will be created for research assistants who are expected to conduct research on the topic together with Felix Weinhardt and Fabian Bald as part of the Berlin School of Economics. Viadrina is one of nine partner institutions of the Berlin School of Economics that offers a structured doctoral program.