Universität Regensburg
Dr. Steffen Sebastian - IREBS
We would have loved to report that developments on the political level would have steered into calmer waters in February 2019. But the news continues to be dominated by debates over pos- sible expropriations, new regulations and renewed state ownership of the housing supply.
Long-term interest rate levels have dropped to a new low point. At the same time, the housing policy debate is, sadly, far from over.
No doubt the most exciting piece of news for the real estate industry in February came from the capital market. Although the European Central Bank (ECB) suspended its bond purchases, long-term interest rates have declined to the lowest level seen since October 2016. In several previous issues of the Market Radar, we had indicated that we did not expect any rise in interest rate levels. And we were right. What we did not expect, however, is the most recent interest rate cut. The most plausible explanation for the development is that the majority of market players does not seem to expect rising interest rates either. Accordingly, demand for long fixed-interest periods is drying up.
We would have loved to report that developments on the political level would have steered into calmer waters in February 2019. But the news continues to be dominated by debates over pos- sible expropriations, new regulations and renewed state ownership of the housing supply. Berlin has undergone greater changes than any other housing market in Germany since the reunifica- tion in 1990. With this in mind, it is understandable why the debate between the stakeholders is conducted with considerable passion. However, we doubt that it would be a good solution for the affected households with low and medi- um income if the State of Berlin further expanded its proprietary housing stock—and we are saying this not just because of the high current price level. The thing is that municipal housing ne- ver benefits anyone except those lucky few who manage to get one of these state-owned units. You also need to re- member: It is generally impractical to maintain an efficient system that would periodically verify eligibility. Indeed, when everything is said and done, it would be an expensive and inefficient form of sponsorship.
Interest Rate Development
The ten-year interest rate swap was 0.69 both at the beginning and end of the month. In the intervening days, it fluctuated between 0.64 and 0.73, which implies that, for the time being, long- term interest rates have hit the lowest level since October 2016. The six-month Euribor fluctuated slightly between -0.229 and 0.235 percent. Analogously, the three-month Euribor fluctuated but minimally between 0.310 and 0.307 percent.
Outlook
Some scholars argue that interest rates will remain on a low level for a very long time yet. But this is not particularly helpful when it comes to making decisions for the next few years or even months. The latest trend of the inflation rate offers better clues for the purpose. Lately, the price growth has started to move away from the ECB’s inflation target again. Moreover, the economic cycle continues to slow. It is a situation that makes additional accommodative policy measures—including a resumption of bond purchases—more likely than interest rate cuts.
The heated debate on the subject of Berlin’s real estate market has an im- pact on the federal politics as much as on municipal housing policy everywhere in Germany. Sad to say, it makes the ongoing discussion less objective than it could be. It would be helpful if the re- sponsible parties—and not just in the State of Berlin—carefully calculated the costs and benefits of all alternative solu- tions under discussion and based their decision on the results. From a scholarly point of view, direct assistance to households via housing benefits in particular is more effective than the various forms of supply-side subsidies. Democratically elected policymakers, however, are understandably prone to favour solutions that will help them win the next election. Although the Social Democrats were less than successful in retaining their constituency through the introduction of the rent freeze, there is every reason to expect them to seek a further tightening of relevant regulations.
