On the impact of the real estate transfer tax on residential construction in Germany

In the wake of the interest rate turnaround, the construction industry in Germany is facing a recession. New construction targets set by the German government are unlikely to be met for some time. Against this backdrop, author Jens Boysen-Hogrefe examines whether a reduction in real estate transfer tax rates by the federal states could help stabilize the volume of new construction. Since the federal states have been able to set their own real estate transfer tax rates starting in 2007, all states except Bavaria and Saxony have increased rates. The author shows that construction activity was noticeably higher in the two states, which continued to have low real estate transfer tax rates, than in comparable states and that this effect significantly exceeded the additional tax revenues of the respective comparable states. He concludes that a reduction in real estate transfer tax rates could stimulate residential construction activity, which has been slowed by the turnaround in interest rates. It remains open whether the strong effect of the real estate transfer tax on housing construction measured for the zero-interest rate period would also persist in a changed interest rate environment.