The child tax credit for first-time home buyers that the German government introduced recently has proven highly controversial both in the body politic and in the real estate industry. Several surveys on the subject of the subsidy program have been released lately, and these, too, have mixed feelings about the child tax credit. The most recent survey comes from the CRES Center for Real Estate Studies and passes a rather favourable verdict (source: ivd.net).
CRES calculated the amount by which home buyers in the five cities of Berlin, Hamburg, Leipzig, Nuremberg and Krefeld are relieved by the child tax credit. Under the program, families should be paid a subsidy of 1,200 euros per child and year toward the acquisition of an owner-occupied home. According to CRES, the subsidy translates into a relief between 2.2 percent and 7.7 percent for families with one child. Savings are even higher for families with more children. To determine the monthly savings for property buyers, the survey factored in the average income and the average property prices for each location it examined (source: www.immobilien-zeitung.de).
The survey found that the child tax credit for first-time home buyers represents a particularly sensible contribution to bring down the monthly strain on the incomes of home buyers. A family with two children living in Berlin-Spandau, for example, spends an average of 28 percent out of their monthly income on mortgage payments for their home—and the child tax credit would bring the ratio down to 21 percent. In Krefeld, the share that families spend on their mortgage payments would drop to an actual nine percent of their monthly income if they took advantage of the child tax credit. But all things considered, the survey still reaches the conclusion that the child tax credit for first-time home buyers makes “only a small contribution to ease the strain on the German housing market.”
Another survey, this one by the DIW German Institute for Economic Research recently concluded that high-earning households will benefit from the child tax credit more than others (source: www.spiegel.de). Out of the total number of private households in Germany, the top-earning 30 percent will claim a higher share of the subsidy program than the bottom 40 percent, according to the survey findings. Since many of the affluent households would acquire homes with or without the child tax credit, the DIW Institute foresees deadweight effects. This would mean that the objective of making homeownership an option for a larger number of households would be largely missed.
It is an assessment endorsed by the Pestel Institute, too. The latter’s own survey suggests that the child tax credit for first-time home buyers will raise the homeownership rate in Germany by a mere 0.1 to 0.2 percentage points (source: www.wiwo.de). Analogously, the IW German Economy Institute in Cologne already warned against deadweight effects of the child tax credit that could cause property prices to go up, and proposed a reform of the real estate transfer tax instead (source: www.accentro.de).