The child tax credit for first-time home buyers introduced in 2018 appears to have met with a lively response so far – a total of 171,510 applications for homeowner subsidies were submitted to the KfW development bank between early 2018 and November 2019. The applications represent a combined funding volume of c. 3.6 billion euros. As recent evaluations show, the bulk of these funds appears to flow primarily into rural regions and smaller towns.
No more than 7,100 applications for child tax credit originated in the “Big Seven” cities, the equivalent of roughly four percent of the total number of applications filed to date (source: www.polis-magazin.com). Yet these seven largest German cities are home to around twelve percent of the German population, as the Handelsblatt business daily noted (source: www.handelsblatt.com). Previously, older evaluations had already determined that only 16 percent of the applications had been filed in major cities (source: www.tagesspiegel.de). It seems that the homeowner subsidy program has barely resonated with urbanites.
This is also reflected in recent figures from Bavaria, a state which tops up the federal child tax credit over a total amount of 12,000 euros per child with an extra 3,000 euros and which moreover grants a homeownership subsidy in the amount of 10,000 euros (source: www.sueddeutsche.de). In Bavaria, the child tax credit is to more than 80 percent used for detached and semi-detached homes and to less than 20 percent for condominiums, according to the reply by the Bavarian State Government to a parliamentary inquiry (source: www.mistol.de).
Detached and semi-detached homes are typically located in more rural regions, whereas condominiums tend to be the dominant type of residential property built and sold in larger cities. The statistics reported from Bavaria also demonstrate that the subsidies are mainly used for existing properties and only to a negligible degree for newly constructed buildings.
The fact that the child tax credit for first-time home buyers is used primarily for existing properties and does little to get housing construction up to speed is not necessarily to blame on the nature of the subsidy because these, after all, were not its principal objectives. The funding instrument was primarily intended to support families in their efforts to become homeowners and thus to help raise the very low homeownership rate in Germany.
For the time being, it is too early to say whether the child tax credit actually functions as the main incentive for homeownership or whether it is actually claimed by families who would have built or bought a family home anyway, i.e. without the subsidy program, as Michael Voigtländer of the IW Economic Institute emphasised. Even at this point, however, it is rather evident that the child tax credit for first-time home buyers has virtually no impact in the major cities where the homeownership rate is lowest and the pressure to act is highest.
This contrasts with the desire for homeownership among the German population, which is widespread, according to the YouGov public opinion research institute. The latter reported that 51 percent of the poll respondents who do not own their homes stated that they would love to own residential property. But only 19 percent claimed to have concrete plans to acquire a home in the near or distant future, whereas 32 percent consider it unrealistic with respect to their personal circumstances, despite their desire to own a home outright (source: www.welt.de).
The biggest obstacle blocking people’s path to homeownership is the necessary equity capital, as a survey found that was commissioned by the IVD Federal Investment and Asset Management Association. Out of all non-owners polled who would like to own a home, 68 percent rated the down-payment as the key issue standing in their way of becoming homeowners. By contrast, the monthly expenses toward interest and repayment of a mortgage loan were less cause for concern because a mere 43 percent of the respondents considered them a problem.