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Residential construction in Hamburg: construction activity in countries with low real estate transfer tax noticeably higher
Photo: Marcus Brandt / dpa
A low real estate transfer tax pays off because it stimulates private sector housing construction.
The investors' expenses are even significantly higher than in the federal states, which use the additional income from higher real estate transfer tax rates for state-owned new buildings.
This is shown by an analysis by the IfW Kiel based on the two federal states of Bavaria and Saxony, which, unlike all other federal states, have never increased their property taxes.
"A reduction in real estate transfer tax rates should stimulate housing construction, which has currently stalled in view of the turnaround in interest rates," says author Jens Boysen-Hogrefe.
The study showed that construction investments in Bavaria between 2011 and 2020 were eight percent higher on average, in Saxony the difference was even eleven percent.
Since 2007, the federal states have been able to decide for themselves on the amount of property tax.
With the exception of Bavaria and Saxony, all state governments have since made use of the opportunity to increase taxes.
In order to determine the effects, the economists have each created a fictitious federal state that has a comparable economic structure but requires higher real estate transfer tax rates.
In the case of Bavaria, these are Baden-Württemberg (real estate transfer tax 5 percent), Lower Saxony (5 percent) and North Rhine-Westphalia (6.5 percent); in the case of Saxony, these are Brandenburg (6.5 percent), Mecklenburg-Western Pomerania (6 percent), Saxony-Anhalt (5 percent) and Thuringia (6.5 percent).
State financial equalization provides an incentive for high real estate transfer tax
Result: With a certain time lag, the development of construction investments followed the difference in real estate transfer tax between Bavaria and Saxony and their comparison countries.
The difference was higher in Saxony, which the experts attribute to the overall higher real estate transfer tax rates in the Saxon comparison countries.
»Construction activity was noticeably higher in the two countries with persistently low real estate transfer taxes.
The results suggest that the increase in real estate transfer tax rates in the countries compared has had a negative impact on private residential construction,” says Boysen-Hogrefe.
The analysis also shows that additional income from an increase in land transfer tax is usually far from sufficient to finance state housing construction to the extent that the private sector would lose it as a result of the increase.
If Bavaria and Saxony had increased their real estate transfer tax rates to the same extent as the comparison countries in order to finance the privately created living space by the state, the additional tax revenue would only have been sufficient in 2012 (Bavaria, Saxony) and 2016 (Bavaria).
"In the other years, there is sometimes a significant gap between additional tax revenue and the necessary construction investments," explains Boysen-Hogrefe. Bavaria, for example, would have had 0.7 billion euros in additional tax revenue in 2020, but had to invest more than 10 billion euros in construction.
"The positive influence of low taxes on real estate transactions as a whole is well known, but a reduction in land transfer tax is apparently also an effective means of promoting new residential construction in particular and could help the construction industry out of the crisis in times of rising interest rates and prices".
In practice, however, this instrument is thwarted by the design of the state financial equalization system, because it calculates the income from real estate transactions at average rates for all federal states, so that there are incentives to raise one's own tax rates above the average.
This mechanism therefore urgently needs to be revised.
mike