The effect of real estate purchase subsidies on property prices

Abstract This paper assesses to which degree housing purchase subsidies are capitalized into property prices. Using a large-scale micro-dataset on German house prices, I exploit the introduction of new subsidy scheme in state Bavaria. My difference-in-difference estimations at Bavarian interstate border indicate that prices single-family homes increased by approximately 10,000 euros more regions. is consistent with full capitalization subsidy. No effect found for apartments, whose purchasers seldom qualify A heterogeneity analysis confirms price larger segments real estate market higher exposure scheme. also provide suggestive evidence slightly stimulated construction activity. Overall, my results instead making purchases affordable families, led rise and mainly benefited sellers properties.