Housing market convergence: evidence from Germany

Abstract

ABSTRACT This paper analyses the convergence patterns of German housing prices and rents, employing a new dataset covering the country’s administrative districts. In addition to conventional tests for β -convergence and σ -convergence, we apply Phillips and Sul’s (2007) approach to allow for heterogeneous transition dynamics across districts, potentially leading to different ‘convergence clubs’. Our results reveal no evidence of convergence across Germany or within states; instead, we discover widespread evidence of divergence and inter-state convergence, as well as support for the existence of convergence clubs. The results of an ordered logit model suggest that differences in the variation of GDP per capita, population density, unemployment rate, and shares of immigrants and asylum seekers have played a significant role in determining club membership from 2004 to 2020.