14.06.2019 - Comments

Monetary policy increases inequality

by Philipp Immenkötter

Unconventional monetary policy measures have no influence on the distribution of wealth in Germany. At least that is the view of Bundesbank President Jens Weidmann.1Since real estate accounts for the largest share of German household wealth and real estate prices have almost exploded, it is hard to believe Mr. Weidmann. Therefore, we checked the figures.

Let us go back to 2010, when the ECB had not yet taken any unconventional monetary policy measures. At that time, the value of the average property held by German households was estimated at 210,000 euros.2 Since then, property prices have risen by as much as 49% across Germany.3 If a household sells a property in 2019 that it already owned in 2010, it would receive about 310,000 euros for it, i.e. 100,000 euros more. Even after the property has been depreciated, there is still considerable added value. If one compares the added value with the net assets of the average German real estate owner in 2010 of 270,000 euros4, it represents an increase in assets of 37%, before to depreciation.

How increases inequality?

Since only 44% of German households owned real estate in 2010, their assets now stand out clearly from those of households living for rent. However, this is not the only way for increasing inequality to sneak in. Non-real estate owners now must spend considerably more to acquire objects. Real estate heirs also have the advantage of benefiting from price increases, while households whose parents cannot inherit real estate are left behind. Finally, homeowners are more likely to be found among wealthier households. It is becoming increasingly difficult to believe Mr. Weidmann's statement.

What is Weidmann's claim based on?

Weidmann refers to the results of the "Private Haushalte und ihre Finanzen" survey conducted by the Bundesbank in 2010, 2014 and 2017, in which is stated that the value of the average German residential property has risen by only 15 % since 2010 – i.e. to a much lesser extent.5 A closer look reveals that the estimation of the increase in value is based on a self-assessment by the households. In an extensive telephone survey, households are asked to estimate the current value of their property.6

And here's the problem.

The methodology of the survey is the key issue. Is a household able to estimate the price of its real estate accurately? Only if the object was acquired recently or a comparable object was sold in the neighborhood, one can give a reasonably exact estimate of the price. However, if this is not available, the interviewee can either guess or recall the price he once had to pay. Psychological studies suggest that naming the original purchase price is the most probable answer.7 Survey results are therefore unsuitable as estimators for the appreciation of illiquid assets.

The benchmark calculation

The benchmark calculation presented at the beginning takes a different approach. We also take the survey results from 2010 as a starting point but update the value of real estate using the vpdResearch real estate price index. The index is calculated on basis of a database of real estate transactions by almost 600 credit institutions. The estimate can therefore be regarded as sufficiently accurate.8 The deviation from the survey results from 2014 and 2017 is too large to be explained by wear and tear. This suggests an inconsistency in the Bundesbank's survey results, to which we already referred in 2016.9

The ECB's unconventional monetary policy measures have a considerable influence on the distribution of wealth in Germany. Although this may be difficult to assess based on survey results, a look at the micro level clearly reveals the connection. It remains to be seen when this undesirable side effect of monetary policy will also be recognized by Mr. Weidmann, the Bundesbank, and finally by the ECB.


1Speech by Jens Weidmann on the 28th Sparkassentag in Hamburg, 16.05.2019.

2 Deutsche Bundesbank, PHF-Studie, first wave (2014), Table 2_1.

3vdp Immobilienpreisindex für selbstgenutztes Wohneigentum, vdpResearch GmbH, accessed 07.06.2019.

4 Deutsche Bundesbank, PHF-Studie, first wave (2014), Table 1_A_1.

5 Deutsche Bundesbank, PHF-Studie, third wave (2019).

6 Deutsche Bundesbank (2014): „Fragenprogramm: Private Haushalte und ihre Finanzen“, Question 3.15.

7 Called „anchoring bias“, documented for the first time by Tversky & Kahnemann (1974) in „Judgement und uncertainty: Heuristics and biases“, in Science.

8 Comp. https://www.vdpresearch.de/transaktionsdatenbank/.

9Immenkötter (2016): „Vermögenspreisinflation und die Entwicklung des Vermögens deutscher Haushalte“ Flossbach von Storch Research Institute.



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