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12 09 2019

Child Tax Credit for Home Buyers more Effective than Assumed

When the Federal Government announced the child tax credit for first-time home buyers last years and eventually introduced it in September 2018, it triggered a lively debate as to whether the subsidy program is comparable to the homeownership subsidy program that was suspended in 2006. The purpose of the child tax credit for first-time home buyers provides that families who acquire or build a condominium or home for owner-occupancy will be supported with an equity grant of 1,200 euros per child and year over a ten-year period. The program has been harshly criticised so far over concerns that the child tax credit would benefit those most who could have afforded it even without the subsidy program and would have moved ahead anyway. But the latest figures released by the Federal Ministry of Transport, Building and Urban Development in mid-August suggest that the worries are not vindicated by facts on the ground.1

According to the stats, more than 112,000 families have applied for the child tax credit so far, while around 43,000 households already received their first disbursements or at least a confirmation of the amount to be disbursed to them. Around 60 percent of these families have an annual household income of 40,000 euros or less before taxes, while around 40 percent have only an annual income of 30,000 euros or less. This means that the child tax credit for first-time home buyers mostly benefits families with rather low incomes, and not primarily top income earners.2
 

Agents’ Fees to be Regulated

In addition, the child tax credit for first-time home buyers benefits young families with small children above all. Two out of three households have children of preschool age while one in three households has children younger than two years of age. This means that the child tax credit mainly benefits household groups who opted for homeownership less and less often in recent years, on the one hand, and who are in the best age for buying a home because they still have enough time left before retiring to pay back their mortgage loans, on the other hand.3

Nevertheless, the acquisition of a home remains difficult, especially for younger households. The governing Grand Coalition therefore announced its intention to regulate estate agents’ fees to ensure that buyers of condominiums and single-family detached homes pay no more than half of the agent’s fee. The idea is to lower the incidental acquisition costs which account for a major share of the required equity capital and which thus represent one of the main obstacles blocking the path to homeownership. However, the governing coalition remains silent in regard to the possible reform of the real estate transfer tax, which constitutes another substantial share of the incidental acquisition costs.
 

1 www.wiwo.de/finanzen/immobilien/erste-auswertungen-wer-vom-baukindergeld-bislang-profitieren-konnte/24891930.html
2 www.tagesschau.de/inland/baukindergeld-127.html
3 www.accentro.de/service-leistungen/branchennews/detail/juengere-haushalte-bilden-immer-seltener-wohneigentum/