Critics of the scheme point to the significant drain on the national budget. How else can the government encourage the construction of new homes?
There are other ways to ease the burden on families than through Baukindergeld. One option would be to reduce land transfer tax, which in some federal states amounts to as much as 6.5 per cent of the purchase price. This is a much higher rate than in other countries such as Denmark, Sweden, Austria and Switzerland, where buyers only have to pay between 0.6 and 3.3 per cent. Applied at a standard rate of 3.5 per cent across all of Germany until 2006, the tax has been repeatedly raised by the majority of regional governments over the last ten years. Baden-Württemberg, for example, raised the tax rate to 5 per cent, meaning that a family with two children buying a detached house in Mannheim for 600,000 euros has to pay an additional 30,000 euros in tax. If they were to apply for Baukindergeld, they would only receive a maximum of 24,000 euros in funding over ten years. Purchasing a house also comes with further costs, such as notary fees, land register entry and, in many cases, estate agent fees. In the case of estate agent fees, it has often been suggested that the “orderer principle” for rented properties – that is, whoever contracts the agent, pays the brokerage fee – also be applied to property sales. There is, however, a risk that the seller will add these costs to the purchase price, which is then used as the basis for calculating the land transfer tax. In the Netherlands, for example, where the “orderer principle” also applies, such price increases have not been observed, largely because the average estate agent fee is only around 1.5 per cent. We should still be cautious, however, since – in the worst case scenario – this principle can make purchasing property even more expensive for buyers. Best case scenario, as was the case in the Netherlands, it can foster competition among real estate agents and lower brokers’ fees, since sellers then select their broker more carefully and negotiate prices in advance.