Inspiring Personalities. EBS Diskussionspapiere zur Immobilienwirtschaft Prof. Jan Mutl, PhD

Inspiring Personalities. 07 EBS Diskussionspapiere zur Immobilienwirtschaft Prof. Jan Mutl, PhD (Hrsg.) The Impact of the Current Refugee Crisis on Germany's Real Estate Markets - We can do it! An analysis of the medium term impact of massive immigration on rental prices and vacancy rates in Germany's 50 mostpopulous cities Prof. Jan Mutl, PhD Heiko Kirchhain, MSc

The Impact of the Current Refugee Crisis on Germany s Real Estate Markets We Can Do It! An analysis of the medium-term impact of massive immigration on rental prices and vacancy rates in Germany s 50 most-populous cities Author: Prof. Jan Mutl, PhD Managing Director, EBS Real Estate Management Institute, Wiesbaden EBS Business School EBS Universität für Wirtschaft und Recht Gustav-Stresemann-Ring 3, 65189 Wiesbaden Phone: +49 (0) 611 7102 1228 jan.mutl@ebs.edu Heiko Kirchhain, MSc Research Assistant Phone: +49 (0) 611 7102 1264 heiko.kirchhain@ebs.edu Nicolas J. Seyler, MSc Research Assistant Phone: +49 (0) 611 7102 1229 nicolas.seyler@ebs.edu Wiesbaden, 14 December 2015

Disclaimer The present document is a study conducted by the EBS Real Estate Management Institute (EBS REMI). The opinions expressed in the study are those of the EBS REMI at the time of the editing of the document. They are subject to change at any time. The document has been prepared for general information purposes only, and is not intended to be relied upon as accounting, tax, or other professional advice. It does not represent an offer or an invitation by, or on behalf of, the EBS REMI to buy or sell real estate, securities, or any other capital goods. The information and analyses in this publication have been either collected by the EBS REMI or have been compiled from sources that are considered reliable. However, the EBS REMI neither guarantees their accuracy nor their completeness. Moreover, the EBS REMI disclaims any liability for losses that might arise from using the information contained in this document. This document may not be duplicated in excerpts or in its entirety without the express written permission of the EBS REMI.

Executive Summary The current refugee crisis presents a favorable opportunity for many large cities in Germany. Only within certain migration "hot spots" already subject to intra-german and intra- European migration as well will a previously existing shortage of living space be reinforced and exacerbated. This survey s results clearly show that the city of Bonn can anticipate the greatest impact of this type. There, an estimated population growth of 6.6% will result in a rental price increase of 7.7%. Other cities that will increasingly be subject to a major shortage of living space are the large economic metropolises of Frankfurt, Munich, Stuttgart and Hamburg. In total, German Tier-A cities may anticipate average population increases of 4.0% and rent increases of 3.4% as a result of the refugee crisis. Some second-tier cities will also be affected. For example, Wiesbaden, Aachen and Hannover are already exceeding the forecasts mentioned above. Most of the remaining larger German cities, however, should anticipate only moderate rental price increases. In addition, many cities may find that current negative population growth is compensated for through increasing refugee migration, and that this will stabilize the existing real estate markets. The refugee crisis can thus be a window of opportunity for the real estate markets of many German cities, especially in the Ruhr-region. Recent immigration has already proven a boon to industrial cities such as of Dortmund, Essen and Ludwigshafen. Here it is expected that immigration will have the most positive impacts on the markets. In contrast, it is predicted that the wave of refugees will mostly bypass the cities of eastern German, and that they will experience no positive effects from the migration. Clearly, even the largest wave of immigration since the founding of the federal republic of Germany cannot prevent the continuing depopulation of many rural regions.

i Table of Contents Table of Contents List of Figures and Tables... ii 1 Introduction... 1 2 Methodology and Data... 1 2.1 Determination of Different Scenarios 1 2.2 Identification of Gateway Cities 3 2.3 Distribution Coefficient 6 2.4 Capacity of Housing Markets 9 2.5 Rental Price Development due to the Refugee Crisis 10 3 Results: Rent Increases...11 4 Results: Market Stabilization...13 5 Recommendations Active Movement Management of Refugees...16 6 Reference List...17 7 Appendices...19

List of Figures and Tables ii List of Figures and Tables Figure 1: Foreigners as a share of the total population of Germany... 4 Figure 2: Expected population increase in Germany s 50 most populated cities... 7 Figure 3: Predicted permanent immigration in the most 50 populous German cities... 8 Figure 4: Vacancy rates in Germany by district in 2011... 9 Figure 5: Ranking of cities most affected by projected rent increases at 1.5 million refugees... 11 Figure 6: Market stabilization and price increases at 1.5 million refugees... 13 Figure 7: Rent developments at 1.5 million staying refugees in the medium-term... 15 Figure 8: Projected ranking of cities most affected by rent increases 1,000,000 refugees... 19 Figure 9: Market stabilization and price increases 1,000,000 refugees... 20 Figure 10: Projected ranking of cities most affected by rent increases 2,000,000 refugees... 21 Figure 11: Market stabilization and price increases 2,000,000 refugees... 22

1 Methodology and Data 1 Introduction The target of the presented study is to determine the effects of the current wave of refugees on the real estate markets of the 50 most populous German cities. Cultural differences, as well as possible sociological effects are not analyzed or discussed. The target is to quantify the additional pressure resulting from immigration on the real estate markets and to show positive and negative effects in order to derive political recommendations for action. 2 Methodology and Data The study is conducted by using demographic data from the 2011 census as well as current data published by the statistical offices of the different German federal states. Geographical boundaries of the data are the city borders of the 50 most populous German cities, according to the 2011 census 1. Rental price developments are derived from price data for 2012 until October 2015, as published by Immowelt.de. The first step of the analysis is to determine the total amount of refugees by using official data. After controlling for the rate of immigrants that will resettle to their country of origin once the crises are solved an allocation formula is derived that identifies the socalled Gateway cities. This allocation formula is based on the former dynamic of refugee groups immigrating to the country since the foundation of the Federal Republic of Germany, and on well-known academic studies from English-speaking countries. Based on this groundwork a general rental price elasticity is determined that predicts rental price increases in accordance with population growth and the structural characteristics of the individual cities, which is followed by the calculation of rental price increases and the decline of vacancy rates. 2.1 Determination of Different Scenarios To make an exact prognosis at this time of the total number of people seeking asylum in Germany is obviously not possible. Even more difficult to estimate is the exact number of those that will stay indefinitely. This is why for the following analysis different scenarios have been constructed, based on the total number of immigrants thus far and on the official prognosis of the European Commission and the German government. According to the Federal Office of Migration and Refugees (BAMF) 130,000 applications for asylum were registered in 2013 and 200,000 in 2014 2, with 1,000,000 estimated 1 See. Zensus 2011 2 Bundesamt für Migration und Flüchtlinge, 2015a

Methodology and Data 2 for 2015 3. This is by far the largest immigration into the Federal Republic since its foundation in the year 1949 4. At more than 1% the total population, this is by far the biggest refugee influx of all time to a country within the OECD 5. For the years to come, the European Commission is estimating a similar trend for the 28 EU member states 6. In total, three million immigrants to the European Union are estimated until the year 2017, when hopefully the problems in the Middle East are resolved and the situation has stabilized 7. Approximately 40% of these refugees are seeking asylum in Germany, increasingly so as many other European Countries tighten border controls and immigration policies 8. Taking these latest developments into account means that the number of refugees coming to Germany in the next years will be at least 2.5 million. However, these numbers have to be controlled against those staying indefinitely within Germany. According to estimates of the OECD, around 350,000 to 450,000 (of one million) will receive unconditional asylum status in the European Union 9. Eurostat, the statistical bureau of the European Union, estimates that around 45% of refugees will receive this status 10. It can be reasonably assumed then that the final number will be somewhere between one and two million people. At that level, the number will increase the pressure on the German real estate markets. How many of the total migrants whose asylum application is rejected and who really leave Germany, is not controlled for in the next calculation steps. Similarly the remigration quota is not included in subsequent calculations. Nevertheless, a study by the Federal Agency for Civic Education (Bundeszentrale für politische Bildung) highlights that the remigration of itinerant laborers in the 1960s was almost completely offset by immigrating family members 11. It is anticipated that the number of immigrants could increase considerably if the situation in crisis-hit countries remains unstable. This could actually prevent remigration and reinforce immigration by family members. For the following analyses, three different scenarios have been established: Scenario 1 represents the most likely scenario according to the current database, with approximately 1.5 million immigrants remaining for the medium-term. Scenario 2 assumes stabilizations in crisis-hit countries and, consequently, significantly lower migration flows 12. A conservatively calculated number of approximately one million immigrants remaining in Germany is assumed in this scenario. 3 Frankfurter Allgemeine Zeitung, 2015 4 Bundesamt für Migration und Flüchtlinge, 2015a 5 OECD, 2015 6 Europäische Kommission, 2015 7 Europäische Kommission, 2015 8 OECD, 2015 9 OECD, 2015 10 Eurostat, 2015 11 Bundeszentrale für politische Bildung, 2012 12 See Appendix A

3 Methodology and Data In Scenario 3, a noticeable migration increase to Germany is assumed with approximately two million refugees. This may be partly due to growing resentments against asylum applicants in other EU member states, as well as to continuing instability in the Middle East 13. 2.2 Identification of Gateway Cities In particular, Anglo-American and Australian scientists have dealt with immigrants and their geographic orientation. Previous studies from the United States showed that immigrants mainly focus on a few growth regions and metropolitan areas. A study by the Urban Institute in Washington D.C. highlighted that the vast majority of immigrants of the 1990s distributed to only six states in the USA (California, New York, Illinois, Texas, Florida, and News Jersey) 14. Similarly, the Longitudinal Survey of Immigrants to Canada pointed out that 74% of all immigrants were concentrated in metropolitan Toronto, Vancouver, and Montreal, which together make up only 26% of the Canadian population. Only 4% of immigration takes place to rural regions 15. These results were further affirmed by an Australian study examining the settlement tendencies of Vietnamese refugees during the Vietnam War in the 60s and 70s 16. The main criteria for settling in certain areas were above all job opportunities, relatively inexpensive rental prices (at district level) and the initial arrival venue, as well as existing contacts to family members and other inhabitants 17. The latter factor also provides an information bias, which further potentiates settlement tendencies. Contacts or relatives help in finding housing and workplaces. At the same time, however, these contacts may only be helpful in the immediate environment. Moreover, various consumer behaviors contribute to the formation of enclaves 18. Immigrant groups with high language barriers in particular tend to concentrate in a relatively few urban centers. Generally speaking, this could be the case for immigrants from the Middle East. From these above-mentioned results, conclusions about the migratory movements within Europe and Germany, in particular, can be drawn. It is assumed that the majority of the refugees will focus on major population and metropolitan centers. A voluntary migration to rural areas seems very unlikely. The following figure shows the percentage of foreigners living in Germany and represents an indicator for the expected settlement trends. 13 See Appendix B 14 Passel & Zimmermann, 2001 15 Government of Canada, 2003 16 Graeme, 1995 17 Graeme, 1995 18 Cutler, Glaeser & Vigdor, 2008; see also Index of Dissimilarity

Methodology and Data 4 Figure 1: Foreigners as a share of the total population of Germany 19 The highest percentage of foreigners in relation to the total population of Germany can be observed in the metropolitan area of Frankfurt am Main. Some municipal districts have a share of foreign persons of over 20%. The neighboring city of Offenbach am Main holds the record for the highest share of foreigners, at 24.8%. If one also considers individuals with a migratory background (e.g. 2 nd or 3 rd generation immigrants, including ethnic Germans from the former Soviet Union), the numbers are significantly higher. In that case, one finds areas with a share of over 50%. In Frankfurt, over 40% of the population has such a background 20. The distinction between a foreigner and a person with a migratory background should be explained. A foreigner is defined by the German Basic Law as anyone who is not a Ger- 19 Zensus 2011 20 See Zensus 2011

5 Methodology and Data man citizen. 21 A person a with migratory background is defined as anyone who migrated to the present territory of the Federal Republic of Germany after 1949, all German-born foreigners as well as all German-born individuals with at least one immigrant or Germanborn foreigner as a parent 22. In addition to the Rhine-Main area, high shares of individuals with migratory backgrounds can be found in southern German industrial cities, such as Pforzheim, Heilbronn, Ludwigshafen, Ingolstadt, Stuttgart, and Augsburg. In these cities, the average national share of individuals with a migratory background of 19% is exceeded significantly, at approximately 40%. On the other hand, in the cities of the former East Germany especially, such as Zwickau, Dessau, and Gera, the proportion is considerably lower than the national average, at below 10%. This may be due in part to the pre-1990 closed borders 23. That said, it is evident that the majority of foreigners in Germany settle in the large cities. In rural areas, as well as in the eastern federal states, the numbers drop dramatically. In order to derive a distribution coefficient, census data from 2011 about the distribution of persons with a migratory background were used, since there will be no falsifying effect of naturalizations. Overall, the 100 largest German cities represent 47% of the population with a migratory background. It should be noted that suburbs were excluded from population centers due to their geographical demarcation. Were the entire urban agglomeration to be considered, the numbers would likely increase. 21 See Artikel 116, Absatz 1, Deutsches Grundgesetz 22 alle nach 1949 auf das heutige Gebiet der Bundesrepublik Deutschland Zugewanderten, sowie alle in Deutschland geborenen Ausländer und alle in Deutschland als Deutsche Geborenen mit zumindest einem zugewanderten oder als Ausländer in Deutschland geborenen Elternteil. Bundesamt für Migration und Flüchtlinge (BAMF), 2015b 23 See Zensus 2011

Methodology and Data 6 2.3 Distribution Coefficient In the following, the attractiveness of cities is analyzed for the geographical orientation of immigrants. It is expected that the already prevailing momentum will continue, and that the internationality of a city will have a positive impact on immigration dynamics. Additionally, free movement of tolerated refugees is assumed and it is theorized that local preferences do not arise during the process of granting asylum. Moreover, it is assumed that asylum seekers do not want to stay in reception centers and, therefore, orient towards the normal housing markets. The distribution coefficient follows the following three premises: The first premise follows the hypothesis that cities in 2015 are as attractive to asylum seekers as cities during the period of the last great refugee movements, during the Yugoslavian civil war and the fall of the Iron Curtain at the beginning of the 1990s. For this purpose, the municipalities now home to the most individuals with a Yugoslavian migratory background were identified. Based on the census, the proportion of the refugee influx in the population was weighted. The second premise is related to the attractiveness factor of cities in which established communities of fellow countrymen and refugees exist. Thereby, special attention is paid to cities with the largest number of Syrian residents. Based on studies by BAMF from October 2015, over 50% of the refugees come from Syria. This group is also expected to comprise most of the immigrants allowed and choosing to remain. Furthermore, refugees from countries torn by civil war, such as Iraq and Afghanistan, are considered and weighted according to previous migratory movements 24. These hypotheses are in line with findings related to so-called immigrant clustering 25. The third premise follows the theory that immigrants orient themselves according to existing shares of individuals with a migratory background, and distribute themselves to major German cities. Thereby, sociological and economic factors, which led to the specific distribution to cities in Germany, are intrinsic. On top of that, the dynamic developments of the immigrant quotas are included. On the following page, Figure 2 shows a ranking of the relative expected distribution number of refugees to the 50 most populous cities, assuming a total of 1.5 million refugees. According to the results of this study, most refugees will settle in cities of over a million inhabitants, namely in Berlin, Munich, and Hamburg. Taking into account the population of these cities, Bonn is the city with the highest relative dynamics. Other cities with a high migration rate are economic metropolises like Frankfurt, Munich, Stuttgart, Hannover, and surprisingly also Wiesbaden and Aachen. 24 Bundesamt für Migration und Flüchtlinge (BAMF) 25 See Cutler, Glaeser & Vigdor, 2008 or Graeme, 1995

7 Methodology and Data Rank City Population Predict. # of Refugees Population increase 1 Bonn 304,020 19,963 6.6% 2 Frankfurt am Main 665,650 37,334 5.6% 3 Munich 1,338,830 68,126 5.1% 4 Hannover 502,410 24,409 4.9% 5 Stuttgart 581,390 27,569 4.7% 6 Aachen 234,840 11,122 4.7% 7 Wiesbaden 268,070 12,340 4.6% 8 Ludwigshafen 157,200 6,623 4.2% 9 Augsburg 265,010 10,102 3.8% 10 Essen 563,160 21,419 3.8% 11 Hamburg 1,693,120 62,528 3.7% 12 Mainz 199,820 7,333 3.7% 13 Nuremberg 482,440 17,455 3.6% 14 Bielefeld 323,650 11,584 3.6% 15 Dortmund 568,820 20,143 3.5% 16 Mannheim 287,810 9,583 3.3% 17 Cologne 997,900 33,173 3.3% 18 Düsseldorf 582,760 17,865 3.1% 19 Karlsruhe 285,080 8,566 3.0% 20 Freiburg im Breisgau 207,220 5,852 2.8% 21 Duisburg 486,750 13,647 2.8% 22 Mönchengladbach 253,720 7,007 2.8% 23 Berlin 3,269,260 90,226 2.8% 24 Bremen 539,470 14,721 2.7% 25 Kassel 189,770 5,055 2.7% 26 Wuppertal 340,960 8,448 2.5% 27 Hagen 187,010 4,348 2.3% 28 Mülheim an der Ruhr 166,290 3,829 2.3% 29 Kiel 234,550 5,358 2.3% 30 Oldenburg 156,120 3,435 2.2% 31 Gelsenkirchen 256,800 5,435 2.1% 32 Leverkusen 158,590 3,248 2.0% 33 Oberhausen 209,220 3,985 1.9% 34 Halle (Saale) 227,670 4,244 1.9% 35 Herne 154,590 2,856 1.8% 36 Hamm 175,310 3,012 1.7% 37 Bochum 360,470 6,150 1.7% 38 Solingen 154,300 2,629 1.7% 39 Krefeld 221,130 3,672 1.7% 40 Lübeck 208,000 3,291 1.6% 41 Saarbrücken 175,030 2,741 1.6% 42 Münster 287,060 4,195 1.5% 43 Braunschweig 240,350 3,027 1.3% 44 Leipzig 494,070 3,710 0.8% 45 Potsdam 154,740 711 0.5% 46 Dresden 506,900 2,192 0.4% 47 Magdeburg 226,780 962 0.4% 48 Chemnitz 236,440 903 0.4% 49 Rostock 197,400 744 0.4% 50 Erfurt 199,750 749 0.4% Figure 2: Expected population increase in Germany s 50 most populated cities The particularly high migration rates to Bonn, Wiesbaden, and Aachen arise primarily through the already established Syrian community in these cities. In all three cities, a large number of Syrians were settled prior to 2011. As a result of this ethnic cluster, the greatest increase is also expected there. Other cities, which are likely to have a high relative influx of refugees, are the industrial cities of Augsburg, Ludwigshafen, and Essen. Despite the high absolute migration figures to Berlin, the relative share is only average in comparison, due to the high population figures.

Methodology and Data 8 Many cities in Eastern Germany, as well as in the Ruhr area and in northern Germany, are represented in the lower third of this ranking. Only a small migration into these cities is expected. In past refugee waves, these municipalities did not attract many asylum seekers and this is not expected to change significantly during the current crisis. Increase in Population Figure 3: Predicted permanent immigration in the most 50 populous German cities

9 Methodology and Data 2.4 Capacity of Housing Markets In order to investigate the effects of immigration on real estate markets, the capacity of each city to take in refugees needs to be examined. Therefore, vacancy rates and rental price developments are compared so that the effects on the supply market can be depicted. In all cities, a natural minimum vacancy rate of 1.5% is assumed 26. Every higher vacancy rate theoretically postulates the possibility to accommodate individuals. The average rent increases were determined by supply price data from the Internet portal Immowelt.de. Vacancy rates correspond to the number of unused housing units in the 2011 census in relation to each city s total housing stock. How many of these housing units are actually usable is not considered in this context. Nonetheless, it can be assumed that supposedly poor housing stock can be renovated in order to accommodate refugees. Figure 4: Vacancy rates in Germany by district in 2011 27 26 Own calculation based on Zensus 2011 27 Zensus 2011

Methodology and Data 10 Particularly low vacancy rates can be observed in important economic cities, such as Hamburg, Munich, and Hamburg, as well as in typical university towns like Oldenburg, Münster, Mainz, and Freiburg. These cities also tend to have experienced high rent increases over the past years 28. An accommodation in these tight markets is likely to prove difficult and will clearly result in further price increases. In cities of the eastern states of Germany and in regions of western Germany formerly characterized by heavy industry, enough building stock should be available for the reception of immigrants due to the shrinking population there. An increased immigration to these cities could have a positive effect on housing markets by reducing vacancies. With an average occupancy of 2.9 persons per apartment, the amount of additional housing units needed in Germany because of the current inflow of migrants is approximately 350,000 to 750,000, depending on the total number of asylum seekers 29. According to a study by the Ministry of Construction of North Rhine-Westphalia, the next years show a lack of nearly 200,000 housing units in North Rhine-Westphalia alone 30. This suggests that the figures for the 50 largest cities in Germany obtained for use here are realistic. 2.5 Rental Price Development due to the Refugee Crisis Furthermore, the population growth is compared with the rental price development in order to determine the rental price elasticity. A panel regression resulted in a highly significant rental price elasticity of 1.55 31. Therefore, an increase of 1% of the population would result in a rental growth of 1.55% ceteris paribus. 28 Own calculation based on supply rent price data by Immowelt.de 29 See Empirica, 2015 30 Karl, 2015 31 Own calculation based on data by Regionaldatenbanken and Immowelt.de

11 Results: Rent Increases 3 Results: Rent Increases Rank City Housing shortage Rent increase Decline in Vacancy 1 Bonn - 5,205 7.7% 0.9% 2 Munich - 18,562 6.2% 0.6% 3 Frankfurt am Main - 8,762 5.9% 1.1% 4 Hamburg - 21,561 5.7% 0.0% 5 Mainz - 1,778 4.0% 0.7% 6 Aachen - 2,057 3.9% 1.5% 7 Oldenburg - 1,185 3.4% 0.0% 8 Hannover - 3,601 3.2% 1.8% 9 Wiesbaden - 1,909 3.2% 1.7% 10 Cologne - 6,481 2.9% 0.9% 11 Karlsruhe - 1,722 2.7% 0.8% 12 Freiburg im Breisgau - 1,137 2.5% 0.8% 13 Stuttgart - 2,793 2.2% 2.2% 14 Nuremberg - 1,929 1.8% 1.5% 15 Bielefeld - 1,293 1.8% 1.6% 16 Münster - 1,053 1.6% 0.2% 17 Düsseldorf - 1,494 1.2% 1.4% 18 Augsburg - 601 1.0% 2.0% 19 Kiel - 505 1.0% 1.0% 20 Bremen - 900 0.7% 1.4% 21 Leverkusen - 127 0.4% 1.2% 22 Berlin - 0.0% 1.6% 23 Bochum - 0.0% 1.1% 24 Braunschweig - 0.0% 0.8% 25 Chemnitz - 0.0% 0.2% 26 Dortmund - 0.0% 2.2% 27 Dresden - 0.0% 0.3% 28 Duisburg - 0.0% 1.8% 29 Erfurt - 0.0% 0.2% 30 Essen - 0.0% 2.3% 31 Gelsenkirchen - 0.0% 1.3% 32 Hagen - 0.0% 1.5% 33 Halle (Saale) - 0.0% 1.0% 34 Hamm - 0.0% 1.2% 35 Herne - 0.0% 1.2% 36 Kassel - 0.0% 1.7% 37 Krefeld - 0.0% 1.0% 38 Leipzig - 0.0% 0.4% 39 Lübeck - 0.0% 1.0% 40 Ludwigshafen - 0.0% 2.7% 41 Magdeburg - 0.0% 0.2% 42 Mannheim - 0.0% 2.1% 43 Mönchengladbach - 0.0% 1.8% 44 Mülheim an der Ruhr - 0.0% 1.5% 45 Oberhausen - 0.0% 1.2% 46 Potsdam - 0.0% 0.3% 47 Rostock - 0.0% 0.2% 48 Saarbrücken - 0.0% 1.0% 49 Solingen - 0.0% 1.1% 50 Wuppertal - 0.0% 1.5% Figure 5: Ranking of cities most affected by projected rent increases at 1.5 million refugees

Results: Rent Increases 12 The projections indicate that the greatest pressure lies on the city of Bonn. This is due to the already established large Syrian community there, as well as to the favorable economic situation. Moreover, the real estate market is characterized by a non-coverable demand 32. At a forecast of 1.5 million staying refugees in Germany, a rent increase of 7.7% is estimated. Other cities which will clearly come into focus for the impact of immigration are commercial, financial and economic cities, such as Munich, Frankfurt, and Stuttgart, as well as B-cities such as Hannover, Wiesbaden, and Aachen, surprisingly. In particular, due to the pre-existing Syrian communities and low vacancy rates, high price increases are predicted for these cities. Also, as a result of the extremely tight housing market and already high real estate prices in Munich and Frankfurt, a reorientation towards surrounding cities, such as Wiesbaden, Mainz, and Augsburg, could well take place. In Hamburg, the creation of new living space is essential due to the difficult housing situation there, and the extremely low vacancy rate of 1.5%. The Hanseatic city is home to the largest Afghan community by far. About one quarter of all Afghans living in German were to be found in Hamburg in 2011. Based on previous academic findings as well as on the deduced migration dynamics, the highest share of immigrants from this ethnic group is expected to settle there. In total, the city of Hamburg will need to create an additional 20,000 housing units as a result of the refugee crisis. This equals the intended building completions for the next three years. Similar numbers can be used for Munich 33. Berlin is ranked 22 nd due to the fact that enough building stock for accommodating refugees should be available. However, it has to be noted that refugees will likely focus on districts of Berlin where the relatively lowest rent prices can be found. This is a result of their limited financial resources and the high rents in the inner districts. Nonetheless, on the basis of the highly dynamic market, housing construction should still be significantly increased. 32 See Immobilienmanager Issue 11/2015 33 Hansestadt Hamburg, 2015

13 Results: Market Stabilization 4 Results: Market Stabilization The following ranking highlights the extent to which the influx of refugees results in a partial reduction of vacancy as well as in price increases. Those cities where refugees settle in otherwise vacant housing units are the big winners in this crisis. Figure 6 shows which cities benefit the most from a real estate perspective. Figure 6: Market stabilization and price increases at 1.5 million refugees 34 34 Market stabilizer corresponds to population growth multiplied by average occupancy and rental price elasticity

Results: Market Stabilization 14 Especially in the industrial cities of the Ruhr area, immigration would have a positive impact on the housing markets. The prevailing emigration would be compensated for by the immigration, and vacancy rates could be significantly reduced without leading to noticeable rent increases. If only the theoretical vacancy reduction is considered, the winners of the refugee crisis are Ludwigshafen, Essen, Dortmund, Stuttgart, and Augsburg. Their vacancy rates should decrease by over 2%. The following map shows the real estate markets most affected by to the refugee crisis. According to a traffic light system, single markets are categorized as no rent increase, moderate rent increase, and significant rent increase. These categories are also compared to the market stabilization rate as well as price increases. In green-labeled cities, the housing stock is sufficient to absorb the predicted refugee influx without noticeable rent increases. A moderate rent increase of up to 2% is expected in yellow-labeled cities, whereas in red labeled cities a significant shortage of housing units is expected and, with it, a considerable rent increase. A clear pattern of concentration can be identified in cities on the Rhine river and in southern Germany. These cities were also attractive during previous migration flows due to the good labor supply. In eastern German cities with high vacancy rates and poor economic forecasts, no considerable immigration is expected to take place, which could affect housing markets positively. Also public resentment toward foreigners could prevent their taking up residence there. This may inevitably lead to a depopulation of these cities, as well as to a decay in their real estate prices. Comparing the results of the three scenarios, it becomes evident that the influx of approximately one million people is manageable from a municipal perspective 35. Only real estate markets that are hot spots for immigrants are in need of additional living space as result of the refugee crisis. However, if the abovementioned figures are exceeded significantly and a level of two million permanent refugees is reached, great efforts will have to be made to guarantee an acceptable amount of living space in Germany. In the third scenario, some markets will be under great pressure. Overall, more than 200,000 new housing units need to be created in 26 of the 50 largest municipalities. This would almost equal the total residential construction of the Federal Republic of Germany in 2014, with 245,000 homes 36. 35 See Appendix 36 Fabricius, 2015

15 Results: Market Stabilization Figure 7: Rent developments at 1.5 million staying refugees in the medium-term

Recommentations for Actions 16 5 Recommendations Active Movement Management of Refugees In conclusion, most German cities will not face any problems on their housing markets due to the migratory movement of refugees. Nonetheless, in cities, such as Munich, Hamburg, and Frankfurt, where a stressed housing market already exists, the additional immigration will place even more pressure on them. Therefore, it is essential to provide new housing units as soon as possible. The study results also show that the highest immigration per capita is expected in the city of Bonn. Due to the fact that Bonn s local housing market is already tense, policy-makers should intervene and provide incentives to encourage settlement in cities with a larger absorption potential. Many cities could benefit from immigration, as vacancy is reduced and many regional real estate markets are strengthened. In particular, former industrial centers such as Dortmund, Essen, and Ludwigshafen, have the greatest potential to win benefits from the refugee crisis. Such a policy would create a unique opportunity to counteract the desertion of single German regions by settling immigrant groups into those areas. A necessary prerequisite to success though would be positively influencing public opinion there, with the aim of reducing xenophobia. Additionally, incentives to settle in these regions have to be created. Failing that, it is expected that the former East Germany and many rural regions will continue to lose population, despite the biggest immigration wave to Germany since the founding of the Federal Republic. The following years will set milestones for Germany s prospective development. The high attraction that this country exerts on migrants at the moment can be considered to be a great opportunity to counteract Germany s demographic trend. If migrants can be integrated successfully into the value system and working world of Germany, the country can only benefit from the increasing refugee inflow. For this reason, Angela Merkel s famous call-to-arms We can do it! should quickly be recast of stronger material and retooled to have a sharper edge: We need to do it!

17 Reference List 6 Reference List Bundesamt für Migration und Flüchtlinge. (2015a, November 21). BAMF - Homepage. Retrieved November 30, 2015, from Das Bundesamt in Zahlen 2014. Asyl, Migration und Integration: https://www.bamf.de/shareddocs/anlagen/de/publikationen/broschueren/bunde samt-in-zahlen-2014.pdf? blob=publicationfile Bundesamt für Migration und Flüchtlinge. (2015b, December 1). BAMF - Homepage. Retrieved November 30, 2015, from Migrationshintergrund - Definition: https://www.bamf.de/de/service/left/glossary/_function/glossar.html?lv3=3198 544&lv2=1364186 Bundesamt für Migration und Flüchtlinge. (2015c, November 1). BAMF - Infothek. Retrieved November 23, 2015, from Aktuelle Zahlen zu Asyl, Ausgabe: Oktober 2015: https://www.bamf.de/shareddocs/anlagen/de/downloads/infothek/statistik/asy l/statistik-anlage-teil-4-aktuelle-zahlen-zu-asyl.pdf? blob=publicationfile Bundeszentrale für politische Bildung. (2012, May 31). Dossier - Deutsche Verhältnisse, Eine Sozialkunde. Retrieved November 16, 2015, from Geschichte der Zuwanderung nach Deutschland nach 1950: http://www.bpb.de/politik/grundfragen/deutsche-verhaeltnisse-eine- sozialkunde/138012/geschichte-der-zuwanderung-nach-deutschland-nach- 1950?p=all Cutler, D., Glaeser, E., & Vigdor, J. (2008). When Are Ghettos Bad? Lessons from Immigrant Segregation in the United States. Journal of Urban Economics, 63, 759-774. Empirica. (2015, October). empirica - reports. Retrieved October 15, 2015, from empirica paper Nr. 230: Familien aufs Land - Teil 2: http://www.empiricainstitut.de/kufa/empi230rbhs.pdf Europäische Kommission. (2015, November). Retrieved December 5, 2015, from European Economic Forecast 2015: http://ec.europa.eu/economy_finance/publications/eeip/pdf/ip011_en.pdf Eurostat. (2015, May 21). Eurostat - Statistics Explained. Retrieved November 16, 2015, from Statistiken über Asyl: http://ec.europa.eu/eurostat/statisticsexplained/index.php/asylum_statistics/de Fabricius, M. (2015, August 19). Die Welt. Retrieved December 5, 2015, from http://www.welt.de/finanzen/immobilien/article145380516/deutschland-baut- Wohnungen-wo-sie-keiner-braucht.html

Reference List 18 Frankfurter Allgemeine Zeitung. (2015, December 1). FAZ. Retrieved December 5, 2015, from Erstmals weniger Flüchtlinge über das Mittelmeer: http://www.faz.net/aktuell/politik/fluechtlingskrise/zahl-der-mittelmeerfluechtlinge-geht-zurueck-13942152.html Government of Canada. (2003, September 4). Statistics Canada. Retrieved November 16, 2015, from Report - Longitudinal Survey of Immigrants to Canada: Process, progress and prospects: http://www.statcan.gc.ca/pub/89-611-x/4067688-eng.htm Graeme, H. (1995). Understanding where immigrants live. Canberra: Australian Govt. Pub. Service. Hansestadt Hamburg. (2015, December 6). Politik&Verwaltung - Aktive Wohnungspolitik des Senats. Retrieved December 6, 2015, from hamburg.de: http://www.hamburg.de/bsw/wohnungsbau/4029174/wohnungspolitik/ Karl, T. (2015, November 26). Wohnraum aus dem Hut Zaubern. Immobilienzeitung, p. 19. OECD. (2015, September). OECD Homepage. Retrieved November 6, 2015, from Migration Policy debates 2015. Is this humanitarian crisis different?: http://www.oecd.org/migration/is-this-refugee-crisis-different.pdf Passel, J., & Zimmerman, W. (2001, April 1). The Urban Institute. Retrieved from Research Report - Are immigrants leaving California?: http://www.urban.org/research/publication/are-immigrants-leaving-california Statistische Ämter der Bundes und der Länder. (2015). Zensus 2011. Retrieved from Begleitmaterial Ergebnisse: https://www.zensus2011.de/de/infothek/begleitmaterial_ergebnisse/begleitmate rial_node.html

19 Appendix 7 Appendices Appendix A: Effect of 1,000,000 refugees permanently remaining in Germany Rank City Housing shortage Rent increase Decline in Vacancy 1 Bonn - 2,910 4.3% 0.9% 2 Hamburg - 14,374 3.8% 0.0% 3 Munich - 10,731 3.6% 0.6% 4 Frankfurt am Main - 4,471 3.0% 1.1% 5 Oldenburg - 790 2.3% 0.0% 6 Mainz - 935 2.1% 0.7% 7 Aachen - 778 1.5% 1.5% 8 Cologne - 2,668 1.2% 0.9% 9 Karlsruhe - 737 1.2% 0.8% 10 Freiburg im Breisgau - 464 1.0% 0.8% 11 Münster - 571 0.9% 0.2% 12 Wiesbaden - 490 0.8% 1.7% 13 Hannover - 795 0.7% 1.8% 14 Augsburg - 0.0% 1.6% 15 Berlin - 0.0% 1.1% 16 Bielefeld - 0.0% 1.6% 17 Bochum - 0.0% 0.7% 18 Braunschweig - 0.0% 0.5% 19 Bremen - 0.0% 1.1% 20 Chemnitz - 0.0% 0.1% 21 Dortmund - 0.0% 1.5% 22 Dresden - 0.0% 0.2% 23 Duisburg - 0.0% 1.2% 24 Düsseldorf - 0.0% 1.2% 25 Erfurt - 0.0% 0.2% 26 Essen - 0.0% 1.6% 27 Gelsenkirchen - 0.0% 0.9% 28 Hagen - 0.0% 1.0% 29 Halle (Saale) - 0.0% 0.7% 30 Hamm - 0.0% 0.8% 31 Herne - 0.0% 0.8% 32 Kassel - 0.0% 1.2% 33 Kiel - 0.0% 0.9% 34 Krefeld - 0.0% 0.7% 35 Leipzig - 0.0% 0.3% 36 Leverkusen - 0.0% 0.9% 37 Lübeck - 0.0% 0.7% 38 Ludwigshafen - 0.0% 1.8% 39 Magdeburg - 0.0% 0.2% 40 Mannheim - 0.0% 1.4% 41 Mönchengladbach - 0.0% 1.2% 42 Mülheim an der Ruhr - 0.0% 1.0% 43 Nuremberg - 0.0% 1.5% 44 Oberhausen - 0.0% 0.8% 45 Potsdam - 0.0% 0.2% 46 Rostock - 0.0% 0.1% 47 Saarbrücken - 0.0% 0.6% 48 Solingen - 0.0% 0.7% 49 Stuttgart - 0.0% 2.1% 50 Wuppertal - 0.0% 1.0%

Appendix 20 Figure 8: Projected ranking of cities most affected by rent increases 1,000,000 refugees Figure 9: Market stabilization and price increases 1,000,000 refugees In this scenario, the highest rent increase is expected in Bonn with 4.3%, clearly ahead of second-placed Hamburg at 3.8%. The biggest beneficiaries are the cities of Stuttgart, Hannover, Ludwigshafen, Wiesbaden, and Augsburg.

21 Appendix Appendix B: Effect of 2,000,000 refugees permanently remaining in Germany Rank City Housing shortage Rent increase Decline in Vacancy 1 Bonn - 7,499 11.1% 0.9% 2 Munich - 26,393 8.9% 0.6% 3 Frankfurt am Main - 13,054 8.8% 1.1% 4 Hamburg - 28,748 7.6% 0.0% 5 Aachen - 3,335 6.4% 1.5% 6 Mainz - 2,620 5.9% 0.7% 7 Hannover - 6,407 5.7% 1.8% 8 Wiesbaden - 3,327 5.6% 1.7% 9 Cologne - 10,294 4.6% 0.9% 10 Stuttgart - 5,962 4.6% 2.2% 11 Oldenburg - 1,579 4.5% 0.0% 12 Karlsruhe - 2,706 4.3% 0.8% 13 Freiburg im Breisgau - 1,810 3.9% 0.8% 14 Nuremberg - 3,935 3.7% 1.5% 15 Bielefeld - 2,624 3.6% 1.6% 16 Augsburg - 1,762 3.0% 2.0% 17 Düsseldorf - 3,548 2.7% 1.4% 18 Münster - 1,536 2.4% 0.2% 19 Bremen - 2,592 2.2% 1.4% 20 Kiel - 1,121 2.1% 1.0% 21 Ludwigshafen - 566 1.6% 2.9% 22 Leverkusen - 500 1.4% 1.2% 23 Dortmund - 1,716 1.4% 2.4% 24 Kassel - 519 1.2% 1.8% 25 Essen - 676 0.5% 2.9% 26 Berlin - 3,611 0.5% 2.0% 27 Bochum - 0.0% 1.4% 28 Braunschweig - 0.0% 1.0% 29 Chemnitz - 0.0% 0.3% 30 Dresden - 0.0% 0.3% 31 Duisburg - 0.0% 2.4% 32 Erfurt - 0.0% 0.3% 33 Gelsenkirchen - 0.0% 1.8% 34 Hagen - 0.0% 1.9% 35 Halle (Saale) - 0.0% 1.3% 36 Hamm - 0.0% 1.6% 37 Herne - 0.0% 1.5% 38 Krefeld - 0.0% 1.4% 39 Leipzig - 0.0% 0.5% 40 Lübeck - 0.0% 1.3% 41 Magdeburg - 0.0% 0.3% 42 Mannheim - 0.0% 2.8% 43 Mönchengladbach - 0.0% 2.4% 44 Mülheim an der Ruhr - 0.0% 2.0% 45 Oberhausen - 0.0% 1.6% 46 Potsdam - 0.0% 0.4% 47 Rostock - 0.0% 0.3% 48 Saarbrücken - 0.0% 1.3% 49 Solingen - 0.0% 1.5% 50 Wuppertal - 0.0% 2.0% Figure 10: Projected ranking of cities most affected by rent increases 2,000,000 refugees

Appendix 22 Figure 11: Market stabilization and price increases 2,000,000 refugees In this scenario, the highest rent increase is expected in Bonn with 11.1%, clearly ahead of second-placed Munich at 8.8%, and third-placed Frankfurt at 8.8%. The biggest beneficiaries are the cities of Essen, Ludwigshafen, Mannheim, Duisburg, and Dortmund. Hamburg and Oldenburg are in last place, since vacancies scarcely exist there. As in other scenarios, no sizable immigration into the former East Germany is expected. An exception is Halle, found in the middle of the ranking.

EBS Universität für Wirtschaft und Recht Gustav-Stresemann-Ring 3 65189 Wiesbaden Germany Phone +49 611 7102 00 Fax +49 611 7102 1999 info@ebs.edu www.ebs.edu Prof. Jan Mutl, PhD Institutsleiter Gustav-Stresemann-Ring 3 65189 Wiesbaden EBS Law School Gustav-Stresemann-Ring 3 65189 Wiesbaden Contact Anke Bandorski Personal Assistant Phone +49 611 7102 1228 Fax +49 61 7102 10 1228 anke.bandorski@ebs-remi.de info@ebs-remi.de www.ebs-remi.de www.ebs.edu March 2016 EBS Universität für Wirtschaft und Recht EBS Real Estate Management Institute (EBS REMI) EBS Business School Rheingaustraße 1 65375 Oestrich-Winkel