When speculative price bubbles on real estate markets burst, the effects for the real economy are often devastating taking the form of substantial losses in production and employment. This paper discusses the degree to which institutional frameworks can prevent speculative bubbles from emerging and expanding.
Comparing experiences in different countries indicates that, in Germany, institutional regulations are more likely to counteract the risk of undesirable developments. Despite the recent substantial price increases, no speculative bubble can be identified in Germany so far-but the risk has increased. In times of the euro area debt crisis, real estate is regarded as a safe investment, which boosts demand.