Contractual savings for housing
Contractual savings for housing (CSH) has a long tradition, the first building society was found in England in the 18th century. Especially in the German speaking countries this financial product is very popular. Between 30 and 60% of the financing volume for housing is distributed by building societies and CSH banks in these countries. The very easy concept of CSH with a lower interest rate both in the savings and the following credit phase protects customers against potential downside risk of a negative interest rate development. However, the contract theoretical approach of CSH can hardly be replicated by other financial services. Furthermore, CSH customers give positive signals about their creditworthiness to the CSH bank and other financial institutes by saving regularly. In combination with the long tradition and resulting trustworthiness of building societies, this has great implications for relationship banking and the usage of soft information.
Additionally, contractual savings for housing can be seen as a form of financial development. Economic agents with financial restrictions come together in a saving collective to overcome those credit barriers and to finance long-term investment projects. It is now interesting, whether CSH customers share inherent characteristics and whether CSH spreads in the form of a peer-to-peer dissemination. By using historical data of one of the biggest German building societies we investigate these research questions. Furthermore, the econometric theory behind contractual savings for housing is part of this research cluster.
Current Projects:
Who are the Clients of Early Financial Development? An Analysis of Historical Contractual Savings for Housing Data
The Wirtschaftsarchiv Baden-Württemberg (Economic Archive of the State of Baden-Wuerttemberg) enabled us to collect and analyze historical documents about the assignment of contractual saving for housing credits of one of the biggest building societies in Germany for the 1920s and 30s. With this data, we can track the geographical dissemination of CSH customers across Weimar Germany and across social classes and occupations.
The results show that especially the upper lower and the middle class of the German society in the 1920s and 30s benefited from CSH. The lowest lower class struggled with the subsistence level and could not save in any way, while the upper class was wealthy enough to finance investment projects without the help of building societies. Especially the middle class faced financing constraints which could be overcome by the CSH collective. In particular the self-employed, salaried employees, and civil servants form the economic sectors of the industry, craftmanship, and the civil service heavily used this new form of financial development. Geographically, CSH showed a continuing spread across the German Empire. Starting with contracts almost exclusively in the states of Baden and Wurttemberg in 1926, in the following years many customers in Hesse, Bavaria, Northern and Central Germany, as well as in Austria, France, and Silesia appeared. Only Prussia shows very little CSH presence what gives scope for further research.
