But from the late 1990s the construction sector was
hit by various difficulties which seriously affected overall
German growth in the 2000s.
Firstly, the construction
boom created oversupply, especially in the former
East Germany, where buildings remained unsold,
prices tumbled and production collapsed.
Secondly,the government cut housing construction subsidies
at the end of the 1990s. The special tax incentives for
renovation and modernisation projects in the former East
Germany expired in 1998; conditions for the homeowner
subsidy were tightened in 1996 and it was completely
abolished in 2005 (Dullien and Schieritz 2011).
Thirdly,population growth slowed noticeably from the mid-
1990s; in fact, the population shrank between 2002
Fourthly, between 2001 and 2005 stagnating
incomes and high unemployment further darkened the
outlook for construction. Sluggish earnings meant that
households felt unable to afford larger or more expensive
housing, affecting both the rented and owner-occupier
sectors. High unemployment in this period exacerbated
income worries and thus cast a shadow over the housing