Reform of the German property tax: value, area or abolition

_ Maximilian Maul, Würzburg University. Munich, 25 May 2021.

A reform is needed

The tax revenue from the German property tax B flows exclusively to the municipalities and represents the largest source of income there. For example, it amounted to around 1.83 billion euros in Bavaria in 2020.[1]

The property tax is a property tax whose economic effect is comparable to the wealth tax. While property tax has not been levied since 1997, according to decision by the German Federal Constitutional Court the property tax has to be reformed, while its character “is to be retained”.

The Federal Constitutional Court ruled in 2018 (1BvL 11/14) that the failure to update the standard valuation for assessing property tax is unconstitutional and that the property tax based on the previous values is only permitted until December 31, 2019. The background to this decision was the fact that the standard values in western Germany had not been adjusted to the actual conditions since 1994. For this reason, the Federal Constitutional Court saw Article 3 of the Basic Law (Grundgesetz, GG) and the requirement of equal burdens in the tax law resulting from this provision violated.

The legislature was given the task of developing a new regulation until 2020. After the announcement of a new regulation, the previous regulations may still be applied for five years, at the latest until 2025.

In the discussion about the reform of the property tax, two main models were initially presented:

Value model property tax

In November 2020 the state government from Baden-Württemberg introduced the so-called land value tax as a new conception of property tax law.[2]

The land value model – value-dependent model (Wertabhängiges Modell, WAM) measures the value of land based on the standard land values that are estimated by the expert committees for land values in accordance with Section 193 of the German Building Code and are now available almost everywhere in all German federal states. To determine the land values, the average location value of the soil for properties with the same usage and value relationships in a standard land value zone is used and can be taken from mostly publicly accessible land value maps.[3]

However, a comparison of plots of land and their value relationships will always be fraught with the problem that the values of built-up plots assume developments that are not synchronous with the land value and may diverge strongly. This would violate the principle of equality under Article 3 of the Basic Law.[4]

Area model property tax

The area model – value-independent model (Wertunabhängiges Modell, WUM) uses a partial aspect of a property, the area, which, however, lacks the equal treatment of real estate even more than the land value model. Land can be compared, but tax comparability must be based on comparability of values or tax number keys and should not refer to physical quantities. The respective value can also not only be determined on a specific reference date, but values also change dynamically depending on social and economic influences. It was precisely this inconsistency that made the old property tax unconstitutional.[5]

With its draft law (18/15755), the Bavarian state government plans to introduce a variant of the above-mentioned area model.

With this draft the Bavaria model provides a calculation method using an equivalence number. An equivalence number of 0.04 euros per square meter for the land and euros per square meter for the building area is applied to the area. In addition, it is planned to let regional self-government determine the adjustment of the assessment rates according to Article 106, Paragraph 6, Sentence 2 of the Basic Law, in order to ensure independent control to cover the public financial needs. The index of property tax B is basically 100 percent, reductions are made for residential areas to 70 percent, as well as further reductions of 25 percent on social housing, listed buildings and (forest) farms.

The entire process is to be carried out digitally as far as possible. Still, it can be assumed that significant additional personnel capacities will be tied up at the tax offices. In financial terms, too, annual compliance costs of 6.5 million euros are to be expected.

In addition, certain aspects of the draft law of the Bavarian state government are not at all or only partially taken up. For example, the bureaucracy relief should also take into account minor areas such as outbuildings or extensions, e.g. small undeveloped land, through a broader approach. In addition to dealing with changes between the main determination and the system determination, the question of paved areas on oversized plots must also be clarified. Longer reporting deadlines are also to be expected for changes in cases handled by consultants and the information content of the property tax assessment should also be adequately processed again.[6]

Abolition of the property tax as an alternative?

The problem of the property tax remains the same for both valuation models. It is a tax that is levied regardless of economic productivity and thus contradicts the ordoliberal principles of fairness. All property tax models have a fundamental problem of fairness and the problem of a disproportionately high administrative burden. This financial burden affects every citizen equally, whether with high, low or no income. The principle of the constitutionally guaranteed tax exemption of the subsistence level is thus also violated. In addition, the previous property tax burdened tenants and landlords equally.

In its federal election program for 2021, the AfD parliamentary group thus calls for the complete abolition of property tax and, at the same time, a legal framework that ensures the necessary counter-financing for the municipalities through a contribution to the assessment base for income tax or an appropriate increase in the assessment rate for trade tax.

In connection with such a potential abolition of the property tax, however, the problem of the municipalities’ financial income must be resolved at the same time. For this purpose, a participation solution in the major taxes would come into question, which would compensate for the abolition of the property tax. In principle, property taxpayers should not be in a worse position than before.

Prof. Dr. Gerhard Graf proposes a participation solution for this, which is to be financed from partial amounts of income tax and sales tax. An increase in sales tax by one percentage point, from 19 to 20 percent in the standard rate, could enable an additional revenue of around 5 percent (approx. 11 billion euros). The progression zones of income tax could also ensure financial leeway through the loss of property tax by, e.g., one percentage point.[7]

In addition to ensuring the individual performance of such an alternative approach, it would also open up new perspectives for reducing housing costs in Germany. All tenants in Germany, as the country with the lowest ownership rate in the EU[8], would experience a relief of around 8.4 billion euros and the effects on the urban housing market would be of great importance.[9]


[1] Bayerisches Landesamt für Statistik (2020). Kommunale Steuereinnahmen stiegen 2019 um 2,4 Prozent – Gewerbesteuereinnahmen rückläufig.  URL:

[2] Beteiligungsportal Baden Württemberg (2020). Ein neues Grundsteuermodell für Baden-Württemberg. URL:

[3] Henger R. (2020). Kommt eine mutlose Grundsteuerreform? – Simulations- und Wirkungsanalyse verschiedener Reformmodelle. IW Köln. URL:

[4] Kirchhof G. (2020). Der Belastungsgrund von Steuern – zum verfassungsrechtlichen Auftrag, die Grundsteuer zu reformieren. Zentraler Immobilienausschuss e. V.

[5] Graf G. (2021). Das Bodenwertmodell für die Grundsteuer: Unzulänglichkeiten und mögliche Alternativen. Das Flächenmodell als Alternative? Wirtschaftsdienst. ZBW.URL:

[6] vbw (2021). Die neue Grundsteuer für Bayern. URL:

[7] Graf G. (2021). Das Bodenwertmodell für die Grundsteuer: Unzulänglichkeiten und mögliche Alternativen. Mögliche Beteiligungslösung als Ersatz? Verteilungswirkungen von Steuern. Wirtschaftsdienst. ZBW. URL:

[8] ECB (2020). The Household Finance and Consumption Survey: Results from the 2017 wave. URL:

[9] Research Brief (2020). Gründe für die niedrige Wohneigentumsquote in Europa. URL:  

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