Contractual Saving for Housing as Early Financial Development and Its Clients in Weimar Germany

Abstract

Even today, contractual saving for housing (CSH) through building societies (Bausparkassen) is one of the major sources for housing financing in several countries in Continental Europe. In its continental variety, it can be traced back to 1920s Germany. In this time, a weak and financially constrained government and a financial system devastated by hyperinflation could not cope with the shortage of financing for residential property. In our paper, we use hand-picked data from the first of the respective building societies to show the geographical spread of this new form of financial development from Southwest Germany across the Weimar Republic. We observe that CSH was especially popular in the industrial and more liberal states and areas of Germany, whereas clients in the Prussian heartland in the East showed relatively little interest. With regard to social classes and occupations of CSH customers, we find that especially the upper lower and the lower middle class used this financial development, and even members of the upper class used CSH relatively often. In this sense, CSH helped the middle class in overcoming financing constraints. Thus, CSH in Germany can be understood as financial development by demand.