A recent study by the Ifo Institute suggests that state investment in infrastructure requires a more targeted approach to maximize effectiveness. The research, focusing on broadband expansion between 2010 and 2019, reveals a complex interplay of benefits and unintended consequences.
Researchers found that in regions with intensive state support for broadband rollout, internet access of at least 16 Mbit/s rose by an average of 28 percentage points compared to similarly situated, unfunded communities. However, this investment was accompanied by noticeable increases in property values; rental costs rose by 3.8 percent, while purchase prices jumped by 8.1 percent.
“The rise in property prices demonstrates the willingness of households to pay for fast internet connections. In 90 percent of cases, this willingness alone would have been sufficient to finance the broadband expansion without public funding” explained Simon Krause, a co-author of the study. This observation leads the researchers to conclude that the existing support mechanisms were not optimally targeted.
Drawing lessons from this analysis, the authors are cautioning policymakers regarding the ongoing rollout of gigabit networks – a project deemed a “matter of overriding public interest” by the government. They advocate for a shift in strategy, emphasizing that public funding should be reserved for areas where private investment incentives are lacking.
“Broadly conceived support programs carry the risk of inefficient ‘free-rider’ effects and price increases” warned co-author Thomas Fackler. The study proposes intelligent prioritization and parallel reforms to reduce bureaucratic hurdles, streamline regulations and improve planning processes to ensure the new special fund delivers successful economic policy outcomes. The researchers believe a more discerning and targeted approach is crucial to maximizing the value and impact of infrastructure investment.
