Berlin’s renters face misery as crisis deepens

Maria Martinez and Riham Alkousaa, Reuters

On Berlin’s broad avenues, posters put up by desperate would-be tenants seeking accommodation have become a common sight. Home viewings draw long lines of hopefuls, despite rent rises that have far outstripped salaries in recent years. The German capital, where cheap and abundant apartments were a magnet for artists and young professionals as recently as a decade ago, now has a vacancy rate of less than 1%. The cost and difficulty of renting is making it hard to attract talent and forcing some residents to leave, even though businesses are desperate for skilled labour.

And while the local government says Berlin has sufficient space to build over 100,000 apartments, there is no sign the housing crisis gripping the city will ease. Rolf Buch, chief executive of Vonovia, europe’s largest landlord, cited factors including record-high interest rates and rent controls to explain the chronic mismatch between housing supply and demand. “New construction hardly makes sense for many projects these days, because with 5,000 euros per square metre and 4% interest, someone has to finance it,” he told Reuters.

“When I go to the bank, they tell me, Mr. Buch, come back when you’ve done the calculations again, because you can’t even earn interest on the rent.” The surge in borrowing costs has already tipped some German property developers into insolvency. It is also keeping potential home buyers in the rental market, despite a recent easing in house prices after years of rapid growth. With construction projects on hold, the government has announced a 45 billion euro ($47 billion) support package for the sector and measures to encourage house building including tax incentives. But as europe’s largest economy teeters near recession, economists warn that high rents will feed inflation and reduce household consumption.

“Rent increases lead to redistribution of incomes, as the poor pay more and the rich earn more,” said Konstantin Kholodilin of the DIW economic institute.  In Berlin, local opposition has frustrated plans to build, while regulation creates a two-tier rental market that is cheap for some long-term tenants and expensive for new renters.

Marwa was excited to move from San Francisco to Berlin with her husband and daughter after being offered a job in July as a corporate strategist at a tech company. She backed out after finding that renting a two-bedroom apartment would swallow up more than half her six-figure salary — high in Berlin but less than she was earning in California. “Ninety percent of the reason for not taking the job was how hard it is to find an apartment and the high cost of rentals,” Marwa told Reuters.

About 85% of Berliners rent their homes, according to the International Union of Tenants — far more than Eurostat’s figures of 53% for Germany as a whole and a european Union average of 30%. In the last seven years, Berlin rents have jumped 44% while the average wage in the city has increased only 30%, federal and local data shows.

It hasn’t always been like this.

After the 1989 fall of the Berlin Wall the city had a housing glut that lasted decades, the legacy of its division following World War Two. Both West and East German governments poured money into building accommodation, reflecting the city’s place at the centre of competing Cold War systems.

“It was a divided city and the whole of Berlin was subsidised,” Buch said. Expectations that a unified Germany’s new capital would grow rapidly saw more building in the 1990s, “but not as many people came as we thought”, said Monika Neugebauer of residential cooperatives association Berlin Wohngenossenschafts.

In 2004, the City of Berlin sold its indebted GSW social housing unit and more than 65,000 apartments, many vacant or needing renovation, to Goldman Sachs and private equity firm Cerberus.

The city’s population started growing again in 2005, as birth rates and life expectancy rose and migration increased. Foreigners now make up 24% of residents, their numbers having almost doubled between 2011 and 2023, Berlin statistics office data shows. Rising property demand saw private companies develop luxury apartments that offered a higher yield - in part, Buch said, because government permissioning for more affordable housing projects was so slow.

Sales of land to the highest bidder further narrowed the scope to build social housing, Neugebauer said. Some building projects have since faced local opposition while a recent attempt to curb rent increases backfired.

In 2014, plans to build 4,700 flats and commercial buildings at the former Tempelhof airport, which closed in 2008 and is now mainly a public park, were rejected in a local referendum.

Housing cooperatives, which offer some of Berlin’s most affordable apartments, scrapped two-thirds of their new building projects after the city’s government announced a rent cap, saying it made them unviable. Introduced in February 2020, the cap was declared unconstitutional and scrapped 14 months later. In that time, it lowered rents by 7.8%, data from real estate portal ImmoScout24 shows — but the number of available apartments fell by 30%. “Competition for the flats on offer thus intensified significantly,” ImmoScout24 managing director Gesa Crockford said.

A German law that limits how often a landlord can increase prices keeps rents low for long-term tenants compared with new arrivals and gives them little incentive to move. “The asking rents in Berlin are sometimes twice as high, and in some cases three times as high as the existing rents, due to the very limited supply,” said Martin Pallgen, a housing spokesperson for the Berlin government.

That in turn means the housing stock is used inefficiently, with growing families squeezed into small apartments and less downsizing by people whose children have left home.

Anna Hohnrath, a 27-year-old account manager from Valencia, Spain, moved into her boyfriend’s 36 square metre flat in April as a stop-gap until they could find a bigger space. Their search took eight months, after applying to view more than 100 apartments and having offers rejected on eight. “You start wondering if you are doing anything wrong,” Hohnrath said.