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Berlin's rental market a nightmare

Janelle Dumalaon
April 25, 2016

The German capital's rental market is undergoing dramatic changes. The amount of affordable apartments to rent is has been going down, and a trend reversal is not really in sight, as DW's Janelle Dumalaon reports.

Street in spring-time Berlin
Image: Fotolia/ArTo

Couples, students and young professionals mill around in front of a building in south Berlin's trendy Neukölln district, drawn by an advertised viewing of a studio apartment. Around 20, then 30 hopeful flat-hunters patiently trudge up the stairs to the fourth floor, to inspect the 40-square meter studio apartment.

An hour later, at another viewing for another, slightly bigger apartment a block away, the same group of people, save for a few additions, would run into each other again - and probably not for the last time. It came as a surprise to few of them - by now, most have learned that competition for an apartment to rent in Berlin is increasingly fierce, and only an exhaustive search bears fruit.

Berlin, once known for the cheap housing that's attracted especially artists and other people from creative disciplines, is struggling to cover a demand that's skyrocketed in the last years, pushed up by increasing migration to the city.

Lengthy landlord wishlists

"The competition is the hardest part," said Angela Buch, a Berlin-based editor of scientific publications. I go to these mass apartment viewings, I've even been to one where 80 people came at a time."

The demand means landlords and lessors really are spoiled for choice, Buch said.

"The application requirements for applying for an apartment are getting more and more outrageous," said Bush. I've had to submit complete bank account statements, and many landlords want to see proof of permanent job contracts, which not that many people really have in Berlin."

Berlin's Housing Market - Skyrocketing Prices and Rents

And the need for more affordable housing in Berlin is set to become even more urgent.

A bulge in new Berliners

"We had an average of 40,000 people move to Berlin since 2011 – and the refugees haven't even been considered in this calculation," said Wibke Werner, deputy director of the city's tenants association, the Berlin Mieterverein. "It will also be important to provide affordable living space to integrate them."

As it stands, there's already a gap of several thousand apartments a year, according to data from the Cologne Institute for Economic Research, which includes monitoring the property markets in major German cities in its purview.

"There aren't enough apartments being built to cover the demand, just about 10,000 are built a year," said Ralph Henger, a senior economist at the institute. "But the demand is about 18,000."

Vacancies wanted

That new rental apartments are being added too slowly to the market is not the only factor contributing to the shortage. Much of the construction has been focused on the higher-priced housing segments, and on flats-to-own instead of rental apartments. Add to that the proliferation of holiday homes via sites like Airbnb and 9flats, and one gets a vacancy rate in Berlin with little room for renters tomaneuver.

"For Berlin to be considered a relaxed housing market, with enough turnover, there has to be a vacancy rate of at least 3 percent," said Werner. "But now especially in the more central neighborhoods, the vacancy rate hovers below 2 percent, some even at 1 percent."

Stay put or pay more

And those who already have apartments are staying firmly put.

"Renters would much rather stay in their apartments rather than having to risk move to the fringes of the city or endure a massive jump in their rent," Werner.

Thats the situation Tony Seeder, a doctoral student, and Matthias Schulz, a writer, find themselves in. They live in Kreuzberg, one of the Berlin boroughs where rent is rising the fastest. Having moved in their apartment in 2008, they're currently paying close to 6.50 euros ($7.3 per square meter in an area where the norm is now closer to double that amount.

But the disparity between their cheap rent, and what the market would actually have them pay, means there's precious little incentive for their building's owners to ensure proper maintenance, like fixing the heating or replacing the locks on the building's front door.

Kid sitting next to a housing complex
It's becoming increasingly harder for families to find affordable apartments in BerlinImage: picture-alliance/dpa/P. Pleul

"It's just that the owners know that if we left, dozens of people would line up to take our place, that's why they don't really have to make an effort," said Seeder. "We've been talking about moving for five years, but we couldn't find anything comparable to the space we have at the price we pay."

Schulz added, "in my mind, I don't live here anymore. But we have to be prepared to double the rent we pay."

The majority of Berlin's residents are renters, like Bush, Seeder and Schulz are the norm. In contrast to other major capitals around the world, very little of Berlin's housing market is made up of owner-occupied flats –only about 15 percent.

Consider buying

But the fast-rising rent prices have put the city in a position where it's even more cost-effective to buy an apartment rather than rent, according to the Cologne Institute for Economic Research.

."Although selling prices in Berlin have risen even faster than rental prices, low interest rates more than make up the difference" said Henger. "We currently have interest rate levels of 1.5 percent for housing credit, compared to 5 percent five years ago."

But being able to own an apartment is a privilege that not many in Berlin have.

"Obviously, the market also needs people who will invest money and buy apartments," said Werner. "But one of the reasons why many people come to Berlin is because of the city's character and the mix of people, where rich and poor meet.

Both the state and policymakers have tried to initiate measures, like tightening laws to counter the spread of holiday homes, cap rents and counter the demolition of existing rental apartments to construct flats for sale.

But regulations can only go so far in easing the lack. Henger and Werner both said private investment is key to bridge the gap and that it's obvious investors have to be given incentives to construct affordable housing. But how exactly to go about that is far from clear.

"Investors should be rewarded for maintaining and constructing affordable housing via subsidies - but subsidies aren't that attractive to investors at a time of cheap financing," Werner said. "Especially when it's the kind of financing that comes without the obligations or special conditions subsidies would have."

She added, "it's like a cat biting its own tail."

Berlin's still cheap, but...

Berlin's rising rents and overstretched supply of living units is a problem that's not going to go away on its own. While rents in the German capital are still comparatively cheaper to rates one would find in London, Paris or major US cities, Berliners also generally earn less than their counterparts in other world metropolises.

But Henger said Berlin is playing catch-up with its global peers –and the current tightness on the rental market is just a symptom of that.

"Since reunification in 1990, and structural problems have existed for a long time, and now the city is transforming into a world-class city," said Henger. "Of course it's causing discomfort and fear, and also has problems. But the transformation process is legitimate, and also justified."

But Werner is convinced there is a wrong way for Berlin to transform.

"What we want to avoid is the development of ghettoes on the fringes of the city, where the poor are pushed outward and the center of the city is only reserved for the very rich," she said. "That would be a shame for the city."