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Germany building too few homes, and the wrong kind

February 8, 2017

German cities are building too few new apartments to keep up with their growth, according to a new economic study. Not only that, the apartments that are being built are the wrong size - especially in Berlin.

BdT Berlin Herbstlicher Blick von der Siegessäule
Image: picture-alliance/dpa/R. Jensen

It's nothing new that German cities are running out of affordable housing, but up until now it wasn't clear that the wrong types of apartments were also being built. That's the major new insight in a study published this week by the economic think tank, Cologne Institute for Economic Research (IW).

Only 32 percent of the necessary new apartments were built in Germany's major cities between 2011 and 2015, the study found - putting growing pressures on the housing market. The IW also discovered a particular scarcity in Berlin - where only 25 percent of the demand was being covered - in particular, of two-to-four-room apartments. Meanwhile, there was barely any shortage of up-market apartments.

While the market had successfully covered 97 percent of the demand for five-room apartments across Germany, only 30 percent of the necessary two-room apartments were being built - and in Berlin, the figure was as low as 20 percent.

"We're not building the apartments where they're needed," study author Michael Voigtländer said. Altogether, Germany needs 385,150 new apartments every year over the next three years, the IW concluded, with the nation's capital, which is currently growing by 40,000 people annually, needing some 31,230 every year.

Berlin Welterbe Siedlungen der Berliner Moderne Bezirk Reinickendorf
Developers have no incentive to build cheap housingImage: picture-alliance/dpa/M. Krause

More building?

"That was pretty surprising, that there was such a drastic shortage of small apartments," Voigtländer told DW. "The fact that large apartments are being built, even though people need two or three room apartments."

For Voigtländer, the problem is obvious - lack of room. "The investors do want to build, but there's a lack of building land," he said. "And if there's a lack of building land, then of course they build what gets them the biggest margins - and that's the biggest and most expensive apartments."

The solution, therefore, is to find more room to build, and an aerial view of Berlin shows there is space in major German cities. "Not only that, we need to see that we make better use of what we have," he added. "Cheaper homes don't necessarily come from new buildings - we have to find incentives for landlords to offer sub-lets, for example, or incentives to divide up large apartments into smaller ones."

Voigtländer also thinks that some regulations - for example for renovating attic floors - are too strict. "You could certainly adjust some of the screws here and there," he said. "But the essential thing is building space."

Rich well-served, poor left to struggle

But others think the problems are much deeper. Wibke Werner, deputy director of Berlin's tenants association, the Mieterverein, thinks there are a lot more reasons why German cities are struggling to house their inhabitants. "Another problem is that most of the new apartments are for owning, not renting," she told DW. "Given that more than half of Berliners have a relatively low income, the demand is nowhere near covered for now. And even when they build smaller apartments, they're usually fairly luxurious."

Deutschland Berlin Koalitionsverhandlungen Klaus Lederer, Michael Müller und Ramona Pop
The Berlin government is struggling to find a solutionImage: picture-alliance/dpa/J. Kalane

Werner doubts whether it's even possible to cover the demand with new building, since private developers have no incentive to build cheap homes, and state property companies only account for about 16 percent of Berlin's property. Meanwhile, most of the undeveloped land in inner city Berlin is also in private hands.

For Werner, a solution might be to offer incentives to private developers to build cheaper homes - something the new Berlin government (a center-left coalition of Social Democrats, Greens, and the Left party) has failed to do: "They're concentrating on the city- and council-owned companies, and avoiding the question of how they're getting the private developers and landlords on board too," she said, before admitting, "But then again, it is a difficult question to answer."

At the end of the day, the state needs to offer developers some cash, Werner concluded. "Some kind of subsidy that is more attractive than what they can get on the market," she said  This, she suggested, could be tied to regulations on how many two or three-room apartments should be included in any new buildings.

Behind this problem there is also the question of growing land price speculation through hedge funds - but that is an area that can only be regulated at the federal level.

Benjamin Knight Kommentarbild PROVISORISCH
Ben Knight Ben Knight is a journalist in Berlin who mainly writes about German politics.@BenWernerKnight