Rising housing costs are changing Berlin’s image as an ‘affordable’ city and pitting new and long-time residents against each other.Markus Schreiber/The Associated Press
Twenty-one years ago, as Germany’s capital was starting to stabilize after the fall of the Berlin Wall and the upheaval of reunification, Mayor Klaus Wowereit gave the city a label that would stick: “Poor, but sexy.”
It epitomized the gritty glamour of the recovering city, where cheap – and in some cases free – housing attracted artists, freelancers and creatives from across Europe.
Berlin’s carelessly cool patina remains: cobblestone streets littered with beer-bottle caps, shabby chic cafés wedged between smoky bars, graffiti scrawled across Soviet-era buildings and glamorous 19th-century facades alike.
But the city is changing – fast. Between a booming population, privatization and a sluggish pace of construction, housing costs have soared in the past 20 years, forcing a reckoning of Berlin’s “affordable” identity and driving a wedge between new and long-time residents.
Tenants protest rising rents and gentrification in Berlin's Karl-Marx-Allee by hanging banners out of their windows depicting Rich Uncle Pennybags/Mr. Monopoly and reading 'This is not Monopoly.'ODD ANDERSEN/AFP/Getty Images
Over the past decade alone, the rent for new leases has tripled, according to private market data. In a city where the vast majority of residents rent, it has created a housing crisis that sets the stage for a political shift.
“In German politics, housing was always a peripheral issue, but it has now become incredibly central,” said Alexander Reisenbichler, an assistant professor at the University of Toronto who studies German housing policy. “These disparities have created a new social and economic fault line.”
Unlike in Canada, where 70 per cent of households own their homes, Germany is a country of renters. In Europe, it comes second only to Switzerland in terms of the greatest proportion of renters, at 55 per cent, according to the OECD. In Berlin, 80 per cent of residents rent.
For much of its postwar history, Germany strongly supported public housing and rent regulation, which until the past two decades kept housing largely out of the hands of investors with strong profit motives. Canada, by contrast, has largely deregulated housing finance systems and the housing sector, becoming relatively open to international investment.
Despite these different approaches, Canada and Germany now find themselves facing the same problems: a severe shortage of supply and rapidly rising costs. High interest rates, slow construction permitting processes and expensive labour and materials are putting a strain on developers in both countries.
But in Berlin, the increase in housing prices has been drastic, especially given where they’ve been. The city’s situation is largely the result of its unique postwar housing history.
From 1961 until reunification in 1990, Germany was divided into East and West. Although successive governments on either side built plenty of subsidized housing, the concrete wall running through Berlin – an inescapable, physical reminder of the oppression taking place on one side – rendered the city centre ugly and unwelcoming.
When the wall fell, the true economic cost of division was revealed: a struggling economy, high unemployment and a heavy debt load that at one point reached upward of €60-billion. At the time, economists feared the city’s prospects would worsen further. As a result, its already inexpensive real estate became even cheaper.
This did not go unnoticed: Artists, actors and musicians flocked to Berlin, taking advantage of the dirt-cheap rents – or even free accommodations, in abandoned buildings that had stood next to the Berlin Wall.
Things changed in the late 1990s and early 2000s when, in dire need of cash, Berlin sold more than 200,000 public housing units to private equity and hedge funds at rock-bottom prices. These sales, which represented more than a third of its total public housing stock, have since been viewed as short-sighted.
After the financial crisis of 2008, Germany’s economy rebounded, and international investors, sensing an opportunity, rushed into Berlin’s largely untapped market. The city’s population swelled, growing by 40,000 residents each year in the following decade.
Meanwhile, the city was starting to brand itself as a technology hub, attracting higher-earning residents who started to drive up the price of housing. But house construction did not keep up with the added demand. Concern about prices started to grow.
In 2015, the federal government passed the “Mietpreisbremse” (rent brake), capping rents on new leases. But the cap was relatively ineffective, as it was filled with loopholes that allowed landlords to circumvent the rules, according to Michael Voitgtländer, the head of the German Economic Institute’s real estate unit, in a 2023 report by the London School of Economics.
Rents continued to climb. Between 2010 and 2020, they had increased from about €5 per square metre to €15 for existing apartments and from €7 per square metre to €20 for new builds, according to data from German real estate company Immobilien Scout GmbH.
In 2020, the Berlin senate attempted to freeze rents at existing levels and even reduce some. But this was overturned by the country’s federal court, prompting outrage in Berlin. Protesters filled the streets, calling for greater scrutiny of the practices of private landlords with large property portfolios.
In a referendum the following year, Berliners voted 57 per cent in favour of repurchasing the city’s long-lost public housing stock from large owners. (The city is still debating whether this would even be possible, given the legal issues and €40-billion price tag.)
The arrival of tens of thousands of Ukrainian refugees has added strain to Berlin’s housing market, and new construction is not keeping up with demand.JOHN MACDOUGALL/AFP/Getty Images
And housing demand has only grown since Russia’s invasion of Ukraine, with tens of thousands of Ukrainian refugees flooding into the city and pushing low-income households to the city’s fringes.
“Berlin is still vibrant and diverse,” said Navid Sani, a real estate agent with Berlin Sotheby’s International Realty. “But its reputation as a cheap artists’ enclave is no longer accurate.”
The city’s housing crisis has led to a rise in support for populist parties like the Alternative for Germany party, which blames migrants for higher costs.Thilo Schmuelgen/Reuters
The effects of Berlin’s housing crisis are numerous, but perhaps the most important, Prof. Reisenbichler says, is the deepening of political divisions. Already, the city has seen a rise in support for populist parties, which have made migrants a scapegoat for higher housing costs.
One 2023 study found that support for the far-right Alternative for Germany party increased in urban areas where rent had increased sharply and where the majority of residents were renters. The party’s housing policies are largely linked to its anti-immigration stand, which calls for deportations to relieve housing pressures.
“If policy-makers can’t respond to the housing needs, it will fuel resentment within the population,” Prof. Reisenbichler said. “This plays into the hands of populist politicians.”
And the system is just getting more stuck. As in Canada, the limited housing stock in Berlin, combined with higher prices, has created a “lock-in” effect, with many tenants hesitant to give up old leases even if their homes are now too large for them, said Kristin Wellner, a real estate economics professor at the Technical University of Berlin.
“Think of the grandmother who stays in her 140-square-metre apartment. She thinks, ‘Even if I move to a smaller apartment, I’ll probably end up paying more.’”
Meanwhile, rents are still on the rise. They increased another 10 per cent between 2022 and 2023 alone, according to Mr. Voitgtländer in the London School of Economics report.
“It seems likely that Berlin will catch up to other big cities like Munich, Paris or even London over time,” he wrote.