Global Cities and Affordable Housing: Berlin

Global Cities and Affordable Housing: Berlin

Berlin’s economy centers on the technology and service sectors, encompassing numerous industries, research facilities, and corporations.

The third city featured in the Global Cities and Affordable Housing series is Berlin, the capital of Germany and the European Union’s second most populous city. Berlin’s economy centers on the technology and service sectors, encompassing numerous industries, research facilities, and corporations. City residents and visitors also enjoy a plethora of museums, tours, and parks along with a vibrant nightlife. Because of these qualities, the city’s population is expected to increase by an estimated half-million people to 4 million inhabitants by 2030. This anticipated rise in population has led local leaders to recognize the potential strain on the city’s housing supply, and they have introduced some measures to prevent unaffordability.

In 1945, at the end of World War II, 20 percent of the German housing stock was reduced to rubble, with more than 2 million homes destroyed and another 2 million left uninhabitable. During this politically tense period, the government established new housing laws and built large apartment blocks that encouraged renting, which remains the preference of most Germans. Thanks to generous tax exemptions for public and private construction entities, the homebuilding industry flourished, and Germany halved its housing shortage by 1956. The German mortgage industry was very weak because potential buyers could not afford the huge down payments required. Instead, most of the population remained in the rental market, which offered high-quality, affordable tenancies.

Fast forward to November 2015, when the Berlin Senate declared that the city’s renters, who make up 85 percent of Berlin’s population, were paying too much for rent. As part of its effort to keep rents affordable in the growing city, the senate ruled that Berlin’s government would acquire 30,000 new units through direct purchase and new construction over the following 10 years. The ruling also linked rent in these public housing units to salary, setting the rent cap for low-income tenants at one-third of gross income to ensure that these residents would not be priced out of their homes. To qualify for the rent cap, residents’ annual earnings must not exceed €16,800 ($18,400) for a single-person household or €25,200 ($27,060) for a two-person household, with the maximum eligible apartment size being 538 square feet for a single person, 700 square feet for a two-person household, and more for households with more than two people. It should be noted that more than 50 percent of Berlin’s households consist of single residents, although their earnings vary. Owners of privately funded housing must limit their rent increases to a maximum of 15 percent within 4 years according to the Berliner Mietspiegel, the Berlin Rent Index. Landlords who fail to comply with the ruling face fines and penalties. Since the ruling, rents in the city have fallen by approximately 3 percent.

Another effort to maintain affordability in Berlin involves a relatively new form of affordable housing known as housing cooperatives, or cohousing. Cohousing is a model cofounded by an American living in Berlin, Michael LaFond, who is also the founder of the Institute for Creative Sustainability. For years, many young activists squatted in abandoned buildings throughout Berlin to save them from demolition and to live relatively cheaply or, in some instances, for nothing. The city found it too laborious to evict the activists, so it made an agreement with the activists to purchase the buildings from absentee owners with the understanding that it would refurbish them. The result of this work was Spreefeld, an affordable cooperative located on the Spree River in downtown Berlin that offers shared living arrangements. Spreefeld consists of 64 units with a common kitchen, outdoor space that is shared with the public, and a “food forest” (vegetable gardens) along the river walk. It also includes coworking offices; workshops; a neighborhood daycare center; and other spaces for yoga, music, and other public and private gatherings. Higher-income residents at Spreefeld keep their housing affordable by opting for smaller units. As the city’s population grows, cohousing helps with affordability because it is less expensive to develop and developers rarely, if ever, seek a profit.

Homeownership

The preference among Germans to rent their homes is the primary reason for their country’s low homeownership rate. Germany’s homeownership rate of 51.9 percent is the second-lowest rate of any developed nation, following only Switzerland at 43 percent. One reason many people in developed nations purchase a home is to protect themselves from rising rents, but Berlin’s commitment to maintaining rental affordability makes homeownership a less appealing choice. In addition, German banks tend to be somewhat more risk averse than those in most other developed nations with higher homeownership levels, which makes mortgages in Germany harder to acquire.

Berlin is an exciting city with many thriving economic sectors and a rising population. Measures are in place to maintain the affordability and livability of a city that is aware of the stresses that can come from increases in population and housing costs. By helping its working class access affordable housing, Berlin is continuing to foster its vibrancy, affordability, and global status.