by Ares Kalandides
Not so long ago Berlin was considered as one of the most affordable cities in Europe, a fact that was directly linked to the low costs of housing. It now seems that this statement is no longer true or has at least lost some of its validity (1). Price increases are by now very well documented and range between 10% and 20% in the city centre (inside the so-called “ring”). (s. map 1).
A variety of explanations have been suggested, yet public policy seems at loss with what to do with this pressing problem. Although I have no final answers myself, I would like to suggest that we look at certain elements that may help us understand what is happening.
1. Construction of new housing (in particular affordable and social housing) has been extremely slow in the past 10 years (see figure 1). Not enough new dwellings were added to the existing ones since 2000.
Source: IBB (2013). Wohnungsmarktbericht 2012, Berlin
2. There has been a double demographic change in Berlin: on the one hand there has been a constant population rise (mostly through inward migration): on the other there has been a reduction in the size of households, which leads to a higher demand for dwellings. Since 2004 more than 50% of all households are single ones (s. figures 2 and 3)
Beyond this simple supply/demand calculation there are several other things that I think we need to look at:
3. More than half of the Berlin housing stock was privatized after 2003 with state-owned real estate companies being sold out – partly to hedge funds. Even though several rules applied to the new owners, these were limited in time. Today, 10 years later, these regulations expire and the new owners are free to seek profit maximization. (For more information, s. Holm (2)). Today most dwellings are private ones (s. figure 4)
4. The tourism boom of the past few years in Berlin (source) has led to the creation of a large number of holiday-flats that are rented by the day or week. Even though their total percentage in the city may be low (below 1%) their geographical concentration may produce phenomena of shortage in particular areas (s. map 2)
5. A large number of new Berliners who have been moving to the city in the past few years are used to much higher rent prices in their cities of origin, and are thus willing (be it temporarily) to pay higher prices.
And finally, local phenomena are rarely really local:
6. There is a well-documented tendency to invest accumulated capital in real estate since the world crisis of 2008. In particular people with money from crisis-stricken countries would tend to “save” it by buying property in what is considered to be a stable and safe economy (the German one) in a city where the price level is, at least from the western European perspective, quite low.
The problem with examining the housing market is that it has some particular characteristics that distinguish it from others:
1. Housing has above all use value for its tenants. Exchange value is secondary and depends on political choices (how the housing market is organized).
2. The housing market does not work as one, but needs to be subdivided in submarkets where the exchanges between them are neither obvious nor fast
3. Housing always has a geography: the smallest our scale of examination the better are the chances that we will get some useful data. General discussions about averages are not particularly informative.
4. Supply and demand self-regulation theories generally don’t function. a) Land (in particular urban land) is an extremely scarce resource and b) the time-span between supply shortage and new construction may be this of several years.
5. It is necessary to examine the housing market together with land ownership and also find an adequate theory of rent. All of these are are intimately intertwined.
6. Different countries have very different traditions and cultural contexts regarding housing tenure (private/public, rent/ ownership etc.). This needs to be taken into consideration when examining the housing market.
We may be currently heading towards a huge real-estate bubble that is bound to lead to a new crisis. Looking at the development of the real income of Berliners in the past few years and in particular the growing inequalities inside the apparently growing average income, we need to question who will be able to afford new luxury housing (4) . What we may of course be seeing (as is the case in other metropolises) is a spatio-social polarization with those well-off in the city centre and the poor displaced towards the periphery.
(1) If we were to compare housing prices in other European metropolises (let’s say Paris or London) or even some German ones (Munich or Hamburg), prices still seem low. But such comparisons make little sense, as local incomes and geographical distributions of inequalities are extremely different.
(3) Karolinski, D. 2013, “What are the causes of the shortage of affordable housing in the city center of Berlin? A case study of the housing policies of the ‘Red-Red Senate’ (2001 – 2011)”, Unpublished Master thesis, Hertie School of Governance, Berlin
(4) On German income inequalities see here: http://www.boeckler.de/imk_42885.htm