Social Housing in Berlin: The Sexy City That is No Longer Poor

Berlin is known as a dynamic city with reasonable costs of living compared to other European capitals.  Because of this reputation, Berlin’s population over the last decade grew while inflicting new pressures on the increasingly tight housing market.  Once a city where a flat could be had for a few hundred euro’s a month is now a tight real estate market causing problems for low income individuals and families.  What is the city of Berlin’s plan?  How can they ensure that the spirit of Berlin is not lost among a glut of real estate speculation and development?  The planners and housing staff with the Senatsverwaltung für Stadtentwicklung und Umwelt (Yes German has long words) Berlin hope they have some answers.  By the way it is the department of city planning and environmental issues.  Not a direct translation but close enough.

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A City for Whom?  A former Mayor of Berlin once said “Berlin is poor but sexy”.  If growth rates continue as is, Berlin may still be sexy but far from poor.  Many factors influence the increased cost of living and rents.  Young people move to the cities and stay there.  Changes in the education system increased the number of students in large cities across Germany including Berlin.  The incomes of young people are smaller and the work contracts are temporary for people entering the job market.  Another factor is Germany’s good performance in times of economic crisis.  At the same time, living in the countryside is becoming more expensive.  Mobility costs are high; there are reduced tax deductions for commuting expenses and a phase out of the home owners’ allowance.  All of these contribute to the number of people moving to cities throughout Germany but also Berlin in particular.  Construction rates try to keep up with over 19,000 building permits approved in 2014 and 9,000 dwellings completed.  That is up from 2004 when only 3751 permits were issued and 3686 were completed.  Still; it does not appear as though enough housing is being produced to keep up with the need.

Migration: On top of the factors listed above, migration to Berlin increased dramatically over the last decade.  Planners did not predict this change.  Berlin is around 892 Km2 in area with a population of 3.421 Million residents.  All together Berlin has 1.93 million households averaging around 1.77 persons per household.   The city’s immigration over the last decade was fueled by a mixture of Germans migrating from both the former east and the west, and migrants from other countries.  In 2011, those numbers shifted dramatically.  The average population growth each year was around 20,000 since 2004 but jumped to nearly 45,000 in 2011.  Of that number, 24,080 were migrants from foreign countries.  That number increased in 2012 to over 29,000 and in 2013 to 33,824.  All told, the number of new migrants moving to Berlin in 2014 was nearly 50,000 people.  On average it is a younger crowd moving to Berlin with the majority of the moving group in between 20-30 years old.

Housing Stock: In Berlin there are 1.9 million units of housing in the city or around 563 units for every 1,000 residents.  That compares to Germany as a whole with 40.4 million units or 493 units for every 1,000 residents.  The city of Berlin claims a social housing stock of 153,000 units with the whole country of Germany claiming around 1.8 million.  Living space per resident in Berlin is close to the average of the whole country with Berlin at 40.1 m2 vs. 42.8 m2 in the country on average.  Of the 1.9 million units of rental housing in Berlin around 85% are rented while the remaining are owner occupied.  Of the rental stock in Berlin, 35% have some type of public influence on them while 7% in total are social housing.  What is interesting about social housing in Germany vs other countries is the ownership structure.  Very often, private businesses or individuals own the social housing and agreed to a lower rental rate for public subsidies in the development process.  In total, 61% of all the social housing in Berlin is privately owned compared to 25% owned by Municipal housing companies.

One method used to gage the costs of rents in Germany is rent offers not subject to price regulations.  That means what landlords are asking for in the private market on average.  Below is a chart showing the rent offers in cities across Germany.  It is clear, Berlin is reasonable compared with other cities like Munich, Frankfurt and even Stuttgart. In Berlin itself, the rent offers varies by district.  Areas like City Center, Friedrichshain, Kreuzberg, Pankow, Charlottenburg and Wilmersdorf routinely see rent offers as high as €10 per square meter.  In fact, in many of these areas, the idea of affordable rents (€5 a square meter or lower) have all but completely disappeared.  That means parts of Berlin are becoming completely off limits for people without money.

Social Housing in Berlin: One of the best defenses against climbing rental prices is a strong social housing stock.  Berlin’s social housing history can be traced back to reconstruction programs after the Second World War.  In all, there were 4 phases we can examine.  1st phase: Post-war reconstruction of West Berlin under the functional principles of the Athens Charter with a high number of units subsidized with soft loans by Berlin‘s Investment Bank (IBB); Decline of activity in late 1960s due to lack of resources.  2nd phase: Restructuring of financing instruments towards subsidizing interest and repayments on investors ‘loans from the capital market.  3rd phase: Rising demand for housing – International Building Exhibition (IBA) 1984 and the strategy of „critical reconstruction “along the historic city layout.  4th phase: Increased activities in social housing as one of the means to reduce gaps between East and West Berlin’s urban and socioeconomic structures.  What is interesting to note is many of Berlin’s social housing units were sold off around a decade ago.  This sale made sense at the time because thousands of units were vacant and the population increase was not forecasted.

Development of the social housing stock: Because of the nature of expiring contracts in Berlin and the constraints in developing and contracting new units, the total number of social units is expected to decrease in the upcoming units.  Below is an estimate of the number of units going into the future.

New Construction in Berlin:  Looking into the future it is clear that new social housing is needed.  To accomplish this, new construction by municipal housing companies and the cooperatives are both necessary.  Buildable plots of land owned by the city are offered to municipal housing companies for construction projects first, then to the cooperatives.  A third option is to sell to private developers with strong design concepts.  The city is offering social housing subsidies at a rate of 320 Million Euro’s soft loans for 1,000 new flats a year.  The rent for these apartments will be around €6.50 per square meter.  They are discussing expanding the program and being negotiable with rents.  The city realizes it must have faster permission processes and better coordination.  There is now a central co-ordination office for new construction at the Senate Department of Urban Development for all actors of the housing market.  The cooperation agreement is to work with districts on quicker processing of building applications.

Other Tools:  The city is using other tools to keep prices in check and protect renters.  A law against inappropriate use of real estate assigned to housing for commercial use has been reintroduced.  That would include the renting of private residences as vacation homes.  Restricted termination of rental contracts for the private use of the new owner after flat is sold with a 10 year transition period.  The city is also looking at a decreased margin for rent increases within existing rental contracts while also increasing the stock of the municipal housing companies through acquisition.  The city has also created the alliance for social housing policies and affordable rents with the municipal housing companies while allowing more flexibility with welfare payments for rents of the elderly and handicapped.

There is Work to Do: The city is working hard with the six municipal housing companies as evidenced by the alliance of social housing policies and affordable rents between the Senate Department for Finance, Senate Department for Urban Development and the six municipal housing companies.  The aim to provide more affordable housing, while moderating the effect of low rents on the housing market and promoting socially diverse neighborhoods is not a simple task.  If the growth rates continue the same as the last decade, Berlin could find in an affordable housing crisis.  Planners believe the rates will slow down and the various measures taken to build and preserve affordable housing will bring balance back to the market.  As with many growing cities facing an affordable housing shortage, only time will tell if the measures started now are enough in the future.

Special thanks to the Senatsverwaltung für Stadtentwicklung und Umwelt Berlin for meeting with me and providing the information for this blog.  All charts and information come from information provided by this department within the interview process.