Germany:
Berlin’s war on gentrification
As
demand booms, officials want to prevent the city turning into another
London
YESTERDAY by: Guy
Chazan in Berlin
Last summer, the
residents of Wrangelstrasse 66, an apartment block in the trendy
Berlin district of Kreuzberg, received an alarming letter from the
owner. The whole house was to be sold to a Luxembourg-registered
company called Riva Residential. The tenants had two choices: either
buy their flats themselves or face an expensive renovation and higher
rents.
In desperation, they
appealed to their local council for help — and got lucky.
Councillors discovered an obscure legal tool known as a “pre-emptive
right of purchase” that allows them to swoop in and stop buildings
from being flogged off to private investors. They bought the house
for €3.7m and sold it on to a state-owned housing company.
Wrangelstrasse 66 is now in public ownership and its tenants can
stay.
“We have to do
something to save public housing stock and ensure that the social
structure of these neighbourhoods isn’t completely destroyed,”
says Hans Panhoff, the Kreuzberg councillor who spearheaded the deal.
What happened on
Wrangelstrasse is not an isolated incident. It is part of a broad
campaign by the Berlin authorities to tame the wildest excesses of
the real estate market and protect the rights of tenants, who make up
a staggering 85 per cent of the population — compared with only 35
per cent in Britain.
The aim is to
prevent Germany’s capital ending up with the same kind of housing
crisis as London. “We want Berlin to remain a place where average
earners can afford to live,” says Matthias Kollatz-Ahnen, the
city’s finance chief. “And rumour has it that that’s no longer
the case in London.”
But in their pursuit
of a fairer housing policy, the authorities are enacting measures
that would make the average laissez-faire liberal blanch. Councils
have reinforced rent controls, banned luxury renovations and kicked
out Airbnb. They are also considering huge tax hikes to deter foreign
investors.
Some see the
government’s interventions as slowing Berlin’s natural
development into a world-class capital. “If we didn’t have
gentrification, we’d all still be living in wooden houses,” says
Jörg Schwagenscheidt, head of PMM Partners, a real estate advisory
firm.
All over the world,
big cities are facing the same dilemma: how to provide enough
affordable housing for all their citizens. A wealthy metropolis
cannot just be a playground for investment bankers. It also needs
nurses, teachers, and policemen who can live within easy reach of
their workplaces.
Yet in many places,
low-income workers, particularly those in the public sector, are
being priced out of inner-city neighbourhoods by spiralling living
costs and exorbitant rents. The result is rising inequality and
far-reaching changes to the social make-up of urban centres.
Berlin has also
suffered from this trend. “Thousands of Berliners who have lived in
places like Kreuzberg for decades are being squeezed out and whole
neighbourhoods changed beyond recognition,” says Pamela Schobess, a
nightclub manager who has lived in Wrangelstrasse 66 since 1999.
Berlin has much more
flexibility to pursue policies favouring low-income tenants than
London or Paris. It is the poorest of Germany’s big cities, and
rents have traditionally been lower there than in places like Munich
and Frankfurt, where pressure on housing is much greater. Unlike
London, Berlin’s population is lower than it was before the second
world war: there is more space for development than in the English
capital and land prices are significantly lower.
Even with those
advantages, there is no guarantee Berlin’s experiment will succeed.
Despite the best efforts of City Hall, rents are on the rise and
affordable flats in short supply. A recent report by the think-tank
Empirica found the average Berlin rent had risen 57 per cent since
2004.
Everyone
loves Berlin
Just like in London,
Berlin is a landlord’s market. But it wasn’t always like that.
Split in two by its eponymous wall, it used to be a rundown, shabby
city that was a haven for squatters, artists and bohemians. Finding a
cheap flat to rent was never a problem. At one point last decade
there was such a large surplus of public housing that the city
actually sold off 80,000 council flats.
The situation has
changed radically in the past five years, however. Berlin, which
welcomed 12m visitors in 2015 alone, is now the capital of a country
at the peak of its power and influence. Some 40,000 people are moving
here every year, attracted by its thriving tech start-up scene,
creative buzz and relatively low cost of living. They are in addition
to the 54,000 refugees who poured into the city last year.
Experts say Berlin
must build an additional 25,000 homes every year to keep up with the
growth in its population. But last year, only 8,000 were constructed,
city officials say.
The Berlin
government is determined to solve the housing shortage. It plans to
increase the number of affordable flats it owns by about 80,000 to
400,000 by 2026. The city’s six state-owned housing companies will
buy 26,600 apartments on the open market and build 53,400 new ones:
30 per cent of those will be reserved for low-income families.
Other measures are
far more intrusive. For years, urban planners worried about the
number of luxury renovations in central districts of Berlin.
Landlords typically raise rents after such upgrades, forcing the
original tenants out. The city has sought to counter this by
designating some 33 neighbourhoods as “urban conservation areas”
where expensive redevelopments are banned. Owners of houses in these
areas are also not allowed to convert them from rental properties
into condominiums.
The policy is a
nightmare for developers. “The problem is most people don’t know
what the rules really mean, and where the next one is going to be,”
says Mr Schwagenscheidt. The only hope they have is that the
protected status of the neighbourhood will one day lapse so they can
modernise their buildings. “They will just wait,” he says.
Berlin has also
introduced a “rental brake”, under which the rent set out in a
contract with a new tenant cannot exceed the local average by more
than 10 per cent.
But in a sign of how
hard it is to regulate a market where supply cannot keep up with
demand, the brake isn’t working. A recent study discovered a big
gap between the average rent paid by existing tenants in Berlin and
the price for newly re-let apartments. “In some cases we’re
seeing increases of up to 60 per cent,” says Martin Pallgen,
spokesman for the department for urban development. “But you’re
always going to find people who’ll pay.”
According to Reiner
Wild, head of the Berlin Tenants’ Association, a flat-hunter has
often spent so long looking that he is happy to cough up whatever the
landlord wants — even when he knows it’s above the legal limit.
“He thinks: am I really going to start things off here by picking a
fight with the landlord?” he says.
Moves are now afoot
to toughen the law. The centre-left social democrats, junior partner
in Angela Merkel’s coalition government, wants to force landlords
to publish the rent they charged the previous tenant, so the new one
can see whether — and by how much — it has increased. They also
want to introduce stiff fines for property owners who raise rents by
more than is permitted.
And while some have
slammed the brake as ineffective, there is evidence that the canny
tenant can use it to his or her advantage. Last month, in the first
case of its kind, a landlord in Berlin was ordered to reimburse his
tenant hundreds of euros after a court decided he had broken the
rules by charging her €7.60/sq m, instead of the local average of
€7.16. Heiko Maas, justice minister, said that the brake was a
“paradigm change which is now beginning to have an effect”. Yet
such legal challenges are extremely rare.
Landlords are
critical of the government’s interventions. “It’s just
tinkering with the symptoms, rather than really tackling the root
cause of the housing shortage, which is that there are just not
enough flats,” says Alexander Gedaschko, head of the GdW, a trade
body representing German property companies. “A better response
would be to speed up the construction of new housing.”
Taking
on Airbnb
Perhaps Berlin’s
most radical move has also been its most controversial — a ban on
homeowners letting out whole properties on Airbnb. City officials
estimate there are as many as 24,000 holiday flats in Berlin. “In
Kreuzberg there are more of them than flats for rent, and that’s a
serious problem,” says Mr Wild.
Enforcing the ban is
difficult, but officials have turned to the public for help. Mr
Pallgen’s department has an online form for people to report
anonymously on neighbours they believe are renting out their flats on
services such as Airbnb. Since May, they have received 3,000
tip-offs. Violators face a stiff fine.
For some critics,
the scheme has uncomfortable echoes of East Germany’s Stasi past.
Mr Pallgen denies it’s encouraging a culture of snitching. “Tenants
who are disturbed by people … making loads of noise, throwing
parties and piling up rubbish have a right to complain,” he says.
The law has also
been toughened to force websites to hand over the details of property
owners suspected of letting out their flats to holidaymakers in
contravention of the ban.
Airbnb last week
published a study it commissioned showing that home-sharing organised
through its platform had “no significant impact” on the Berlin
housing market. Its listings account for 0.6 per cent of the city’s
housing stock and 63 per cent of listings are rented for fewer than
30 days, it said.
Hemmed in by
regulation, real estate investors have to tread carefully in Berlin.
But there are still plenty of opportunities, says Mr Schwagenscheidt.
“With a detailed asset management approach on the ground, you can
still achieve attractive returns,” he says.
Outside the
conservation areas, developers are free to buy rental flats and
convert them into condominiums, which can be sold for sky-high
prices. They’re also free to modernise some buildings and let them
out at much higher rents. Berlin, meanwhile, still has plenty of
apartment blocks owned by ageing absentee landlords who are
unwittingly charging much less rent than they are legally entitled
to. Bidding wars for such properties, when the owner sells up or
dies, can be intense.
Back in Kreuzberg,
Ms Schobess is still hoping Berlin can turn back the tide of
gentrification. “The city is sick and tired of investors coming
here from all over the world and changing the character of the
place,” she says. The biggest risk is, she says, that “Berlin
will end up being just like anywhere else”.
Property
taxes: Vancouver offers model for curbing foreign buyers
Not many German
politicians take their cue from Vancouver. But for Matthias
Kollatz-Ahnen, the Canadian city offers important lessons as he seeks
to cool Berlin’s red-hot property market.
In August, a new 15
per cent tax on foreign housebuyers in the Vancouver area took
effect, the most radical response yet to the sharp rise in house
prices in one of Canada’s biggest cities. Berlin is watching
closely.
German real estate
has become a huge draw for investors frustrated by low interest rates
and desperate for yield. In 2009, only 14 per cent of property sales
were to foreigners but by last year that had risen to 68 per cent.
Berlin is a key focus of that growing interest.
Yet officials want
to curb what they see as speculative capital flows that are
distorting an already strained market.
“We want people
here who invest, who build flats, hotels, offices, factories,” says
Mr Kollatz-Ahnen, Berlin’s finance chief. “Not people who just
want to use Berlin real estate as a piggy bank.”
Like the government
of Canada’s British Columbia, Berlin is proposing some far-reaching
reforms of the tax code.
Currently, many real
estate transactions are structured as so-called share deals, with one
company acquiring the shares of another which owns the property. Such
deals are largely exempt from real estate transfer tax. Mr
Kollatz-Ahnen wants to remove this exemption.
“Share deals are
only attractive when no transaction costs accrue,” he says. “We
want them to be taxable.”
He is also working
on increasing the real estate transfer tax for second homes that
largely stand unoccupied. “These are fine if people actually live
in them,” he says. “But if they’re just used to park cash, it’s
hard for the city.”
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