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HOUSING

What you need to know about Berlin’s turbulent housing market

Whether for buying or renting, Berlin has one of the most quickly growing - and diverse - property markets in the world. Here's what housing experts predict the capital will see in the future.

What you need to know about Berlin's turbulent housing market
Apartments in the east of Berlin. Photo: DPA

When Christopher von Gumppenberg moved to Berlin in 2018, friends were amazed that he paid over €4,000 per sq m to buy an apartment. A year later, prices in the same building have jumped to €6,000 per sq metre and his friends are still looking.

“I am lucky to have found a place at all,” says von Gumppenberg, the CEO of Kugu, a digital toolbox for managing buildings and related business processes.

The changes in the housing market are an evergreen topic, but the pressure on renters and new buyers in Berlin today is immense. The capital was rated as one of the fastest growing housing markets in the world last year.

READ ALSO: Germany to invest in new homes as rent in cities soars by six percent

Rapidly growing – in residents and prices

Monthly rentals doubled in the last decade, reaching €11,40 per square metre in 2018, while property prices went up by 20.5% in 2017 and 12% in 2018.

Berlin is expected to swell to four million inhabitants by 2035, and more Berliners are choosing to live alone (54% according to the Department for Urban Development and Housing).

To satisfy demand, it is estimated by Frank Knight that 20,000 new residential units need to be delivered year on year – in 2017, only around 15,699 were ready. 

So as rents climb and the lack of affordable housing bites, are we looking at a housing crisis – or is a bubble forming over Berlin?

The market in the capital is unique, explains von Gumppernberg.

“It only started to develop here since the beginning of the 2000s,” he says. This late development is the result of local factors: the city’s turbulent history, its dispersed social centres, its lack of major corporate headquarters or even a large international airport.

Flats being built in the west of Berlin. Photo: DPA

This means Berlin has far more opportunities for investment than mature markets like London or Paris. 

READ ALSO: What you need to know about the German property tax that affects us all

Hope the horizon for buyers?

For those interested in buying there could be good news – or at least it appears so at first sight.

Interest rates have fallen to historic lows. Last year, the average mortgage rate was 1.85%, according to data from Statista. This encourages lending, though deposits (which are linked to the value of a property) remain a hurdle to first-time buyers. 

When interest rates rise again, the impact will be felt. “The market will uncover who calculated correctly,” von Gummpenberg predicts. “I think there will not be a burst, but at least a slow down. Especially in certain B and C locations.”

In Berlin, the market is also far more diverse than in other cities. “You get everything in Berlin,” says Christian Crain, head of PriceHubble, a digital service that gives property valuations and predictions.. “The range of price and quality is huge. It’s like the entire German market but squeezed into 900 km².” 

This means it is also highly fragmented and attractive to investors. “The level is too high for locals but for foreign buyers, prices are still very low,” says Crain. “Realtors and asset managers now focus only on foreigners in some segments, because they can no longer sell to existing inhabitants.” While hardly ideal for locals, the boom is forecast to continue.

“I would say, continual long-term growth, easily 3% year-on-year. Of course, there will be peaks and spikes.” 

READ ALSO: How new homes are not being built where they are needed in Germany

Social housing for renters?

Home ownership in Berlin is only 15%, and the lack of affordable housing has fuelled calls for the state to help take back control of the market for residents. High-profile moves by the Berlin Senate have attracted a mixed response though.

The five-year rent freeze and the purchase of 670 flats from Deutsche Wohnen have been criticized for endangering investment in the city. Crain dismisses the measures as “fighting the symptoms rather than the underlying cause of the problem”.

READ ALSO: Why Berlin is buying back nearly 700 apartments on its historic Karl-Marx-Allee

Von Gummpenberg blames the current shortage on a lack of long-term planning. “The German government failed to set and implement the right measures for social housing in the past 20 years,” he says. Following reunification, the city sold off thousands of state-owned housing units and now has a stock of only 100,000.

“By privatizing many social housing companies and buildings, Germany freed them into the capital market with its own rules.” 

He compares this to Austria’s extremely effective system. “There, creating affordable living space has been a core strategy for 150 years.” In Vienna, 62% of the city’s 1,8 million inhabitants currently live in social housing and pay subsidized rents.

In Germany, schemes like housing co-operatives (Genossenschaftsmodelle) have been successful on a limited scale he says but the government needs to make more opportunities available.

An advert posted from someone looking for a flat in Berlin. Photo: DPA

Commercial opportunities?

Also bullish and overheating is Berlin's commercial market. Companies, both small and large, face difficult conditions when looking to rent office space, explains Julian Jost. He is CEO and co-founder of Spacebase, a global platform for booking meeting and work spaces, also based in Berlin.

“If companies want to rent nowadays, they need to pay €30 or more per sq m and sign up for at least five years. That’s a significant commitment. Not everyone can put down a deposit like that and so young companies find it impossible to get an efficient lease.”

Instead they are being forced into co-working spaces. “This places a real strain on cash flow, with much higher per person costs.”

New platforms are changing this, however. He predicts the ongoing digitalization of the real estate industry, both residential and commercial, will bring greater flexibility. “It allows for better, more efficient matchmaking between tenants and landlords. New technology like ours makes it much easier for everyone.”

PropTech has already gained momentum and could bring disruption to a rigid industry, until now controlled by realtors and estate agents. It could also help out a squeezed market, and Berlin could be well-situated to take advantage of these trends.

“In Berlin, you have a vital culture of innovation,” Jost adds. “That is why so many of us are attracted here and I think this can also help the city find solutions.”

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LIVING IN GERMANY

Living in Germany: Battles over Bürgergeld, rolling the ‘die’ and carnival lingo

From the push to reform long-term unemployment benefits to the lingo you need to know as Carnival season kicks off, we look at the highlights of life in Germany.

Living in Germany: Battles over Bürgergeld, rolling the 'die' and carnival lingo

Deadlock looms as debates over Bürgergeld heat up 

Following a vote in the Bundestag on Thursday, the government’s planned reforms to long-term unemployment benefits are one step closer to becoming reality. Replacing the controversial Hartz IV system, Bürgergeld (or Citizens’ Allowance) is intended to be a fair bit easier on claimants.

Not only will the monthly payment be raised from €449 to €502, but jobseekers will also be given a grace period of two years before checks are carried out on the size of their apartment or savings of up to €60,000. The system will also move away from sanctions with a so-called “trust period” of six months, during which benefits won’t be docked at all – except in very extreme circumstances. 

Speaking in parliament, Labour Minister Hubertus Heil (SPD) said the spirit of the new system was “solidarity, trust and encouragement” and praised the fact that Bürgergeld would help people get back into the job market with funding for training and education. But not everyone is happy about the changes. In particular, politicians from the opposition CDU/CSU parties have responded with outrage at the move away from sanctions.

CDU leader Friedrich Merz has even branded the system a step towards “unconditional Basic Income” and argued that nobody will be incentivised to return to work. 

The CDU and CSU are now threatening to block the Bürgergeld legislation when it’s put to a vote in the Bundesrat on Monday. With the conservatives controlling most of the federal states – and thus most of the seats in the upper house – things could get interesting. Be sure to keep an eye out for our coverage in the coming weeks to see how the saga unfolds. 

Tweet of the week

When you first start learning German, picking the right article to use can truly be a roll of the “die” – so we’re entirely on board with this slightly unconventional way to decide whether you’re in a “der”, “die”, or “das” situation. (Warning: this may not improve your German.) 

Where is this?

Photo: picture alliance/dpa | Boris Roessler

Residents of Frankfurt am Main and the surrounding area will no doubt recognise this as the charming town of Kronberg, which is nestled at the foot of the Taunus mountains.

This atmospheric scene was snapped on Friday morning, when a drop in temperatures saw Kronberg and surrounding forests shrouded in autumnal fog.

After a decidedly warm start to November, the mercury is expected to drop into single digits over the weekend. 

Did you know?

November 11th marked the start of carnival season in Germany. But did you know that there’s a whole set of lingo to go along with the tradition? And it all depends on where you are. First of all, the celebration isn’t called the same thing everywhere. In the Rhineland, it’s usually called Karneval, while people in Bavaria or Saxony tend to call it Fasching. Those in Hesse and Saarland usually call it Fastnacht. 

And depending on where you are, there are different things to shout. The ‘fools call’ you’ll hear in Cologne is “Alaaf!” If you move away from Cologne, you’ll hear “Helau!” This is the traditional cry in the carnival strongholds of Düsseldorf and Mainz, as well as in some other German cities.

In the Swabian-Alemannic language region in the southwest of the country, people yell “Narri-Narro”, which means “I’m a fool, you’re a fool”. In Saarland at the French border, they shout “Alleh hopp!”, which is said to originate from the French language. 

Lastly, if someone offers you a Fastnachtskrapfe, say yes because it’s a jelly-filled carnival donut. And if you’re offered a Bützchen? It’s your call, but know that it’s a little kiss given to strangers!

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