“An Englishman’s home is his castle,” runs the old adage that’s used to justify historically high levels of property ownership in the UK. Nowadays, however, rising prices are delivering a culture shock that’s ensuring owning the keys to a house is becoming almost as rare as possessing the deeds to a castle.

This has led the prospective Dick Whittingtons of London to look a little further afield in their search for affordability. Eschewing a city that’s been hollowed out by the super wealthy (who, absentee, can often afford to sit on capital appreciation), many are casting a covetous eye towards Berlin.

"While British efforts to keep the middle afloat concentrate on short-term relief for housing deposit savers, Berlin has introduced a two-pronged offensive aimed at keeping rents low."

In the German capital, people have different priorities. More than two decades after the fall of the Berlin Wall, only 15% of residents own their own homes, whilst in London that figure is over three times higher at 49%[1]. Historically, it’s been low-income groups who’ve had their housing subsidized, but Berlin appears to have faced the fact that the middle is also struggling to keep its head above water. While British efforts to keep the middle afloat concentrate on short-term relief for housing deposit savers, Berlin has introduced a two-pronged offensive aimed at keeping rents low.

The first is the mietpreisbremse, which is effectively a rental price brake that uses a state agency to fix a standard median rent per-square-metre for each city district (using figures based on a biennial state census of rents). No new rental contracts are allowed to stray more than 10% above this rate.

The second offensive has been dubbed the “community defence” laws. Pinpointing areas where rents rise rapidly, they forbid luxury conversions and vacation rentals, both of which reduce stock for citizens in need. These new laws build on legislation that is already considered pro-tenant in nature, with long and open-ended contracts the norm. Furthermore, landlords must provide legal evidence as to their intentions if they wish to pursue evictions.

It would be naïve, however, to regard these efforts as proof of Berlin’s enlightened outlook – or a government that’s always on the side of the “little guy”. With such a huge slice of the city’s population renting, there are powerful interests on the side of the renters, who often have much greater levels of disposable income available to plough into other parts of the economy.

This has not gone unnoticed by London’s bargain-hunters. Asking prices have surged in Berlin over the past few years and rents have inched higher, too – thanks in part to London migrants. But sceptics urge caution. Berlin is not regarded as a global financial centre, and its unenviable unemployment rates coupled with the risk that the all-powerful tech companies might at any moment stray to another capital, suggests that the city could lose its appeal as quickly as it gained it.

Yet Berlin – unusually for a national capital – is still more affordable than at least seven other major German cities, including Munich and Frankfurt. Numbers stack up especially favourably when compared to London. Numbeo estimates that Berlin is around 60% cheaper than the British capital[2], with local wages roughly 20% lower.

Prices aside, there are many tricks in Berlin’s toolbox when it fears tenants are being taken for a rough ride. For instance, when tenants find themselves being evicted by landlords seeking to sell to the highest bidders (often faceless developers who care nothing for the local social fabric of the city), they can enact the pre-emptive right of purchase, which allows them to swoop in and prevent their building from being flogged to private investors and stops large swathes of Berlin from turning into ghost towns.

"Many of the problems arising in Berlin are the issues that success brings in its wake."

Another sign of Berlin’s strength is its societal norms. Whilst social housing quotas are imposed upon new developments in London, Berlin has several real estate companies – Vonovia, for instance – that offer tenants affordable and attractive homes as part of their business models. These companies take into account the fact that rents will be controlled and prevent developers from making swift onward sales, ensuring affordable housing survives in the form of private rented schemes (PRS). Although, swift recent capital appreciation of Vonovia’s 370,000 housing units has seen them hit Germany’s DAX index.

Many of the problems arising in Berlin are the issues that success brings in its wake. Thousands of people – 40,000 per year to be precise – continue to flock to a city where rent and crime are as low as one another. This means, while it once had a surplus of stock, it now needs an additional 25,000 new builds each year. At the moment, only 8,000 are being built, leading to fears that a shortage of London proportions could be on the cards. Thankfully, there are a number of reasons to believe this will not happen. Firstly, the Berlin government is seeking to boost its ownership of affordable property fourfold by 2026. Secondly, the city’s six state-owned housing companies will shortly buy up almost 30,000 apartments and build over 50,000 new ones (reserving 30% for low-income families). And finally, 33 neighbourhoods have already been designated as conservation areas, meaning all redevelopment there is banned.

However, these moves to keep rents affordable and banning redevelopment has given rise to signs that Berlin’s property market is beginning to overheat. In recent years, there has been a drive to increase individual property ownership with low interest rates (currently just over 2%) and increased immigration, which has seen house prices rise dramatically. The IMX Immobilienindex (housing index) has seen house prices rise by 214% in the last decade and 33% in the last year, while apartments have risen by 280% in the past decade and by 51% in the last year[3].  There are fears of a property bubble as scarcity levels increase and values rise, as investors see Berlin as an attractive place to buy. This has led to some German politicians suggesting imitating Vancouver’s recent behaviour and placing a 15% tax on foreign house buyers to cool any signs of overheating with immediate effect.

The hostility displayed is not towards money per se, but rather a particular type. Berliners are typically in favour of wealth-producers and creative types, but against those who simply seek to use the city as a piggy bank, neither living nor contributing to the local area.

The paradox is that it is precisely this relegation of profit and the promotion of human capital and urban regeneration that makes Berlin such an attractive prospect to global companies and real estate investors.

The numbers speak for themselves; when compared to other capital cities, Berlin still appears undervalued, especially as its lower costs rarely come loaded with a reduction in living standards. And with Brexit looming, the city looks to supplant London as Europe’s global creative hub.

 

[1] English Housing Survey 2015-16 – Department for Communities and Local Government
[2] Cost of Comparison Between London and Berlin – Numbeo
[3] Real Estate Index Berlin – IMX Immobilienindex

 

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