Real Estate

In Berlin 85% of people rent their homes — and prices are spiralling

In a city of renters, 30-year-old Martin Rowe, who works for a music software company, considers himself one of the lucky ones. Thanks to a legal loophole known as Nachvertrag — “where you sign your name on an old rental contract from someone you know, which preserves the low rent price without handing the apartment back to the owner,” he explains — Rowe and his partner rent their two-bedroom flat near Treptower Park, “a quiet neighbourhood of families and chilled-out creatives”, for €730 a month, including bills.

“My contract is about 15 years old and, in that time, it has been passed forward four times, which is not uncommon here,” says Rowe, who moved from the UK to Berlin as an Erasmus student in 2013.

“I know everyone who has lived in this apartment over that time. We sometimes hang out and share stories about the neighbours. This domestic oral history is a unique side effect of the mind-boggling battles between house owners and tenants in Berlin.” 

For every fortunate renter like Rowe, though, many more are struggling to live in the German capital. According to research by Homeday estate agency, 17 out of 19 neighbourhoods are now unaffordable to the average earner, based on “rental burden” — the amount of someone’s net salary that goes on monthly rent. A rental burden of more than 40 per cent is deemed too high.

Charlottenburg is among Berlin’s 10 most expensive rental areas
Charlottenburg is among Berlin’s 10 most expensive rental areas © Bildagentur-online/Joko/Alamy 

Earlier this year, when a Berlin-wide rent cap was overturned by the federal courts, many tenants had to refund to their landlords the difference between what they were paying and the market rate in a lump sum. “Friends were suddenly hawking their valuables on Instagram to make up the thousands of euros they had to repay within a month,” says Rowe.

About 85 per cent of Berliners rent, and it’s become part of the city’s DNA. Locals talk of how historically affordable rents have helped to cement a strong sense of community — and broaden the city’s appeal.

“Berlin has a different mindset to other European capitals, with underlying socialist values and a resentment of outright capitalism,” says Ed Brooks, 28, a marketing manager who moved there from London two years ago. Now, it is lack of affordability that’s keeping communities together, “as finding a place to live is so difficult that it puts most people off moving,” adds Brooks, who pays €1,150 a month for his one-bed, 72 sq m flat in Prenzlauer Berg, previously part of communist East Berlin, “and now one of the most popular neighbourhoods for young families,” he says.

Rents have risen by 36 per cent in the past five years, based on median asking prices, according to data by the property portals Immowelt and Immonet. In the most expensive areas, including Mitte, Wilmersdorf and Prenzlauer Berg, the average rent for a 59 sq m apartment is more than €1,200 per month, according to Homeday. In the more affordable areas of Steglitz and Rosenthal, the average is under €900 per month.

Mitte — Berlin’s historic core, which includes the landmark Brandenburg Gate and sprawling Tiergarten park — is Germany’s second-most unaffordable neighbourhood, with someone earning the average Berlin salary needing to spend 62 per cent of their net income on rent to live there, according to Homeday. There is also still an east-west divide when it comes to median monthly net salaries: €2,199 in urban areas that used to be in West Germany, compared with €1,854 in those located in former East Germany, according to Homeday.

“The situation is most challenging for young people moving to the city, particularly students, single-income households or anyone without ‘old’ rental contracts which command significantly lower rents,” says Meeri Rebane, co-founder and chief executive of INZMO, a Berlin-based insurtech company.

“One issue is affordability; another is the availability of rental premises. The shortage is driving up rental prices,” adds Rebane, whose rental deposit guarantee product for tenants, starting from €3 a month, provides an alternative to paying a deposit upfront (typically of three months’ rent).

Tiergarten park in central Berlin
Tiergarten park in central Berlin © Abdulhamid Hosbas/Anadolu Agency/Getty Images

When it comes to addressing the shortage of rental stock and spiralling prices, however, Berliners have spoken. In a referendum last month titled “Expropriate Deutsche Wohnen & Co”, 56 per cent of voters backed a move to place 240,000 corporate-owned apartments — about 15 per cent of Berlin’s total rented stock — back into public ownership and available at affordable rents.

Berlin is not alone in proposing drastic measures to combat fast-rising rental prices. As one of Spain’s “tense housing markets”, Barcelona recently extended its rent cap to five years, “which has had many critics”, says Mark Stucklin, founder of Spanish Property Insight, an independent real estate data and analysis website. Data from Idealista, the Madrid-based property portal, suggests that the rent cap is reducing the supply of homes to rent, he adds, and keeping prices high.

“The city’s on the way to becoming a no-go area for serious investors too, which won’t be good for the rental supply side in the long run.”

Berlin’s controversial referendum proposal is not legally binding — and, if enacted, will come at a huge cost to the city, on top of nearly €2.5bn recently spent on buying 14,750 apartments from two large corporate landlords.

“[The expropriation of properties] is unlikely to take place,” says property analyst Peter Rabitz, founder of Your Berlin Agent. “The cost of compensating these companies at market value is estimated to be €24bn- €30bn. It’s not practical and wouldn’t create any new living space within the city,” he says. “It also wouldn’t leave enough money to carry out much-needed refurbishments to these homes. Imagine what could be built with €30bn instead!”

Hackescher Market in the Mitte neighbourhood
Hackescher Market in the Mitte neighbourhood, where someone earning the average Berlin salary would need to spend 62 per cent of their net income on rent © edpics/Alamy

The referendum does, however, mark “the next stage of escalation” after more than 10 years of pressure on the rental market, says Clemens Paschke, chief executive of Ziegert estate agency. “There is a massive imbalance of supply and demand, and that’s going to get worse as the population is forecast to grow by 10 per cent in the next 10 years.”

Adding to Berlin’s “challenges”, he says, are laws governing “milieu protection areas”, which prevent landlords from dividing buildings into condominiums. Building more houses is an obvious solution, “but it can take two years to get permits, up to eight years in total, from finding the land to completion”.

What most agree is that Berlin needs to fast-track its building permit system to speed up construction. “Nationalisation is a short-term and rather populist approach and not a lasting solution,” says Steffen Wicker, founder and chief executive of Homeday. “The answer is to create more affordable living spaces in areas where people want to live. The state can contribute to this through re-densification in central areas, less bureaucracy, accelerated approval procedures and by creating better transport to the suburbs — as the commuter belt around Berlin is now experiencing even larger price increases, in properties for sale, than the urban areas.”

Berlin’s lack of sale and rental stock means it is one of the few German cities where residential prices are still rising. The median asking price for existing buildings is currently €5,140 per sq m, up 4.8 per cent on October 2020, according to Immowelt and Immonet data.

“At the high end, most of our sales are new-build as there’s very limited supply of existing buildings. We saw the €10,000 per sq m benchmark hit five years ago for the first time. Now it’s up to €25,000 per sq m for the very best penthouses in landmark projects,” says Paschke.

Rabitz adds that in popular places such as Friedrichshain — a gentrified area once famous for its student feel — he has seen three large family apartments go over asking price.

For most Berliners, however, ownership remains out of the question. And as a tenant in this rental capital, you’d better make sure you get on with the neighbours. You may find yourself living side by side for many years to come.

Buying guide

  • While prices have been rising in Berlin, sales have fallen markedly from 24,600 in 2015 to 17,500 in 2020, according to a market report from Guthmann.

  • The monthly median rent of flats built up to 2015 is about €12.90 per sq m, an increase of 9.5 per cent year-on-year, according to Guthmann.

Properties for sale: Berlin

Apartment, Charlottenburg, €330,400

A one-bedroom apartment on a tree-lined street near Charlottenburg Palace. The property, which measures 46 sq m, can be used either as a home or a holiday rental — it is one of Berlin’s officially registered holiday apartments. Available through Sphere Estates.

Apartment, Mitte, from €970,000

A one-bedroom apartment in a development of 10 flats on Luisenstrasse. Originally built in 1838, the six-storey building has been renovated in the past year. One-bedroom units measure from 43 sq m. Available through estate agents Knight Frank.

Penthouse, Kreuzberg, €2.998m

A three-bedroom penthouse apartment arranged over two levels on the fifth and sixth floors. The property, which measures 248 sq m, has double-height ceilings, oak wood floors and large panoramic windows. The flat also has spacious terraces offering views of the city. Available through Sphere Estates.

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