From Renters Paradies to Renters Nightmare: Why you won’t find an apartment in Berlin anymore!
How NIMBYism, political decisions and regulations crippled the Berlin housing market. A call for YIMBYism!
“One of the great mistakes is to judge policies and programs by their intentions rather than their results.” - Milton Friedman
Berlin’s housing market, once known for its affordability, is now struggling with ever-increasing rental costs and a severe housing shortage. What has caused this dramatic shift? This article discusses the key factors behind the crisis: demographic shifts, unexpected waves of migration, local opposition to new construction, and rising construction costs. In an effort to address these issues, policymakers have introduced various regulations to stabilize the market, including rent breaks and even attempts to cap overall rental prices. However, these interventions have failed to deliver the desired results, often worsened the very problems they were intended to solve.
Economist Ludwig von Mises offers a framework to understand why these policies fail. In “A Critique of Interventionism”, Mises argues that price controls, such as rent controls, disrupt the balance between supply and demand, creating unintended consequences. He explains:
If government lowers the price below that which the unhampered market would set, the same quantity of goods faces a greater number of potential buyers who are willing to pay the lower official price. Supply and demand no longer coincide; demand exceeds supply, and the market mechanism, which tends to bring supply and demand together through changes in price, no longer functions. […] Before the price was regulated, the economic good was too expensive in the opinion of the [government]; now it disappears from the market.
As a result, “buyers who come first or have personal connections with the sellers will get the goods”. However, this was not the government’s intention, which “wants everyone to have the goods at lower prices”. Mises goes on to warn that this initial intervention often leads to a spiral of additional interventions. For example, governments might introduce rationing or impose requirements to build more housing. Berlin’s housing market provides a vivid illustration of the interventionist approach.
To understand how the city shifted from a renter’s paradise to its current crisis, let’s start in the 1990s.
Berlin between 1990 and 2010 – How Berlin Became a Renter’s Paradise
In the past, Berlin was known for its affordability, offering some of the cheapest rents among major Western cities. This was the result of several historical factors. After the Second World War, Berlin was divided into East and West Berlin. After reunification, the 1990s saw a surge in new housing construction, incentivized by tax benefits. In 1997, for example, more than thirty-thousand appartments were completed.
This increase in construction coincided with an unexpected demographic decline. Many residents moved to the surrounding areas or to other parts of Germany, leaving Berlin with a surplus of available housing. Predictions of rapid population growth due to Berlin’s new status as Germany’s capital did not materialize until the mid-2000s. The result was a golden age of affordable housing. Comedian and founder Moritz Holz recalled his experience finding an apartment in Berlin in 2007 like this (translated):
I came to Berlin back then without having an apartment. There was just a sheet of paper saying an apartment for rent. And I called and the apartment was on the sixth floor, Alte Schönhauser Strasse, two balconies, view of the television tower, 70 square meters [around 750 square feet] and there were no other applicants. And he [the real-estate agent] just said, yes, you can have it. He didn't want any proof, he didn't want Schufa [credit score], he didn't want any proof of salary. I didn't have a salary at the time. And then he even said to me, you know what, for the next two months, the old tenant is still paying, you don't have to pay any rent. And the rent, including heating, was 600€ a month.
For a visual glimpse into this construction boom during the 1990s, a short clip from the documentary “Berlin Babylon” (2001) offers a mesmerizing impression:
But the golden age of affordable living in Berlin couldn’t last. As the city entered the 2010s, a surge in housing demand marked the beginning of a new era. The renter's paradise was coming to an end, setting the stage for a housing crisis that would define the coming years.
Berlin between 2011 and 2023 - Construction Shortfalls in a Growing City
Between 2011 and 2023, Berlin’s population grew from 3.32 to 3.78 million. Net migration surged from 10000 in 2009 to 40000 in 2011 and remained at this level for years. Several factors contributed to this growth, some predictable, such as demographic trends, and others more unexpected, like the migration due to conflicts.
The main driver of housing demand is demographics, not just in terms of population size but also age structure. Around the 2010s, the children of the baby boomers, a relatively large cohort (see the age pyramide of Germany in 2015 above), began moving out of their family homes to pursue education and work opportunities in major cities, increasing the demand for living space. Meanwhile, many baby boomers chose to stay in their larger homes and apartments instead of downsizing, a phenomenon known as “remanence effect”. Additionally, population growth was also fueld by increased intra-European migration following the European debt crisis, as well as significant spikes in net migration during the years 2015/16 and 2022 due to the conflicts in Syria and Ukraine.
Despite this population growth, the rate and volume of housing construction remained too low to keep up with demand. While the number of completed apartments rose from 6600 in 2013 to 19000 in 2019, it fell already to 16000 in 2023, all well below the target of 20000 new apartments per year. Berlin’s apartment vacancy rate also dropped dramatically, from 5.1% in 2003 to just 0.8% in 2022, highlighting the sverity of the housing shortage.
The housing markets responded with rising rents. Between 2010 and 2019, newly listed rents in Berlin rose by 51% to 64%, while property purchase prices surged by 153% to 186%. These increases where higher than in other major German cities.
Berlin’s inability to keep up with demand caused rents and property prices to soar, making it increasingly difficult to find an apartment. However, the city’s efforts to meet demand have also been hampered by strong local opposition, as exemplified by the controversy surrounding the Tempelhofer Feld.
Not in my Tempelhofer Feld
NIMBYism, short for “Not In My Backyard,” describes local opposition to new development. This opposition is often driven by concerns about increased traffic, noise or changes to neighborhood aesthetics. However, NIMBYism can prevent critical projects, such as housing developments, from taking place. This contributes to wider social problems such as housing shortages and rising rents.
The case of "Tempelhofer Feld", a large open space (3.80 km²) and the site of the former Tempelhof airport, illustrates this dynamic. Following the closure of the airport in 2008, the Berlin Senate proposed to redevelop parts of the area. In 2011, however, the citizens’ initiative “100% Tempelhofer Feld” opposed the plan. Their goal was to preserve the field as a public space and prevent any construction, including residential development.
In 2014, a public referendum determined the future use of the area. Over 64% of voters supported the initiative to prevent any construction. At the same time, nearly 60% rejected an alternative proposal that would have allowed limited development along the field’s edges. By preventing the development of the area, they removed a potential site for new housing supply, likely contributing to higher housing prices and increased pressure on the Berlin housing market.
But why is opposition to such projects often so much stronger than support? Addressing NIMBYism presents a fundamental challenge. The negative impacts of large construction project, such as construction noise, increased traffic, and the loss of previous uses, are immediate and clear to residents. Meanwhile, the benefits are often more diffuse and typically benefit (future) residents who are not yet part of the local community. This creates an inherent imbalance where opposition is more vocal and easier to organize than support.
Rent control - A substantial intervention into the housing market
Housing had already become a pressing political issue by the 2013 federal election. In the follwoing, the federal government introduced a rent control law on March 5, 2015, to limit rent increases in new leases.
Known as Rent brake (in German “Mietpreisbremse”), this nationwide law aims to curb rising rents in tight housing markets by capping net rents at no more than 10% above the local comparative rent, as defined by the regional rent index. Tenants paying more than this limit can request rent reductions. However, the Rent Brake included exceptions: it did not apply to apartments first rented after October 1, 20141, extensively modernized units, or temporary rentals. In Berlin’s tight housing market, the Rent Brake has applied to all rental agreements signed since June 1, 2015.
The 2017 “Evaluation of the rent brake" by the IW Cologne analyzed data from the online real estate platform ImmobilienScout24 for 2015 and 2016 in Berlin. The results suggest that the Rent Brake had been largely ineffective. Before its introduction, 61.4% of rental listings surpassed the local comparative rent by an average of 24.6%. After the rent brake came into effect, this figure increased to 62.3%, with the average rent overshoot rising to 26.1%.
To better understand the impact of the Rent Brake, the study used a regression analysis based on the Difference-In-Differences method. This approach compared rental listings subject to Rent Brake (treatment group) with those that were exempt (control group) to measure the law’s causal effect on rents. The analysis found that the Rent Brake reduced rent increases by 2.7%, indicating that rents would have been slightly higher without it.
While the Rent Brake aimed to slow rent increases and improve affordability, its real-world impact fell short. Exceeding local comparative rents remained the norm rather than the exception. These shortcomings fueled demands for stronger interventions, including more aggressive price controls.
Habemus Mietendeckel – The Berlin senate further escalates the rent control
In response to the Rent Brake’s inability to achieve its intended results, the Berlin Senate introduced the Rent Freeze (in German “Mietendeckel”), a far more aggressive form of rent control. Enacted on February 23, 2020, the law froze rents at their June 18, 2019, levels for five years. Landlords exceeding these limits faced significant fines, and the policy required rent reductions for apartments deemed overpriced under the new regulations.These capped rents were significantly below Berlin’s market rates, forcing companies like Vonovia and Deutsche Wohnen to lower rents for one third of their Berlin units. Only apartments first occupied on or after January 1, 2014, or those undergoing substantial renovation, were exempt from the rent freeze.
The rent freeze had profound effects on Berlin’s housing market. A study by the ifo Institute for Economic Research found that rents for regulated apartments (built before 2014) decreased significantly, while rents for unregulated apartments rose sharply, creating a two-tiered rental market. Rental listings for apartments in Berlin dropped by up to 60% following the law’s implementation, while sales listings increased as more landlords opted to sell properties rather than rent them. In contrast, sales listings in other major German cities remained stable during the same period.
Further research by the Vienna University of Economics and Business and DIW Berlin confirmed that advertised rental apartments in Berlin fell by over 50%. The effects of the rent freeze also spilled over into neighboring areas like Potsdam, where rents increased as demand shifted outward. A 2021 survey by the German Economic Institute (IW) reported that 4% of private landlords in Berlin defaulted on loans due to reduced rental income, while 15% reported severe financial difficulties.
In short, the rent freeze significantly reduced the number of rental apartments, making it even harder to find housing in Berlin. However, it was not these economic effects but a legal ruling that ultimately ended the policy. On April 15, 2021, Germany’s Federal Constitutional Court declared that Berlin did not have the authority to impose such a law, as rent control falls under federal jurisdiction. This decision meant that the rent freeze was no longer valid and that landlords were no longer bound by its restrictions.
Further Impacts of the Rent Freeze
By artificially suppressing rents, a rent freeze also increases demand for housing, leading to significant inefficiencies in housing allocation. This inefficiency was nicely illustrated by an SPD (Social Democratic Party of Germany) official, who tweeted after the rent freeze ended (translated): “When I moved to Erfurt, I couldn’t give up my lovely apartment in Berlin. The rent freeze was a blessing. That’s over now, […]”. Highlighting how artificially low rents can encourage tenants to hold on to underutilized properties, exacerbating the housing shortage.
Moreover, while the rent freeze provided relief to long-term tenants, particularly those in popular locations with high rents, it came at the expense of housing availability for newcomers and young tenants. This was particular challenging for 18- to 35-year-olds, who make up the largest group migrating to German cities and often have lower incomes. Landlords, concerned about rent defaults, increasingly prioritized higher-income renters, further disadvantaging younger people. International professionals also faced greater difficulties, as apartments were increasingly rented through private networks - friends, acquaintances, or neighbors - disadvantaging those without local connections.
The Berlin rent freeze illustrates Ludwig von Mises’ critique of interventionism, showing how well-intentioned policies can disrupt market mechanisms. By capping rents below market levels, the rent freeze increased demand while discouraging landlords from renting, thereby reducing supply and exacerbating the housing shortage. Even after the rent freeze ended, Berlin’s rental market adjusted slowly. Although rent levels for previously regulated and unregulated apartments began to converge, the number of rental listings remained low, suggesting a lasting impact on the market’s supply side.
Beyond Regulation: Public Housing in Berlin
Another form of intervention is direct state involvement in housing. Berlin has strengthened its role as a direct provider of housing by purchasing apartments. For example, Berlin has purchased around 14750 apartments through city-owned companies, followed by additional 4500 apartments in 2024. While these measures help expand the stock of affordable housing, they do not address the root problem: the overall shortage of housing.
To tackle this issue, Berlin launched a new construction initiative in the early 2010s. In 2023, for example, city owned companies constructed around 4400 apartments, falling short of the Berlin Senate’s target of 6,500 new units per year. The gap between supply and demand for public housing is reflected in long waiting lists and rationing of public housing. Since 2018, for example, the city-owned company Howoge has allocated apartments via a lottery system, with projects receiving 20000 applicants for just 100 units. In addition, single-person household face restrictions in their search for housing from state-owned housing companies, as they are typically restricted to “small apartments,” while “large apartments” are prioritized for families.
While Berlin’s strategy of building new apartments, keeping rents low, and acquiring additional properties aims to address the housing crisis, it also led to an increase in debt for Berlin’s state-owned housing companies. Seventy-five percent of their operations are financed through external capital, with one company reaching debt ratios of 90%. In comparision, private real estate companies like Vonovia and LEG maintain debt ratios of around 45 percent. The Berlin Court of Audit has highlighted this dramatic rise in debt, noting that the liabilities of state-owned housing companies have more than doubled in just seven years.
To mitigate financial pressure, Berlin has provided subsidies to its housing companies, yet more support may be necded. According to the Association of Berlin-Brandenburg Housing Companies (BBU), nearly one-third of the state-owned housing stock requires renovation, adding to the financial strain. This highlight the inherent risks and limitations of state-run housing programs.
Despite these challenges, state-owned companies continue to build and renovate, while large private companies have stopped new construction in Berlin due to rising costs, driven by increased prices for materials and labor in recent years. In fact, construction costs in Germany are higher than in many other European countries. For example, according to a CBRE study, construction costs in Austria are only 60% of those in Germany. In Germany, a significant portion of these expenses - nearly one-third - is attributable to government-related costs, such as real estate transfer tax, sales tax, energy requirements, building codes, and municipal requirements.
How More and More Construction Standards and Regulations are Pushing Housing Costs Through the Roof
Rising construction and rental costs in Germany are partly driven by the growing number of building standards, regulations and norms. Around 3900 building norms apply to the construction industry alone, covering everything from stair height to noise insulations. Critics argue that manufacturers of construction materials and technologies have an outsized influence in shaping these norms. With their financial resources and technical expertise, these companies can exert disproportionate influence over the standard-setting process, potentially promoting norms that align more with their products and commercial interests rather than broader public goals. This aligns with economist George Stigler's theory of regulatory capture, where industries influence regulatory bodies to act in their favor, leading to higher costs and reduced market efficiency.
For example, a window manufacturer might advocate for mandatory safety glass in floor-to-ceiling windows. While this marginally improves safety, the cost can increases significantly when applied across entire projects. The additional costs, combined with other new norms, quickly add up and drive-up construction costs. Beyond safety, norms also focus on comfort, such as high sound insulation norms or the normed number of electrical sockets, which further increases costs, especially when conflicting norms arise. Although norms are technically only recommendations, they often become de facto requirements due to liability concerns. Furthermore, there is currently no system in place to evaluate the long-term cost implications of all the new norms, leaving the financial burdon on developers and, ultimately, tenants.
Energy efficiency standards present another key cost driver. While such measures aim to reduce carbon emissions, their implementation can lead to disproportionately high costs. A study using different empirical sources to estimate the marginal cost of CO2 abatement found that high energy efficiency standards can lead to very high marginal costs of CO2 abatement, indicating that funds might be better spent on more cost-effective carbon reduction strategies.
Furthermore, as mentioned in the study, the calculations did not (even) take into account the prebound effect, where households in older, unrenovated homes consume less energy than theoretical models predicts because residents adopt energy-saving behaviors, such as heating only occupied rooms or wearing warmer clothing. In fact, empirical evidence from the UK shows that homes rated as inefficient by the Energy Performance Certificate (EPC) often use less energy than theoretical calculations would suggest.
This raises an important question: Are increasingly stringent energy efficiency standards always justified, especially when they impose high costs on homeowners and developers? Governments should critically assess the cost-effectiveness of such regulations.
The cumulative effect of expanding standards and regulations significantly increases construction costs, creating barriers to the construction of affordable housing. While these impacts were less apparent during periods of falling interest rates, they are now becoming critical in an environment of rising interest rates and escalating material costs. What good are extensive safety, quality, and energy efficiency standards if they make new construction financially unfeasible? Homes that exist only on paper do not provide housing.
2024: The Current State of Berlin’s Housing Market
As we move through 2024, Berlin’s housing market faces mounting challenges. Construction permits have dropped by over 30% in the first half of the year, due to rising construction costs and rising interest rates. Berlin also tops the list of major German cities with the highest rent increases, surging 13.2 % year-on-year. A report by the IW-Köln identified Berlin as the city with the highest housing demand among Germany's top seven cities.
Amid these pressures, a significant shift in the rental marked has emerged: temporary furnished rentals. Currently, half of all rental listings in Berlin consist of furnished apartments or shared rooms. These rentals are exempt from the rent brake and command significantly higher rents. Despite their costs, they offer newcomers - especially individuals from abroad - a crucial entry point into Berlin’s tight housing market.
This surge in temporary rentals has sparked significant criticism in Berlin, highlighting a broader dynamic often observed in regulated markets. Ludwig von Mises described it like this:
“The economic layman only observes that “interested parties” succeed again and again in escaping the strictures of law. The fact that the system functions poorly is blamed exclusively on the law that does not go far enough […]. The very failure of interventionism reinforces the layman’s conviction that private property must be controlled severely.”
Indeed, the rising prevalence of temporary rentals has led to calls for further regulation. Proposed measures include clarifying that temporary leases in regular apartments are prohibited in areas of high housing demand and establishing a dedicated control ageny to enforce regulations. While these interventions aim to close regulatory loopholes, they reflect the very pattern highlighted by Mises, where the perceived failure of interventions fuels the push for even more or stricter regulation.
Quo vadis, Berlin?
So, where are you going, Berlin? One of the city’s most prominent housing initiatives is "Deutsche Wohnen & Co. enteignen", which aims to expropriate apartments owned by large landlords. The initiative gained widespread attention in 2021 when it led to a referendum asking voters whether they support the expropriation of properties owned by large private real estate companies through public acquisition by the Berlin state government. Although the referendum passed with a majority, it was non-binding. Now, the initiative is pushing for a legally binding referendum, advocating for a continuation of Berlin’s interventionist approach.
At the same time, another perspective is beginning to emerge in Germany: the YIMBY movement (short for “Yes in my backyard”). Originating in the San Francisco Bay Area, the YIMBY movement promotes solving housing shortages by increasing supply, deregulating the housing market, and streamlining planning processes. Although this movement has gained traction internationally, Germany has long lacked an organized YIMBY presence. However, this is starting to change. A small but emerging German YIMBY community (r/de_YIMBY) has recently formed, signaling the early stages of a potential shift in public discourse2.
Historically, Berlin became a renter’s paradise by embracing large-scale housing developments. By expanding the housing supply and improving how available space is allocated, finding an apartment in Berlin could become easy once again. What do you think? Share your thoughts in the comments below, and don’t forget to subscribe to this newsletter for more insights!
This exemption for apartments rented for the first time after 1st October 2014 was introduced to avoid discouraging new housing projects. However, the effectiveness of this measure depends on trust - specifically, trust that the cut-off date will not be adjusted in the future. Recent developments have called this trust into question. A draft law (December 2024) proposes extending rent control to include newly built apartments first rented between October 1, 2014, and October 1, 2019.
The YIMBY perspective often faces significant opposition. Supply-focused arguments are frequently dismissed outright by critics who claim that private developers primarily build high-end housing that attracts wealthier residents, rather than addressing the needs of lower-income groups. However, research suggests that constructing expensive new housing can also create housing for the other end of the market through a process known as “moving chain”. When wealthier individuals move into newly build homes, they vacate their previous residences. Those who move into the now empty homes then leave their previous homes and so on. Through this process, new housing can “have moderating price effects in the city’s lower-income neighborhoods, not just in its immediate neighbourhood” (Bratu et. al. (2023)). Studies conducted in both Finland and the United States confirm the existence of the moving chain process.