Can Berlin Buy Its Way Out of a Housing Crisis?

Many urban areas worry about how rising rents might force out long-time residents. Few, however, have gone as far to battle displacement as the Berlin borough of Friedrichshain-Kreuzberg.

This fast-gentrifying corner of inner Berlin has developed a new way to protect lower-income tenants who face steep rent increases when the buildings they live in are sold. A long-standing—but long unused—regulation gives municipalities the right of first refusal when a building goes up for sale. Friedrichshain-Kreuzberg simply buys the buildings itself, maintaining them as affordable rental homes via a state-owned company. While all Berlin boroughs have this option, only Friedrichshain-Kreuzberg is using it with any frequency. Since last autumn, it has bought up 11 multi-apartment buildings, and now stands on the cusp of buying another.

This season, however, the policy has come under strain for the first time. First, the borough has had to acknowledge that its limited funds can’t buy every vulnerable building on the market. Second, the city government has tried to overrule the first-refusal right in some areas. So the question remains: Is it possible for a borough to buy its way out of its displacement crisis?

Before exploring the policy’s current challenges, it’s worth explaining in more detail why the law is considered necessary. In Germany, rental contracts generally offer far greater tenant protections than they do in the U.S., and rent increases are capped (in Berlin the maximum increase is 15 percent in three years). This doesn’t mean that rents always stay affordable for their tenants—they can still rise—but it does mean that rent rises aren’t likely to make people homeless overnight. Meanwhile, people who signed their rental contracts decades ago, when apartments in the city were much cheaper, might still be paying a very low rate.

This cap has spurred many landlords to exploit a loophole: luxury renovation. German real estate law allows larger rent increases if a landlord demonstrably improves the quality of an apartment. While improving an apartment sounds like it’s in everyone’s interests, the result has been that many tenants are forced to move out of their homes after a building’s owner installs an elevator, underfloor heating, or balconies—benefits aimed at raising the rent rather than providing higher quality of life for existing residents. A survey this year found that after renovation, an average Berlin apartment’s rent increased by 42 percent—and in some cases it rose by an astonishing 200 percent.  

This is where Friedrichshain-Kreuzberg’s purchase policy steps in. Because of the luxury renovation loophole, the cost of older, more attractive buildings in the borough is spiraling. Investors know they can make a killing by sprucing a building up and replacing lower-income tenants with richer ones. As a result, the borough’s purchases aren’t designed just to protect tenants, they’re also an attempt to make the investment climate less attractive for speculators, improving conditions for everyone by lessening chances of a property bubble.

The policy is works because the state-owned property companies can buy the buildings and still earn enough over the years to recoup their investment. But is there a limit to how much they can pay?

Apparently yes. This month the borough rejected appeals from residents to buy an 1898 corner tenement in Kreuzberg. The borough refused to step in because the building’s estimated market value of €5.2 million ($6.12 million) was just too high to ensure that the borough could keep charging a low rent for its 38 apartments. State housing companies can look at the long game when it comes to recouping the money they pay out for new buildings, but it seems there is an upper limit. In the end, the building went last week at auction for €7.16 million ($8.5 million), a high price that almost guarantees a luxury renovation and major rent spikes if the buyer is to recoup the price. The price is so high, in fact, that the borough may try to find a way to step in before the sale is finalized. For now, though, it seems the borough’s policy has failed.

Meanwhile, the city of Berlin itself is stepping in, if not to halt the policy, then at least to clip its wings. In November, it banned Kreuzberg’s neighboring borough, Tempelhof-Schoneberg from copying its neighbors’ policy and using its right of first refusal on a tenement. The city’s decision came because the building was in a designated “development area,” a zone slated for housing intensification where it might pay for the city to be less prescriptive. If the idea is to restrict the policy from being implemented where more homes might be built—by adding an extra floor or two, for example—that city decision doesn’t seem such a terrible setback. It could still be the thin end of a wedge that sees the city as a whole increasingly overrule the borough. So do these two cases mean the policy is in danger?

Certain sections of Berlin’s media seem to think so. The role of the first-refusal policy, however, is not to stop time in its tracks and freeze the rents forever. The city is aware that its housing crisis can only be alleviated by more homes, most of which are unlikely to be built in Friedrichshain-Kreuzberg due to its already heavily built fabric.

What buying out private buildings can do, however, is preserve some sort of social mix, allowing people with roots in the area to keep their community links alive and simultaneously halting the creation of a bland monoculture. Berlin remains an experimental petri dish for all sorts of attempts to keep itself affordable, from banning vacation apartments to protecting low-cost businesses, that are as yet inconclusive in their effect, but well worth watching. And if moves like the first-refusal policy don’t preserve affordability on their own, they’re still evidence of a city culture that doesn’t exclusively value people for their ability to pay.