People

People love Berlin. It seems like no other town in Europe is more likely to turn a weekend visit into a year of indulgence, and excited comparisons to the salad days of avant-garde 1970s New York are commonplace. And what is the great catalyst, the economic facilitator that is said to grease the artistic wheels of post-Wall Berlin? Cheap real estate.

Yet New York and Berlin are very different. Berlin is a sprawl with no fixed downtown: where the boundaries keep expanding. It is still massively under-populated – there are fewer people here than in the 1930s, and somehow, despite massive hype and some fluctuation, the population figures are almost identical to 1990.

But one look at the billboards in Mitte U-Bahn stations reveals there are some very optimistic property developers around. In their ecstatic minds, Berlin is a shiny collection of buildings with luxury lofts and sunny terraces protruding from all angles. And they are nearly right. A gaudy example is Fehrbelliner Höfe, a compound of 150 luxury apartments planned for an old factory building in a plum spot just north of Rosenthaler Platz.

Fehrbelliner Höfe was designed specifically for high-income expats from Europe and the US. The developer, a German company called Orco, threw a marketing party in the undeveloped building during the 2007 Berlin Film Festival: 1,200 guests were invited, amongst whom mingled a handful of German celebrities and even the odd Hollywood star. But all the champagne and catered treats in the world could not entice enough beautiful people to buy a new pad: barely a year later, Orco was forced to stop construction.

The property was bought this spring by another developer, Licon, who pared down the flats’ floor plans to more modest sizes, and slashed the asking prices from €10,000 per square metre to €5,000. Licon says it has now found enough buyers for the new flats, which are still unimaginably expensive for the average Berliner. Mitte is apparently not yet ready for €5 million penthouses, but there are people out there prepared to pay €1.5 million for a six-room bonk-palace.

Hubris and speculation

Is this just hubris, or misplaced speculation – a projected boom that failed to materialize? In a way, that is the story of Berlin in the last 20 years: big ideas like Potsdamer Platz or the BBI airport that struggled to find investors.

But estate agents still seem to believe that Berlin is an untapped barrel of wealth. Compared to London and Paris, of course, Berlin does have a lot of catching up to do. An apartment in Mitte currently costs between €1,600 and €3,500 per square metre. The most precious space in European capitals further west can easily cost four times as much. And that’s just exclusive Mitte – the average price for a square metre of living space in Berlin as a whole is a piffling €1,700. Yet property prices are – in a way – basically irrelevant for most Berliners: 90 percent of Berlin apartments are rented, and buying is a very different kettle of ball games.

Berliners are not the richest Germans, and statistics show that rents are increasing (despite little population growth), while the average income is falling. A report published by the city-owned Investitionsbank Berlin (IBB) last year found a 25 percent rise in rents in Mitte and Friedrichshain-Kreuzberg between 1998 and 2006, while the average annual income only rose by 11 percent. Incomes have stagnated in comparison with those in other German cities: the average Berliner now earns less than the average Dresdener.

The study also found a massive increase in property speculation in Friedrichshain-Kreuzberg, where property is being bought at ever-higher prices because of the expected rent increases in the next few years. And the speculators are right – with more and more people moving out, rents can be increased with impunity.

Andreas Otto, housing-policy spokesman for the Berlin Green Party, sums the situation up: “Berlin is cheap compared to other big cities, yes. But if you compare rents and average income, then it doesn’t look very cheap anymore. We have a lot of people in Berlin who spend at least a third of their after-tax income on their rent. Some even more.” In Friedrichshain-Kreuzberg, the average rent is as much as 40 percent of the average income. This is comparable to – or even slightly more expensive than – most metropolitan areas in Europe.

Like many cities, Berlin has a rent index (Mietspiegel) drawn up by the city council and real estate associations to regulate rents and keep greedy landlords in check. But the rent index is only valid for existing contracts, not new ones. If someone moves out, there is nothing to stop landlords raising rents to what they think the market will take.

“There are laws that restrict rents going 20 percent above the rent index, but you have to prove that the landlord is exploiting a particular market situation. That is very difficult and hardly ever possible in Berlin,” says Otto. “That is why we have a situation where people take what they can get, and in the more popular areas of the city – Prenzlauer Berg, Mitte, Friedrichshain, Kreuzberg, Schöneberg or Charlottenburg – that means going well above the rent index.”

More room?

While rent in central Berlin is being inflated by property speculation, the city council still claims that there is more room. That is true in one sense: because (in part) of the number of singles and generous flat-size, the average Berliner has over 40 square metres of living space to himself – much more than in other cities.

The council even points out that there is more space on the market. “We have more than 100,000 apartments free in Berlin; because there are about 1.9 million apartments in total, that gives us about six or seven percent,” says Reiner Nagel, a member of the council’s urban development department. But there is an interesting tale behind this figure: it comes from the energy provider Vattenfall, that decides a flat is empty if it isn’t receiving electricity – if the electricity has been cut off for over three months, no one could possibly be living there, right? “It is a very uncertain estimate,” says Otto. “They don’t know if those flats are really empty, or if people are on holiday, or if the flat is just being renovated. No one knows for sure. Other estimates suggest it’s maybe only 50,000, which would make the market a lot tighter.

“Statisticians start talking about a tight property market when the number of empty flats goes below three percent of the total. Three percent in Berlin would mean roughly 50,000.”

DIY alternatives

Given these developments, it’s probably not surprising that Berliners have increasingly taken to trying to beat the speculators by buying property themselves – not individually, but collectively, and not just empty buildings, but pieces of empty land, as well.

There are different models for these undertakings, which range along a kind of spectrum of housing get-togethers from communal to cooperative with private ownership of individual units. Some are more idealistic (a group of artists buys a property, takes all the internal locks off the doors and runs the building through communal meetings), while others are more pragmatic (architects club together to buy a piece of land and build a building of their own design, which they then rent out as a cooperative business).

One example at the more idealistic end of the spectrum is Friedrichshain’s Grünberger 73: a squat in the 1990s, it passed through the hands of a variety of owners before the tenants finally managed to buy it in 2004. It is inhabited by 37 people, who live together in groups of up to 11; each flat is owned collectively as a non-profit company, independently of its residents. There is no individual ownership, and no shares – if you move out of the building, you have no stake in it.

Grünberger 73 is supported by the Mietshäuser Syndikat, an organization that advises non-profit real estate projects across Germany. One of these advisers is Julian Benz, who makes the aim of such initiatives sound a bit more prosaic. “I like the political idea behind it: saying there should be cheap property available that can’t just be bought,” he said.

Unsupportive city

You’d expect Berlin, with all its space and cheap real estate, to be fertile ground for communal living projects like Grünberger 73. But the state – endemically broke – has taken in recent years to selling off property in order to make fast cash, and the free market is not kind to self-managed living projects. In 2002, Berlin’s finance minister Thilo Sarrazin (yes, him) cancelled the Soziale Stadterneuerung (“Social Urban Regeneration”) programme, a public fund that provided direct financing for all kinds of social housing and cultural initiatives – effectively a guarantee that a certain amount of real estate would remain independent of the market.