Housing hot-button issue could tip scales in German election

Parties promise rent caps to ease urban squeeze

An index compiled by a leading property website suggests prices for new houses and apartments in Berlin rose 10 and 15 per cent respectively last year.  Photograph: Adam Berry/Getty Images

An index compiled by a leading property website suggests prices for new houses and apartments in Berlin rose 10 and 15 per cent respectively last year. Photograph: Adam Berry/Getty Images

Wed, Sep 11, 2013, 01:00

Irish property analyst Charles Kingston had his first encounter with Germany’s most provocative election issue at a real-estate conference in Berlin last year.

“The hotel as well as our bus were besieged by anticapitalist protesters,” said Kingston, a Dubliner based in Frankfurt. “There were screaming attacks on the bus, we had a police escort, it was quite extraordinary.”

The protest ended in injuries and arrests and made front- page news out of what had until then been a creeping, anecdotal phenomenon in the German capital: rising rents and property prices combined with an increasing displacement of tenants from their inner-city neighbourhoods.

After years as Europe’s most affordable capital, Berlin is experiencing a squeeze.

“It’s very much on people’s minds,” said John Keogh, a property agent based in the city. “People are not moving because they know there is no way they would get an apartment in the same area for a similar rent any more.”

An index compiled by a leading property website suggests prices for new houses and apartments in Berlin rose 10 and 15 per cent respectively last year. It’s a similar story in Germany’s more expensive cities: second-hand houses in Cologne and Munich are up 9 and 14 per cent respectively in the last year, with further price rises forecast this year.

According to a public television poll, some 38 per cent of Germans say the housing squeeze is their greatest concern in the forthcoming election. The opposition Social Democrats and Greens have promised that if elected they will introduce a cap to prevent new rents rising more than 10 per cent above the existing area average.


Rent-cap bandwagon
Chancellor Angela Merkel’s ruling Christian Democratic Union, after abolishing upward limits on new rents last May, have also jumped on the rent-cap bandwagon.

Driving the rise in German property prices, analysts say, are the direct and indirect effects of the euro crisis. Wealthy foreign investors, particularly in southern crisis countries, have found German bricks and mortar a safe haven in uncertain economic times.

Historically low interest rates, a side-effect of the crisis, have also attracted not only German investors anxious to find a better deal for their savings but also people who now find the prospect of a fixed-rate mortgage more attractive than free-market rents.

The demand for property – and for returns on investment – has in turn sparked a visible wave of investment and gentrification of inner-city neighbourhoods.

Bundesbank executive board member Andreas Dombret said in a recent interview that “one cannot talk of a property bubble” in Germany, but he said the central bank was watching closely, and with concern, the effect of cheap money on urban property markets that have already seen an average 20 per cent jump in prices in just three years.

Charles Kingston, head of property consultancy Refire, says the spike is visible in Berlin and in a sweeping curve from Hamburg in the northwest, through the prosperous western Rhine-Ruhr cities such as Cologne and Düsseldorf, and down to Munich in the south.


Micromarkets
“There is a danger of overheating in micromarkets such as Berlin where people are noticing their peppercorn rents soaring and are being squeezed out of their neighbourhoods as a result,” he said, adding that city prices are decoupling from the rest of the market.

“An hour east of Frankfurt you can find a very livable house with land and a barn for €30,000. Even the grannies are fleeing the land for the cities.”

So will the political promise of a rent cap solve the problem?

While tenants’ associations welcome the move, property analysts fear it is a sticking-plaster solution that could eventually exacerbate the problem’s underlying cause: a chronic housing shortage in urban areas.

A decade ago, faced with a declining population and tight public finances, many German cities sold off their social housing stock and abolished many tax breaks on housing, particularly in the affordable sector.

As a result, developers moved into the higher-margin mid- and luxury housing markets with little being built in the affordable segment. With an estimated shortage of 250,000 homes it is precisely here, according to the German Tenants’ Association, that young families, pensioners and low-income earners are feeling the squeeze.

Additional pressures from the land flight and a palpable rise of inward migration from southern European crisis countries means that, according to the tenants’ association, Germany faces a shortage of a million homes in a decade’s time.

“To cover the demand, affordable housing has to be retained and new stock built,” tenant’s association director Lukas Siebenkotten said.

In an otherwise bland federal election campaign, Germany’s parties are outdoing each other with political promises on housing, in recognition that this hot-button issue could easily tip the scales when voters go to the polls on September 22nd.