OPINION: Germany’s rent crisis is fuelled by fear and foolish solutions

Cranes on building sites in Hamburg's HafenCity district
Cranes on building sites in Hamburg's HafenCity district. Photo: picture alliance/dpa | Daniel Bockwoldt
Germany is in the grip of a housing crisis, but no-one is talking about the real causes of it, writes Hamburg-based Brian Melican.

Barely a week goes by in Germany without an ill-informed spat about the topic of housing. Early in the German election campaign, for instance, right-wing commentators panicked by the Greens’ high polling alighted on their high-density planning policy in my Hamburg local authority, shrieking that the nasty “eco-fascists” wanted to ban detached houses (which they didn’t). 

In terms of shrieking, though, they have been outdone by the ill-tempered Berlin initiative for compulsory purchase, fulminating against “parasitic landlords” and arguing that bringing flats into public ownership will bring rents down (which it won’t).

Whichever side they’re on, what everyone shouting about excessive rents and/or regulation seems to agree on is that Germany has a housing problem – and the closer you get to Berlin-Mitte, the more this opinion is shared. After a few years of following the debate, however, I’ve come to the conclusion that Germany does have a housing problem – or indeed problems – just not the one(s) everyone thinks.

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The ‘build more homes’ myth

Firstly, the received wisdom is that property and rental prices in Germany have been going up because the country is not building enough homes, so only by building lots more can Germany stop the sharp increase in prices. This is relatively comfortable common ground for all sides of the debate because building homes puts money in developers’ and banks’ pockets, injects demand into the economy, and does slow price rises to a certain extent. 

There’s a big problem with this way of looking at things, however: the precept is false. Germany does have enough homes – more than enough, actually. It’s just that they are not necessarily where most people currently want to live and, importantly, not sufficient to accommodate the rising number of single-person households with ever higher expectations in terms of space and facilities.

Don’t get me wrong: I’m not suggesting that what follows from this is necessarily that everyone has to move to the sticks and share a bedroom for the rest of their days.

By the same token, though, the current mantra – i.e. that all we need to do is just keep building new flats in popular parts of Berlin, Hamburg, and Munich and, eventually, there will be enough to reverse the price-rises – is equally wrong-headed. After all, there are simple physical limits on the amount of space cities have and, until that long-awaited revolution comes, we are living in a market economy in which everyone has the freedom to try and live where they want (and to offer stupid sums of money to do so, if they have this money to spare). This alone will always lead to price rises in popular areas; more (expensive) new build simply leads to even more demand.

I’m not saying that governments should simply give up trying to keep homes affordable for as many people as possible. What I am saying, though, is that setting “build cheap housing for everyone in city centres” or “freeze rents now” as political goals is unrealistic at best and downright disingenuous at worse (yes, Berlin politicians and campaigners, I’m looking at you).

Posters by campaigners for Berlin's referendum to bring houses from large landlords into public ownership.
Posters by campaigners for Berlin’s referendum to bring houses from large landlords into public ownership. Photo: picture alliance/dpa | Christophe Gateau

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Here in Hamburg, we are blessed with more realistic housing policy: the Senate has not made any promises it can’t keep, but simply encouraged and facilitated development everywhere, stipulating – crucially – that all new-builds must have around a third social housing.

It’s important to realise, though, that even after a decade of this, all we have are rents rising more slowly than in comparable cities and slightly better chances of finding a flat. The land of milk, honey, and cheap, chic three-bedroom Altbau apartments for all is still a long way off. And in the process, Hamburg has inflicted considerable collateral damage on itself: street trees, parks, and allotments have all fallen victim to the development drive, leaving the city ever more vulnerable to the increasingly frequent heatwaves and downpours climate change brings with it.

READ ALSO: How did it get so expensive to live in Munich?

German tenants not moving homes

Then there’s our second unidentified housing problem: inflexibility in the rental market. Overall, there is consensus in Germany that it should be difficult for landlords to get rid of tenants without a compelling reason – and I think this is a very good thing. Countries like the UK which allow no-fault evictions at two-months’ notice create serious social problems. Yet the laudable pursuit of secure tenancies has actually led Germany into something of a vicious circle.

How so? Once they let to tenants, landlords are essentially locked in: the only grounds for terminating a rental contract are rent arrears or needing the property for your own purposes; and now, in areas where Mietpreisbremse (rent brake) controls apply, landlords can’t even increase rent to keep pace with inflation.

These protections have two unintended consequences: firstly, landlords have become exceptionally picky about who they give permanent rental agreements to – just ask anyone with a foreign-sounding name or, indeed, anyone foreign without a German credit history. Secondly, for many landlords, faced with an asset whose returns are legally set to fall in value from the moment a tenant signs on the dotted line, circumventing rent controls – e.g. by renovating the hell out of an already perfectly good flat or by only letting fully-furnished apartments on rolling short-term contracts – starts to look like a sensible course of action.

Lights on in homes in the German city of Frankfurt.
Lights on in homes in the German city of Frankfurt. Photo: picture alliance/dpa | Sebastian Gollnow

I can already hear the world’s smallest violin to swing into action: “Oh, poor hard-up landlords, forced to break the law just to make a dime…!” If, however, a sizeable number of landlords are going to considerable efforts to bend the rules, then the rules may be proving counterproductive.

What is more, any tenant in Germany in their right mind takes one look at the increasing paucity of equally secure tenancies on the market and thinks: “I’m staying put.” After all, for someone with a permanent lease on a flat anywhere in a major German city, the choice is between a rent now more-or-less set in stone and a huge price jump at potentially worse contractual conditions (let me just say Staffelmiete or graduated rent increases). The result is that even people who have far too little space – or far too much – are unwilling to move, which, of course, further lowers the amount of good lettings available.

Fear is the driver of Germany’s housing problems

The key issue on both sides here is, I think, actually rather simple: fear. Landlords of all stripes, from commercial organisations with shareholders to placate right down to retired dentists letting out a flat to supplement their pension, are terrified that returns will diminish as time goes on. This leads them to try and get the maximum rent from the safest-looking tenants. Tenants, meanwhile, are also terrified: that their landlord might opt for expensive upgrades as a legal work-around for rent increases (the dreaded Luxussanierung or luxury renovation), or indeed leave the rent – but also the building and its amenities – untouched; or that they might, for whatever reason, have to try and find a new flat in a market where only picture-perfect careerists with a lot of cash seem to have a chance.

Seen from Hamburg, Berlin is a cautionary tale about what happens when fear gets out of hand and leads politics to promise unrealistic solutions: talk of freezing rents achieved nothing more than spooking landlords into pre-emptively hiking prices or, worse, selling up to the very private companies whom the city’s scared tenants have now voted to dispossess – at enormous cost to an already stretched municipal exchequer and on uncertain legal grounds.

On hot summer days, I miss the shade from the three glorious chestnut trees that got lopped down round the corner – and the new-builds there are uninspiring at best. On the plus side, Hamburg’s rental market isn’t completely broken. Yet that doesn’t stop people from claiming it is, and the first stickers for a Berlin-style referendum on compulsory purchase are already appearing on lampposts…

READ ALSO: Why Frankfurt could have the biggest housing bubble in the world

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Member comments

  1. I have lived in Germany for 6 months and this is the only sensible take I’ve heard on this issue in writing or in conversation. I would love to see more pieces like this; ones that aren’t afraid to buck the popular narrative to get the truth out. I was going to cancel my subscription today but this article gave me hope for more sensible reporting!

  2. I lived in Germany for 6 months and this is the only sensible take I’ve heard on this issue in writing or in conversation. I would love to see more pieces like this; ones that aren’t afraid to buck the popular narrative to get the truth out. I was going to cancel my subscription today but this article gave me hope for more sensible reporting!

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