Almost always when we talk about displacement in Berlin, someone at some point says: “and then the new owner showed up.” Social scientist Andrej Holm summarizes the status quo of Berlin’s housing market – a story that has so far too often focused on privatization, gentrification, and neoliberalism while talking little about the residents themselves. This raises the question whether the demands of tenant associations can after all contribute to a happy ending.

For years, rent in Berlin has only known one way: up. Revaluation and displacement do no longer apply just to hip and trending neighborhoods, but have become common in large parts of the city. Gentrification has become typical and rent increase can no longer be traced back to cultural revaluation or a changed lifestyle in particular areas. If you cannot afford the rent you hardly stand a chance to find housing in Berlin. It therefore comes as no surprise that tenant associations and more than 100 housing communities try today to defend their right to housing and advocate a socialization of housing provision. At the same time, however, the housing market lobby and part of the political landscape know only one solution: “Build, build, build!” And yet the increasing rent in existing structures, the displacement through modernization announcements, and the conversion into condominiums cannot solely be explained by the lack of housing. Affordable rent for households with a lower income will not emerge through the invisible hand of the market, but will have to be maintained through rent control and must be actively created through the expansion of communal housing stock.

Earnings forecast speculation
The last ten years have shown why investors are excited about the changes happening in Berlin: increasing rental income, higher sales profits, and a booming real estate market have transformed Berlin’s housing market into a gold mine for investment seeking capital. Between 2008 and 2018 alone the average rent – including rent prices in apartments with old rental contracts – increased by 37 percent (from 4,79 €/m² to 6,56 €/m²). These rental developments are, especially for households with a lower income, tied to a considerable increase in the tenants’ rental cost load. Already today, this load amounts to an average of 32 percent in Berlin – while it is generally assumed that apartments are affordable whenever rent including heating and utilities do not make up more than 30 percent of the tenant’s income. This shows that for more than half of all Berliner households the comparatively affordable rent of older apartments is already too expensive.

The increase in rent of newly let apartments in the same time period amounts to 78 percent at large. Instead of costing 6,00 €/m² (2008), the average rent of newly let apartments has increased to 10,70 €/m² (2018). Especially in favored inner city areas, rent has gone up so much that it even goes beyond this number. This means, as a consequence, that we can here also see a greater divergence from rent prices for apartments with old contracts. When new contracts are negotiated, rent averagely increases by 4 €/m², a fact that creates a major gap in earnings for many real estate owners, which they naturally seek to close. Wherever the difference between the old and new rental contracts is especially high, the economic incentive to terminate old contracts becomes a pressing issue. The displacement of long-standing tenants has become a key business model in Berlin, since through this displacement rent can be doubled or even tripled in many districts. The profit made through the displacement that is made possible through new rental contracts is only topped by the apartments’ conversion into condominiums. The purchasing price for apartments has increased from an average of 1.540 €/m² (2008) to 4.098 €/m² (2018), showing that sales prices have already tripled. The incentive to convert and sell apartments is accordingly very high.

Whether it concerns new rental contracts or conversions – for tenants, both kinds of revenue growth are tied to a displacement from their apartments. This situation can be described as the economic core of gentrification because displacement is not only the side effect of a particular economic housing policy, but also becomes the necessary precondition for the realization of economic maximum returns.

The fact that displacement has become a business model can no longer only be observed in niches of the housing market, but has become a city-wide phenomenon and has downright led to a market craze. This is why between 2009 and 2018, a total amount of almost 240.000 apartments were sold – most of them located in older buildings. The turnover of these sales has gone up from 1,9 billion euros for 16.000 sold apartments in 2009 to a yearly turnover of more than 6 billion euro (for a little less than 22.000 sold apartments) in 2018.

In total, almost 140 billion euros were spent on real estate transactions over the past ten years. Of this number, approximately 8 percent (11 billion euros) were undeveloped properties, 32 percent condominiums (45 billion euros), and the largest share of 60 percent (almost 84 billion euros) were already developed properties. These revenues are by no means an investment into brick and stone, but exclusively concern property titles that should authorize the owner to skim a basic pension. Instead of investing into the desperately needed construction of new housing, these expenses focus mainly on the purchase of already existing properties. A reason that is often given to justify this development is that the high sales prices can be linked to low interest rates. Yet in the end, investing in the purchase of real estate has to be refinanced through the revenue generated by rental income and the profit made by selling apartments that were previously converted. Only when these measures are in place can the business with concrete gold become profitable. The increasing price for real estate and condominiums are in this context nothing but a down payment for future profits made off these houses and apartments. An economic rationality assumes that behind every sales price, a forecast of earnings that far exceed the rental revenue formerly generated from the property can be detected. If the invested billions of euros should indeed pay off, the future revenue has to be drastically increased. The displacement of current tenants is therefore already part of the earnings speculations of such sales and can be measured by the pressure put onto many housing communities. Disregarding of whether it takes shape through energetic modernization, a contract’s termination because of the owner’s own needs, the neglect of the property’s poor condition, or the harassment by the owner – almost all stories of displacement begin with the sentence: “and then the owner showed up!”

Berlin can become a role model for a social housing policy in the 21st century
The recent changes in Berlin show clearly that social aspects of the housing debate are cast aside whenever the economy is allowed to freely work toward maximum utilization. With the massive privatization in the last decades – in Berlin, more than 220.000 apartments belonging to the city were sold – political decision makers have heavily contributed to the current situation. Selling the most precious and viable objects has not only decreased the communal scope of action in Berlin, it has also paved the way for private equity funds, hedge funds, publicly listed housing enterprises and other institutionalized investors to enter Berlin’s housing market. This finanzialization of housing provision indicates one thing, above all, for tenants: the management of housing stock is decoupled from the buildings themselves as well as from the actual business of renting it out. Housing is no longer the purpose of leasing, but only the necessary byproduct of an economic optimization.

It does not make a difference whether new housing enterprises are called Deutsche Wohnen, Aspire, or Taekker. It does not matter whether the buildings belong to an international fund, an anonymous Verwertungs-GmbH, or an offshore company in Luxemburg: as long as real estate is operated under the stipulation of profit optimization, increasing rent and the fear of displacement will mark the daily reality of Berlin’s tenants. Social housing must always be enforced against private interests to make a profit.

Protesters demonstrating against increasing rent have in recent years formulated precise ideas on what a socially oriented housing policy could look like. Above all, an essential turn in property policies, an expansion of public housing stock, and an improved rent control are among the political goals that the city of Berlin has by now also adopted. In order to stop the exploitation that accompanies a real estate market that has become unbound, it will not suffice to regulate rental fees, conversion tactics, and modernization activities a little more avidly.  Rules for the environmental protection and rent control alone will not protect Berliner tenants from displacement.  It would instead be necessary to control the sales price of real estate in order to regulate the trade with properties and buildings and reduce the expected revenue. This could, for instance, be achieved through fixed maximum prices for properties and buildings, which should be based on the potential revenue generated by a legally justified management. Such a price capping would not only disrupt the rationale of sales chains leading to ever higher prices, but would also enable communal, cooperative, and non-profit developers to realize projects that guarantee affordable rent in Berlin. In the end, social urban development will depend upon whether we succeed to expand the share of housing stock that is not profit-oriented. Making more forceful use of the right of first refusal as well as the possibility of expropriation (against a compensation) in order to secure housing provision for all income groups are today heatedly debated in Berlin and other cities. These debates show that it is possible to rethink housing policies, at least on the local level.

In addition to these measures, the means of rent protection would have to be extended and used more rigidly. Eliminating the general rule that modernization costs are shared by all tenants, doing away with temporary rental contracts and graduated rental agreements, an effective limitation of new contracts as well as the expansion of communally operated housing stock are the first things on the list of demands formulated by rental associations. The currently discussed rental capping promises to buy time in order to be able to realize a more profound reform of our rental and housing policies.

When looking back on 30 years of neoliberalism and the overexploitation of instruments used to develop the welfare state’s housing policies, the demands to return to a social urban policy may appear utopian – yet in face of the current tendencies they are, above all, one thing: necessary. If there is one city that is destined to develop a social housing policy in the 21st century, it is Berlin. Hardly any other major city has such a large share of tenants, in only a few cities the housing crisis is debated in such detail. And nowhere else can you find as many organized housing communities as in Berlin. The last election has already shown that you cannot win when you do not take rental interests into account. If we succeed to get over the still existing fragmentation of all the grass-roots initiatives and formulate a shared agenda, we can also succeed in enforcing new and unfamiliar territory in Berlin’s housing policy. Whether the trend of continuously increasing rent can be reversed in Berlin is, therefore, also in our hands.

Andrej Holm is a social scientist working at Humboldt University of Berlin. His work focuses on urban and housing politics as well as the societal conflicts accompanying it. In addition to his academic work, Holm has been active in neighborhood initiatives and rent organizations for more than 25 years and actively advocates for the right to housing.  

Translated by Mieke Woelky.