Rent control in Berlin (Germany)

[Hugues Armand-Delille]

Milieuschutz-Gebiete, what is it?

The term could be translated as “protected area” or “zone or protection”, or Berlin Rent control. In essence, Milieuschutz-Gebiete are areas of Berlin where rents are protected (by the municipality). Berlin’s real estate boom has brought a lot of tension in the social structure of the city. Local population is reluctant to embrace the surge in rent prices.

Berlin Rent control

So how does this work? The municipality of Berlin (namely, its districts) has a “preemptive purchase right”. In other words, if an owner of a building wants to sell, the city district has a right to purchase the house from the seller. This prevents the house from being renovated, and rents from being increased.

This tactic is meant to prevent areas for over gentrifying. By purchasing the building, the city guarantees that no rent increases will take place. Objectively, no one ever welcomes a rent increase. Nevertheless, Berlin’s popularity will be difficult to stop.

Besides, if replicated on a wide scale this policy bares many issues with it. Most of all, how long can the city sponsor rents?

Long term impact?

The Milieu-Schutzgebiet tactic will lead the city to systematic acquisition of depreciated assets in premium locations. This necessarily leads to:

• bankruptcy of the municipality,
• raising taxes in Berlin,
• reselling of the buildings to investors (down the line i.e. deferring the issue).

The city will soon run out of money for the acquisition and will have to raise taxes strongly to support this buying frenzy of depreciated houses. Why? Because, buildings have operating costs which will keep rising. Since the rental income is deliberately capped, the building will bring negative yields, costing the city even more. On top of this, the heavier maintenance and refurbishment costs (Capex) will bleed Berlin dry.

Ultimately, this will lead to a depreciation of Berlin’s housing inventory in the best locations. The usual way for governments to deal with such issue is to increase taxes to compensate for it. Not a pretty picture either for the future of Berlin’s. At some point, this very costly inventory on the city’s balance sheet will result in a discounted offsetting of these assets to investors. Unless the attractiveness of Berlin Subsides, the Milieuschutz-gebiete policy will only defer the problem to a later time. There a no signs of being less attractive in the short / medium term.

What does it mean for a buyer?

For the buyer in those zones, wether investor or private individual, this means many types of restriction:

• Special declaration of type of refurbishment
• Authorization needed from the district
• No or very limited rent increase
• limitation on reselling price

Where are the Milieuschutz-Gebiete?

Friedrichshain-Kreuzberg: Weberwiese, Boxhagener Platz, Bergmannstraße-Nord, Chamissoplatz, Greafestraße, Hornstraße, Luisenstadt, Petersburger Straße, Ritterstraße (in Prüfung), Kottbusser Tor Süd (in Prüfung).

Mitte: Seestraße, Sparrplatz, Leopoldplatz, Waldstraße, Birkenstraße.

Neukölln: Reuterplatz, Schillerpromenade, Rixdorf, Flughafenstraße/Donaustraße, Körnerpark, Hertzbergplatz/Treptower Straße (in Prüfung), Silbersteinstraße/Glasower Straße (in Prüfung).

Schöneberg: Schöneberger Insel, Barbarossaplatz/Bayerischer Platz, Bautzener Straße, Kaiser-Wilhelm-Platz.

Pankow: Falkplatz, Teutoburger Platz, Kollwitzplatz, Helmholtzplatz, Bötzowstraße, Winsstraße, Arnimplatz, Pankower Zentrum, Humannplatz, Ostseestraße/Grellstraße.

Treptow-Köpenick: Alt-Treptow.