(Bloomberg View) -- Last Sunday, 13,000 people took to the streets of Berlin carrying signs like "Renters Aren't Lemons." Despite Germany's tenant-friendly laws, a tide of gentrification is gradually turning Berlin from the "poor but sexy" capital of cool into another generic hipsterville. The city calls it "rent madness."
The smallest increase in rents between 2007 and 2016 was 34 percent in Marzahn-Hellersdorf, an area of Berlin known for its grim Communist-era high-rises. In Friedrichshain-Kreuzberg, the famed center of nightlife that also serves as the long-term home to much of the city's poorer population, growth reached 71 percent. In my borough, Charlottenburg, rents have increased by 48 percent, close to London's 45 percent average for the same 10 years.
To many outsiders, especially those from London, New York, Paris or Amsterdam, Berlin is still cheap. The average rent for a two-bedroom apartment in a pre-1918 building is 6.78 euros per square meter ($78 per 100 square feet) before utilities — about a quarter of what one would pay in London. But then Berlin is historically not an affluent city. Though the average annual salary in the city is 34,931 euros ($43,200) — 2,910 euros a month, an amount quite compatible with the rent level — the city's unemployment level, 8.5 percent, is much higher than Germany's 5.3 percent, and another 11.9 percent of Berliners are officially considered underemployed. According to the city's tenants' association, 55 percent of Berlin households qualify for social housing, but only 105,000 of the city's 1.89 million apartments are available to them.
These conditions mean Berlin should be benefiting from the German "rent brake" laws. Since 2013, the country has required that rents go up by no more than 20 percent in any three consecutive years of a tenancy, and 15 percent in areas with a shortage of affordable housing. Tenancies are, by law, unlimited, which encourages landlords to "front-load" the rent increases at the start of a new tenancy. So in 2015, Germany began allowing communities to limit the rent in new lease agreements to the area's average plus 10 percent. New and extensively renovated housing, as well as landlords whose tenants already paid more than 10 percent the local average, are exempt.
These rules distort the market, which is why the liberal Free Democratic Party has campaigned to abolish them. But the distortions are mild: They don't hinder much-needed new housing construction, and they allow landlords to increase their income. Many of them don't even go to the annual limit allowed by the law.
The "rent brake" has worked to a degree, but not as well as the legislation's proponents — primarily the Social Democrats — hoped. A recent study by DIW Berlin, one of the country's top economic research institutes, showed that in parts of Berlin, namely where the rent growth was the fastest, rents quoted in new leases dropped by 2.9 percent immediately after the latest "rent brake" legislation took effect. The beneficial effects of the law reached some 40 percent of Berlin's area and some 70 percent of its population.
But the city is growing rapidly, adding 40,000 to 50,000 residents a year to the current 3.6 million. Simply attempting to rent an apartment in Berlin is increasingly daunting: Showings are often stampeded by dozens of people attending. Landlords can pick and choose, and many of them still set rents higher than the "brake" allows: The law specifies no punishment for noncompliance. Germans, of course, have a strong, traditional respect for laws — but they also don't feel they must pass up their share of income from the city's explosive growth.
Sunday's demonstrators are trying to change that. The German government isn't likely to force landlords to comply with the rent laws, but Justice Minister Katarina Barley, a Social Democrat, is pushing for a tweak to the rules that would make landlords to disclose to new tenants what previous ones paid. If that proposal is adopted, some landlords will probably be shamed into sticking to the rules. Then again, many won't be — given the demand.
As things stand, the "rent brake" rules are only slowing down the displacement of Berlin's pre-boom population — the driving forces of the city's colorful neighborhoods, the long-time customers of quaint bars, the street artists, the people who do manual jobs with pride and an approach to quality that's a holdover from a bygone era. Further restrictions would only create the kinds of imbalances that old-style rent ceilings used to set up in the U.S. and the U.K. Germany can pass no laws to ensure they aren't squeezed out of their carefully built habitats by tech industry expats and businesspeople from other parts of Germany, drawn to the capital by its dynamism.
My family, which moved to the city in 2014, is part of the problem. Yet I hope, perhaps irrationally, that the protesters somehow secure a longer stay of execution for the parts of Berlin we've come to hold dear.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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