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Gentrification: Stop blaming foreigners!

Berlin’s famous tolerance is starting to wear thin. But the commentators fail to mention the real structural reasons behind the rent hikes of recent years.

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Sigrid Malmgren

Berlin’s famous tolerance is starting to wear thin. After a decade of engineered social and economic change, Berliners are starting to realize that the city they love is disappearing. Citizens angered by rising rents are turning their wrath against foreign tourists and international immigrants.

The latest round of debate began at the beginning of March, when the Kreuzberg arm of Die Grüne (Greens) held a neighbourhood meeting under the catchphrase, “Hilfe, die Touris kommen.” There, Wrangelkiez residents voiced their anger about noise, garbage, and most importantly, rising rents – which are now all too suddenly attributed to the ‘tourists’.

Since then, barely a day goes by without an article in the Berlin press blaming internationals – both short-term Easyjetsetters staying in rented out flats and as migrant hipsters who stay longer – for driving up rents and forcing poor residents out from once-cheap neighbourhoods like Kreuzberg’s Graefekiez or Neukölln’s Reuterkiez.

The commentators fail to mention the real structural reasons behind the rent hikes of recent years. The gentrification of Berlin is the result of a prolonged and determined strategy by the city government, which has a very different vision of the city than the one held by most of its residents.

Who’s really to blame?

In February, Mayor Klaus Wowereit of the SPD laid bare his aspirations for an expensive Berlin when he declared that rising rents were a “good sign”. But his sentiment is nothing new; upgrading the city has been the policy of its government over the past 10 years, during which it has cut public housing subsidies, restricted the supply of new housing stock, encouraged speculation and failed to protect renters from price hikes. Average rent prices in the city increased last year by 4.3 percent, and property prices went up 5 percent, according to the 2010 Investitionsbank Berlin Housing Market Report.

Economists tell you that the market price of anything is determined by two factors: supply and demand. But that’s an oversimplification. Another factor, government policy, has the greatest effect of all. The argument over gentrification has focused exclusively on demand and the portion of demand created by international migration (internal German migration to Berlin is overlooked). Time for a reminder about the other two factors: supply and politics.

The supply of apartments in Berlin is shrinking, but the newcomers are not to blame. While the population has been increasing at an average of 11,000 people per year for the past few years, the city government has restricted the number of building approvals for new dwellings. An average of only 3,000 apartments were approved for construction over each of the past four years, and in 2009 the number of building approvals actually fell by 11 percent, the IBB housing report showed.

Joachim Oellerich, editor of MieterEcho, the magazine of the Berliner MieterGemeinschaft (Renters Association), said the city’s housing stock of 1.9 million apartments requires a yearly expansion of about 1 percent – or 19,000 apartments – to absorb population changes. “When the city allows only 3,000 apartments each year, market prices go up automatically.”

Demographic truths

At the same time, the average household size has shrunk. The demographic makeup has shifted from family-occupied to single-person apartments. In 2002 the average household size was 1.83 people. By 2010 it had dropped to 1.72. Single-person households now make up 54 percent of the city, up from 48.9 percent in 2002. A seemingly small shift, but enough to suck apartments off the market and drive prices up.

Perhaps one fault that can be levelled against visiting foreigners is the rise in the number of holiday apartments popping up in Berlin, which reduce the available housing for permanent residents. Oellerich estimates that between 20,000 and 30,000 apartments are being used to house temporary visitors, although these figures are unverifiable. In any case, the vast majority of property owners are German, and it is they who profit from this trade and not the visitors.

Of those 11,000 people moving to Berlin each year, a large proportion are German, and about half of all long-established Berliners migrated here from other German cities. The percentage of foreigners among those registered in Berlin actually decreased in 2010, from 13.7 to 13.5, according to the Berlin-Brandenburg statistics office. A small drop, but sufficient to destabilize claims of a foreigner invasion.

Dirty dealing

Fluctuations in population need not affect rental prices, unless governments allow the market to act unhindered. In Berlin, the city government has not only failed to regulate rental prices and protect tenants; it has actively pursued policies that have pushed prices up.

Starting in 2002 under then-finance minister Thilo Sarrazin, the city sold off over 100,000 apartments from municipally owned housing companies. The largest of these deals took place in 2004, when Berlin sold 66,000 apartments to a consortium headed by the notorious U.S. bank Goldman Sachs. Goldman paid the city €405 million for the GSW housing company – a bargain rate of about €6100 per flat. In 2009 it turned around and sold 15,000 of those flats for an average of €50,000 each. Selling off publicly owned housing has reduced the city government’s ability to keep rental prices stable.

For at least the last decade, city officials have been promoting Berlin as a market for property investors worldwide. “Berlin is now an El Dorado for real estate speculators,” Oellerich said. “The housing policy in Berlin is to make it attractive for investors.”

In 2003, Berlin also axed a program to provide subsidies on social housing projects built between 1987 and 1997 – a total of 28,000 apartments. Tenants of those flats found themselves paying market-level rents for what were supposed to be low-cost social housing apartments.

“We need protection”

In Germany it is in principle illegal to increase rent on an existing contract by more than 20 percent over three years. But there are no controls over the amount landlords can ask for new contracts. This has led to the astronomical price increases that sparked the present anti-foreigner criticism. Oellerich said new rental contracts should be capped to prevent owners from profiting from the present apartment shortage – yet any such protection would have to be implemented at a national level.

Reiner Wild, head of the Berliner Mieterverein, another of the city’s renters’ associations, agrees with Oellerich. He estimates that rental prices on newly contracted apartments inside the S-Bahn Ring have increased 8-10 percent each year for the past few years, while prices on existing contracts have increased by 3-5 percent.

“We need protection against this,” said Wild, “But the Berlin government says that higher rental prices are good.”

The reluctance to place regulations on the rental market is not restricted to the SPD. “There is currently no party that has a policy to restrain the housing market,” Oellerich said. “Not the Greens, not the Social Democrats and not even the Left. When we have no other choice but the market, that isn’t democracy.”

Driven by that conclusion, the Berliner MieterGemeinschaft will hold a conference in Berlin on April 16 to discuss what can be done outside of parliamentary mechanisms to bring about protections for renters.

Oellerich is not one of those critics who confuse effect for cause; he doesn’t place the blame for rent increases on foreigners moving to the city.

“The problem is the market,” he said. “We need a new system of politics.”