How Berlin is trying to avoid becoming another San Francisco for renters

When Kiddy Citny, an artist whose murals appeared on the original Berlin Wall, returned from a trip to Hong Kong a few months ago, he found a Europe transformed by the coronavirus pandemic. But while the art world went into hibernation in the crisis, he found new purpose as an advocate of affordable housing, just as Berlin passed a historic rent freeze into law.

Though a famously cheap city to live in not long ago, Berlin has seen its rental market explode in the last few years, threatening the hip urban culture that has grown up here. “Art is what’s made Berlin so big over the last 25 years” says Mr. Citny, who dodged East German guards to paint the Berlin Wall before 1989. “But few artists can really afford to have a studio anymore – everything Berlin has stood for is essentially disappearing.”

The city-state capped the rents of 1.5 million units for the next five years in a freeze that took effect in February, as advocates hope Berlin can avoid becoming a London or San Francisco of unaffordability. But conservative politicians are contesting the policy’s constitutionality in court, and say rent freezes might actually prevent developers from expanding the housing supply. Advocates for affordable housing globally are watching what could be a milestone move.

“Berlin is sort of leading the way,” says Hanna Wheatley, a housing economist at the London-based social justice think tank New Economics Foundation. “It’s massive that controls are getting pushed through, because it’s been grassroots led. If renters can be mobilized and activated as a pressure group, they might have real impacts on what the rental market looks like.”

No longer affordable

For two decades, Mr. Citny has lived in a two-room apartment in the city-center neighborhood of Schöneberg. Light streams in from both sides. Rent is affordable. “It’s an apartment that you would never give up,” says Mr. Citny.

Mr. Citny’s situation had already been helped by the rent cap law; his landlord had planned to sell the unit last year, only to change his mind because of the pending policy. “The law prevented the apartment from being sold out from underneath my feet,” says Mr. Citny.

On the open market, Mr. Citny would have found rental rates unaffordable. Indeed, property values have skyrocketed over the last decade; in 2017 the city nabbed the honor of experiencing the world’s largest year-over-year property price increases at 21%, according the Knight Frank Global Index Report. That amounts to a doubling of rents over the last decade, in a city where the average Berlin household pulls in only €2,000 ($2,200) a month after tax, and where four of five residents are renters.

A scarce 1% of vacancies are affordable for a single person per Berlin standards, according to a 2019 study underwritten by the federal government.

With a few exceptions, the rent freeze law would fine landlords in violation up to €500,000, says Katrin Lompscher, Berlin’s secretary for urban development and housing.

Mr. Citny’s landlord is a private party who bought decades ago, and doesn’t face the profit pressure of newer investors. Therein lies the problem with the rent cap strategy, says Berlin-based housing economist Pekka Sagner. It puts some private investors in financial dire straits, while disincentivizing developers to build new housing stock. “And that’s ultimately the issue – we need more housing.”

Another problem? The law isn’t permanent, points out Christoph Albrecht, an attorney who advises Mieterschutzbund Berlin, the tenant protection association. “Renters have been given a breather but they should look for alternative housing,” Mr. Albrecht says. “Because what if the tenant doesn’t have more money [in five years]?”

Because the law’s future is uncertain, renters’ unions are counseling tenants to keep any rental refunds in a rainy day fund, in case they need to give it back.

The “Berlin experiment”

Sky-high housing prices aren’t unique to Berlin, but the feeling is that it’s still early enough in Germany’s capital city that there’s a fighting chance, while the ship has largely sailed in other places.

“Look at London and Paris, how expensive it is for really small living space,” says Mr. Albrecht, the attorney. “We don’t want to reach that here.” Homeless numbers have skyrocketed in Los Angeles, New York, and other cities. Those with shelter aren’t necessarily less anxious, since watching rents jump around them creates housing insecurity, the economists say.

Solving this dilemma is key to maintaining vibrant societies, say affordable housing advocates. Most Americans and Europeans already view housing as a human right, according to the National Law Center on Homelessness & Poverty.

The question is how to ensure affordable and accessible housing. “We’re entering uncharted territory,” Secretary Lompscher writes in an email. Having given renters a breather, she says, the city is well aware the next step is to “strengthen the building sector” and increase housing supply.

Though controversial, rent control has been the go-to measure in most large cities across North America and Europe, and policies encompass everything from how initial rents are set to rates of increase during tenancies to enforcement measures for wayward landlords.

San Francisco provides a cautionary tale; it tried a rent freeze in the early 1990s, only to watch real estate become a buyer’s market that favored people with money. “Sellers were trying to realize profits by offloading properties, because they could no longer profit from rents,” says the economist Mr. Sagner. That paved the way for high-paid Silicon Valley types to jump in. Freezes made gentrification “even more possible, because simple teachers were driven out of the area,” Mr. Sagner says. Lisbon experienced a similar dynamic.

In New York, London, and Amsterdam, housing has become an asset that people buy for investment, rather than for shelter, explains the London economist Ms. Wheatley. “There’s a lot of unhealthy demand. People aren’t buying houses to live in.”

Housing and art in the time of COVID

During a pandemic, adequate housing – with proper services – becomes even more critical. “Home has rarely been more of a life or death situation,” says Leilani Farha, United Nations special rapporteur on the right to adequate housing. Worldwide, about 1.8 billion homeless and inadequately-housed people are particularly vulnerable to contracting the illness, she says.

And, as governments try not only to stop COVID-19 but lessen economic fallout, they’re lowering interest rates. That creates a potentially dangerous set of circumstances. A similar situation allowed investors to take over the real estate landscape after the 2008 global financial crisis, says Ms. Farha. “States must prevent the predatory practices of institutional investors,” she cautioned in a press release.

Indeed, “gone for profit” is how Mr. Citny, the artist, characterizes what’s happened to his city, even as he’s hopeful the new law will have some positive effect on affordability.

With the coronavirus requiring social distancing and “no one buying art,” Mr. Citny is thankful he had the good timing to downsize his studio before the pandemic hit. He’s been biking between his apartment and his smaller studio, thinking about how to work the feeling of “empathy” into upcoming projects.

“This rent freeze is a really important law,” says Mr. Citny. “It helps preserve Berlin’s calling card. Artistry is the highest form of community.”