The city’s boroughs can purchase apartment buildings to prevent spikes in rental costs. But is the area that does it most reaching the limits of what it can do?
Many urban areas worry about how rising rents might force out long-time residents. Few, however, have gone as far to battle displacement as the Berlin borough of Friedrichshain-Kreuzberg.
This fast-gentrifying corner of inner Berlin has developed a new way to protect lower-income tenants who face steep rent increases when the buildings they live in are sold. A long-standing—but long unused—regulation gives municipalities the right of first refusal when a building goes up for sale. Friedrichshain-Kreuzberg simply buys the buildings itself, maintaining them as affordable rental homes via a state-owned company. While all Berlin boroughs have this option, only Friedrichshain-Kreuzberg is using it with any frequency. Since last autumn, it has bought up 11 multi-apartment buildings, and now stands on the cusp of buying another.
So how far can the policy actually go? Recent developments suggest the borough is using the tool as much as to pressure private owners into good behavior as to actually acquire property for the state. It is also facing some official pushback, as the city government has tried to overrule the first-refusal right in some areas. The question remains: Is it possible for a borough to buy its way out of its displacement crisis?
Before exploring the policy’s current challenges, it’s worth explaining in more detail why the law is considered necessary. In Germany, rental contracts generally offer far greater tenant protections than they do in the U.S., and rent increases are capped (in Berlin the maximum increase is 15 percent in three years). This doesn’t mean that rents always stay affordable for their tenants—they can still rise—but it does mean that rent rises aren’t likely to make people homeless overnight. Meanwhile, people who signed their rental contracts decades ago, when apartments in the city were much cheaper, might still be paying a very low rate.
This cap has spurred many landlords to exploit a loophole: luxury renovation. German real estate law allows larger rent increases if a landlord demonstrably improves the quality of an apartment. While improving an apartment sounds like it’s in everyone’s interests, the result has been that many tenants are forced to move out of their homes after a building’s owner installs an elevator, underfloor heating, or balconies—benefits aimed at raising the rent rather than providing higher quality of life for existing residents. A survey this year found that after renovation, an average Berlin apartment’s rent increased by 42 percent—and in some cases it rose by an astonishing 200 percent.
This is where Friedrichshain-Kreuzberg’s purchase policy steps in. Because of the luxury renovation loophole, the cost of older, more attractive buildings in the borough is spiraling. Investors know they can make a killing by sprucing a building up and replacing lower-income tenants with richer ones. As a result, the borough’s purchases aren’t designed just to protect tenants, they’re also an attempt to make the investment climate less attractive for speculators, improving conditions for everyone by lessening chances of a property bubble.
The policy is works because the state-owned property companies can buy the buildings and still earn enough over the years to recoup their investment. But is there a limit to how much they can pay?
Possibly yes—but the borough’s policy is not solely about acquiring property, it’s also about using the law as a persuasive tool.
This month the borough strongly warned prospective buyers of an 1898 corner tenement in Kreuzberg over hopes that they might make a killing on the building’s purchase. The borough said the building’s estimated market value of €5.2 million ($6.12 million) would make it hard to earn enough money to justify the outlay without raising the rent by instigating a luxury conversion. In the end, the building went for far more than that—it made €7.16 million ($8.5 million) at auction last week. That doesn’t mean the borough has lost, however. With the buyer in place but the sale not officially finalized, the borough now has two months to negotiate, using its right of first refusal as a bargaining chip.
The borough doesn’t comment on ongoing negotiations. What has happened in the past, however, is that it threatens to take over the newly purchased building itself, cancelling the auction agreement, if the new owner doesn’t sign a contract committing not to carry out a luxury renovation for at least 20 years. So far, the borough has successfully strong-armed 11 landlords into agreements of this type.
Meanwhile, the city of Berlin itself is stepping in, if not to halt the policy, then at least to clip its wings. In November, it banned Kreuzberg’s neighboring borough, Tempelhof-Schoneberg from copying its neighbors’ policy and using its right of first refusal on a tenement. The city’s decision came because the building was in a designated “development area,” a zone slated for housing intensification where it might pay for the city to be less prescriptive. If the idea is to restrict the policy from being implemented where more homes might be built—by adding an extra floor or two, for example—that city decision doesn’t seem such a terrible setback. It could still be the thin end of a wedge that sees the city as a whole increasingly overrule the borough. So do these two cases mean the policy is in danger?
Certain sections of Berlin’s media seem to think so. The role of the first-refusal policy, however, is not to stop time in its tracks and freeze the rents forever. The city is aware that its housing crisis can only be alleviated by more homes, most of which are unlikely to be built in Friedrichshain-Kreuzberg due to its already heavily built fabric.
What buying out private buildings can do, however, is preserve some sort of social mix, allowing people with roots in the area to keep their community links alive and simultaneously halting the creation of a bland monoculture. Berlin remains an experimental petri dish for all sorts of attempts to keep itself affordable, from banning vacation apartments to protecting low-cost businesses, that are as yet inconclusive in their effect, but well worth watching. And if moves like the first-refusal policy don’t preserve affordability on their own, they’re still evidence of a city culture that doesn’t exclusively value people for their ability to pay.
CORRECTION: An earlier version of this article suggested that the borough of Friedrichshain-Kreuzberg had decided not to by the tenement mentioned in the article, because its high price made it incompatible with continuing to maintain affordable rents. The borough’s statements on the matter (discussed in this article) were not in fact the announcement of a decision on their part, but a warning to potential private purchasers that did not in themselves rule out a future purchase by the state.