Affordable housing requires more new construction

In Berlin, fewer building permits were issued again in 2020 than in the previous year. This will further exacerbate the situation with rental and purchase prices.

Affordable housing requires more new construction

Berlin, 19. March 2021 — Berlin again issued fewer building permits in 2020 than the year before. According to the Berlin-Brandenburg Statistics Office, last year 20.459 approved homes reported. And that's down 9.2 percent from 2019 (22.524 apartments). Negative housing trend has continued for four years, according to the bureau(1).

"For years, we have seen the prices of real estate in Berlin rise. 'If fewer homes are built again now, it will exacerbate the situation for rents and purchase prices,' estimates Dr. Chris Mulder, co-founder and CFO of Hypofriend, the development a. Mulder, after studying economics in London, worked at the IMF (International Monetary Fund) and the World Bank. Together with his son Nick Mulder and later with Pavel Jurasek, he founded Hypofriend in 2017.

"In the last ten years, prices per square meter for existing properties in Berlin have tripled, and for new buildings they have more than doubled. This reflects the massive growth in jobs in Berlin. With a renewed reduction in new construction, the trend will continue over the next few years," Mulder adds. "And the same goes for rents. With the rent cap, the supply of apartments and houses will be reduced as people hold on to their cheap rents."

Rising incomes and lower interest rates impact affordability

Nevertheless, Mulder gives the all-clear. "Regularly one warns of overpriced real estate prices. However, the focus of the analyses is on the relatively rapid rise in prices over the past five years. On the other hand, if you look at the development over the last 45 years, it is noticeable that the prices for real estate in Germany are moderate. The reason: Germany avoided a housing bubble, which the rest of the world suffered from, by encouraging housing construction after reunification. That's why Germany and Berlin are currently at a very different level than most other countries when it comes to real estate prices."

Historical data shows real estate is still very affordable in Germany today. Rising incomes, as well as the decline in interest rates on real estate loans, from about 6.5 percent in 2000 to an average of about 1 percent in recent years, have had a decisive impact on so-called 'affordability'. Even recent price increases have barely affected this improved affordability. But to keep it that way, Berlin in particular needs more affordable housing. "However, if the number of new apartments falls for four years in a row, it will become increasingly difficult over time for buyers to find an apartment that can be financed," Mulder sums up.