Berlin Real Estate Story. PART I: From Wall City to World Metropolis: 50 Years of Change.

Discover how Berlin has become the hottest real estate market in Europe. 

by Peter Guthmann Published on:

The Housing Policy of the 70s in East and West

After the end of World War 2, the one and only housing policy goal was the immediate creation of housing for Berlin's population.

After the housing supply had stabilised to some extent in the mid-1970s, an urban planning conceptual phase began in the western part of Berlin. In the discourse on concepts, large-scale projects increasingly gained acceptance; the idealising notion of a car-friendly city, high funding opportunities and quick implementation were tempting.

In the divided tenant city of Berlin, housing policy was also a high priority on the other side of the Wall. In the East, reconstruction began later, but it was all the more intense. For the political leadership, in addition to housing policy goals, it was also a matter of proving the efficiency of the socialist planned economy. In both the East and the West, the model was that of large housing estates. In the East, the redevelopment of the large inner-city stock of old buildings was unpopular for reasons of cost and ideology. Wilhelminian-style districts such as Prenzlauer Berg were suspect to the system as the nucleus of the free spirit. 

But in the West, too, the temptation to make room for something new by destroying the urban fabric was immense. The consequence in East and West was that many old neighbourhood and block structures had to give way to supposedly modern large-scale structures. An irreversible development that found expression in the West in projects such as the NKZ (New Kreuzberger Center) or the "Social Palace" in Schöneberg.

In the east, too, intact blocks of old buildings were demolished in many places and replaced by high-rise buildings (e.g. around Alexanderplatz) or by large housing estates on the outskirts of the city. 

Euphoric forecasts

The bang that swept over Berlin with the fall of the Wall from 1990 onwards was not only surprising for urban planners and city ideologists. Reunification and the decision of the Bundestag in 1992 to restore Berlin as the German capital led to euphoric estimates of how Berlin's population would develop. Between 1950 and 1985, Berlin's population had shrunk continuously from about 3.3 million to less than 3.1 million. The Senate countered the exodus with subsidies. Workers in the western part received an 8 per cent "Berlin supplement" on their gross wages. Industry and commerce were also hooked on subsidies. 

The opportunities expected for the new and old capital after the fall of the Wall led to an explosion in population forecasts. It was predicted that a large number of high-income earners would arrive. Moreover, according to the will of politics and business, Berlin was to develop not only into a political centre, but also into a new economic centre and an interface between the economies of East and West. Consequently, housing was needed for up to 5 million projected residents, according to individual estimates, especially from the business community. The Senate assumed that the well-off new Berliners alone would demand around 270,000 high-quality flats. Small and medium-sized housing projects sprang up and a race to catch up began in the east; old buildings were extensively renovated, gaps were built on, neighbourhoods and districts became redevelopment areas and underwent structural change. Parallel to the smaller and medium-sized projects in the central inner-city districts, less central housing estates were built, such as in Französisch Buchholz and Karow. 


Berlin was as if drunk. The only thing missing for the city, they thought, was the hosting of the 2000 Olympic Games, for which the city applied in 1993. Berlin's optimism of purpose did not help, however, and Berlin lost the venue to Sydney. With the lost candidature there came the hangover, since high expectations had been linked to the Olympics. Many housing projects and infrastructural measures were hastily planned in the run-up to the Games. Worse still, the population was now declining instead of rising. The engine began to stutter and finally, in 1996, the merger of the states of Berlin and Brandenburg failed. 

Turning away from subsidised housing

The series of defeats led to a rethink in the city hall. The highly subsidised social housing of the 1980s was not yet paid for and the development of another 80,000 to 100,000 publicly subsidised flats in the 1990s continued to consume large sums of money. Finally, in 1996, with the public financial crisis, the turnaround came. With the "ownership strategy" of 2000, the ownership rate of just 8 percent should be doubled within a few years. The promise was to stimulate the construction industry and to invest in the existing building stock through the increased conversion of rental flats into owner-occupied flats.

Poor but not yet sexy: broke into the new millennium

The highly subsidised social housing construction, which was initiated in the 1980s and lasted well into the 1990s, resulted in a large municipal housing stock. In 1990, around 480,000 flats belonged to the state of Berlin. After the population in Berlin did not develop as positively as expected, but rather declined, and the state's finances were permanently weakened by the banking scandal, the desire arose to sell parts of the housing stock in order to fill holes in the budget. In four phases of privatisation under different coalitions, about 210,000 flats were taken out of the municipal stock and sold. The municipal stock was reduced to less than 275,000 units. The sold flats were thus no longer available as a housing policy instrument for rent control, which put pressure on the low rent segment. In 1999, social housing construction was stopped and four years later the follow-up subsidies for social housing were withdrawn, which led to a further increase in rents, as successive flats fell out of price control. 

New influx driving the real estate market

Purchase prices in Berlin stagnated until 2006 / 2007. There were only isolated upward movements. In the traditional City West icons like Charlottenburg and Steglitz, stagnation lay like a musty carpet on the property market. With the onset of the international financial crisis, the situation began to change. In the wake of the subprime crisis in the USA, more and more young people were attracted to Berlin. In waves immigrants arrived from Scandinavia, Ireland, England, Italy, Spain, France, Israel and the USA, to name a few groups. Completely atypical for Berlin's rental culture, the idea of home ownership also moved in with the new Berliners. Buying property was interesting and normal. The crisis-ridden countries of origin offered few opportunities in the wake of the financial crisis, and property prices in Berlin in the noughties were extremely cheap by international standards. Demand was high, vacancy rates fell, rents rose. In the districts, people modernised, converted and bought. After a long standstill, the population grew again and neighbourhoods became neighbourhoods again, which gained in quality of life, diversity and prominence due to the colourful and international mix. 

Today and tomorrow

Berlin is home to people from over 200 countries. It is safe to expect that after the pandemic, the influx of people from Germany and abroad will increase strongly again. In the Global City Index, which measures the attractiveness of metropolises, Berlin has a stable average ranking of 16th place, an excellent value in international comparison. 

For the real estate industry, the challenge is to accompany the ongoing transformation of lifestyles, values and interests. As a flat or apartment building investor, it will once again be worthwhile to operate beyond the inner city districts that have been booming for years.