Anyone searching for an apartment in Berlin in 2015 keeps running into the word "luxury". New developments in the city centre advertise it, renovated period buildings are marketed the same way. It looks as if living in Berlin is only affordable for a select few.
But the label is misleading. It is not living that has become a luxury. It is building. The real cost drivers sit deeper than the marketing suggests.
Land now costs what finished apartments used to
The price trend on the Berlin apartment market over recent years makes it clear: building land in central locations such as Mitte, Charlottenburg-Wilmersdorf or Prenzlauer Berg now sells at per-square-metre prices that would have bought a finished apartment just a few years ago. For developers, that means a large share of the budget is committed before construction even begins.
Regulation makes building more expensive
On top of that come political requirements. The planned 2016 amendment to the Berlin Building Code will prescribe expanded standards for planning and minimum floor space per unit. A further tightening of the Energy Saving Ordinance (EnEV) adds another layer.
According to the Association of Berlin-Brandenburg Housing Companies (BBU), building a 75 square metre apartment could cost up to 27,000 euros more in 2016 than in 2015. Translated into rent, that is an additional 1.50 euros per square metre per month.
Transfer tax on top
Besides construction costs, the real estate transfer tax weighs on every project. Since its last increase to 6.0 per cent in 2014, it is a fixed cost factor for every property purchase in Berlin. The revenue goes to the state budget; buyers and investors bear the cost.
What would need to change
As developers, we have to calculate with per-square-metre prices that inevitably look like luxury to buyers, even when the project itself is simply the result of high land prices, regulations and taxes.
To create more affordable apartments in Berlin, the framework conditions would need to change: tax incentives for rental housing construction, a more efficient allocation of state-owned land, simpler building regulations. Without these steps, private construction remains an arithmetic exercise that produces prices few people would call affordable.
