Market Analysis
Berlin's housing market under pressure
Small apartments in Berlin 2014: why demand pressure kept pushing rents higher
It was not just students driving up prices: in Berlin, the shortage of small apartments for various population groups put pressure on the entire rental market.
Peter Guthmann
In Berlin's rental market in 2014, prices were not just driven up by incoming students or start-up founders. Various low-income groups also increased the pressure on an already scarce housing market. Anyone looking for an affordable one- or two-room apartment was competing with thousands of others.
Many groups, one market segment
According to Social Affairs Senator Mario Czaja (CDU), around 1,800 recognized asylum seekers were living in shelters at the time, urgently looking for a regular apartment in Berlin but unable to find one. In addition, there were elderly singles on low pensions, recipients of unemployment benefits and other low-income households. They all needed housing that met social welfare criteria: small and affordable.
This concentrated demand met a historically low supply. A report from the Health Administration to the Main Committee stated: "Due to decades of little to no construction activity, there are practically no reserves left in the housing market."
Rising rents as a consequence
Even though many of these groups were not the preferred tenants for private landlords, their sheer numbers affected the overall market development. Every apartment occupied through social agencies or the job centre was no longer available on the open market. This intensified competition among all other prospective tenants.
Heiko Thomas, health policy spokesman for the Greens, warned of an "impending social catastrophe." The competition for small apartments was particularly fierce in central boroughs such as Neukoelln and Friedrichshain.
Decades of insufficient construction
The roots of the problem lay in the past. After reunification and a brief building boom, residential construction in Berlin stagnated for years. The city was heavily indebted, and the population even shrank for a time. When more than 30,000 people per year began moving to the city, reserves were simply not there. The market had nothing left to offer.
Implications for owners and investors
For property owners, the situation meant minimal vacancy rates and strong rental security, especially for small apartments. At the same time, the shortage signalled a need for new development projects, particularly micro-apartments and two-room units. Demand was not expected to decline, and the political debate around affordable housing was only just beginning.