Politics

Berlin, Part III

Berlin’s real-estate Robin Hood

No vacancy. Source: dpa

Source: dpa

“You sold the whole city,” reads a small sign in German posted in the window of a convenience store in Prenzlauer Berg, as hordes of tourists pass by on their way to the Mauerpark flea market.

The illegal underground clubs and abandoned apartment buildings of lore are now more urban legend than urban reality, sirens of a bygone time that keep luring the young, broke and sexy to the capital.

After reunification, the formerly communist East Berlin was practically abandoned as long-time residents fled over the Wall for greener pastures. The divide between haves and have-nots in the new, reunified Berlin became cruelly apparent. Under the communist regime, the Imperial-era buildings in Prenzlauer Berg and Friedrichshain decayed. Anybody who could get an apartment in one of the modern concrete blocks in the suburbs jumped on the opportunity.

Berlin, so long cut in half, had lost most of its industry, and the jobs were slow to return, if they did at all. A population decline left the city’s budget in ruins, and the reunified Berlin sold off 220,000 formerly state-owned housing units, including 64,000 in 2004 alone, with the privatization of municipal housing company GSW. This was in retrospect a terrible time to sell, just as the housing market bottomed out, historian Andrej Holm says. And the €1.3 billion Berlin earned from the sales barely made a dent in its debt obligations.

Most cities have permanent social housing stock, but in Berlin, contracts set subsidized rental rates for 20 or 30 years, after which the units return to the mainstream market. Berlin stopped its social housing subsidies in 2001, so some of those last contracts will be running out in 2021. In the 1990s, there were 360,000 social housing units in Berlin; today there are fewer than 100,000. Berlin began a small-scale subsidy program in 2015, but the stock of social housing will remain at about 100,000 units.

Now, Berlin has become the hottest real-estate market in Europe, something the city leaders from the turn of the century couldn’t have expected. Rent prices have risen by 75 percent in the past five years. But unlike San Francisco or London, diverse cities also experiencing economic booms, Berlin has a powerful tool at its disposal: Vorkaufsrecht, the right of first purchase, or right of first refusal.

Florian Schmidt surveys his kingdom. Source: Handelsblatt

Source: Handelsblatt

The community’s right to buy up residential property about to be sold to preserve the social mix of a protected neighborhood is an option available across Germany, though few cities actually use it. One local official in Berlin is buying the city back, one apartment building at a time. By setting a stake in the district of Friedrichshain-Kreuzberg, Florian Schmidt has become a thorn in the sides of real-estate developers.

A member of the Green Party, Mr. Schmidt is responsible for urban development, public spaces and facility management in his district. He looks like a part-time professor of guerrilla urbanization, sporting corduroy and wild red hair. He’s not a career politician: His background is in urban planning and activism, and his new cause célèbre is preserving the social mix of his district by preventing luxury renovations and condo conversions.  

Germany’s federal building law sets special rules for neighborhoods deemed worthy of Milieuschutz — essentially social preservation in the face of gentrification. The districts get to approve sales of buildings in those zones, and can set terms for the sale (such as banning eviction of current residents or limiting improvements made) or step in and purchase the property itself.

Generally this instrument is used to pressure developers to make concessions to the city’s liking, but Friedrichshain-Kreuzberg is going all the way. Mr. Schmidt’s department used Vorkaufsrecht 11 times in 2017 to buy buildings containing 814 apartments and 131 businesses. This year he hopes to secure 1,500 housing units for the people of his district. “It’s a really small but sharp sword,” he says.

When the district steps in to preempt a transaction, it immediately passes on the property to a housing association, co-op or a private owner who promises to follow the rules, which will be attached to the property forever, even if it’s resold. A recent purchase of a multi-building housing complex secured 114 units for €7 million, an average of just a little more than €60,000 per flat. “The objective is not to make everyone afraid of me and the district. But it’s important the real-estate market knows,” Mr. Schmidt says.

He estimates that of the 150,000 housing units in Kreuzberg, about one-third are already in the hands of nonprofits or socially minded owners. “If we can secure a thousand flats each year, that’s 1 percent of the two-thirds in danger from the speculation circus. In 20 years, that’s a lot.”

Left-leaning politicians in the city have been advocating for development plans that maintain the social and economic diversity of Berlin. The Senate, governed by a coalition between the SPD, Greens and die Linke, set aside €100 million in 2017 to assist Vorkaufsrecht purchases. It’s a revolutionary tactic to prevent low- and middle-income people from being pushed out from the center of the city to the edges, as has happened in Paris and San Francisco.

Would-be investors complain he is abusing his rights, and developers point out that modernizations are sorely needed in some of these buildings. Berlin’s Free Democratic politicians say the money would be better spent on building new housing to benefit many people rather than buying existing buildings to house a few.

Mr. Schmidt loves being the archenemy of real-estate developers, but not all developers find him so scary. Gero Bergmann, an executive at real-estate bank Berlin Hyp, says 11 instances of Vorkaufsrecht in a year doesn’t faze him; his company completes hundreds of transactions in a month.

 

Read the whole series

Grace Dobush is an editor with Handelsblatt Global in Berlin. To contact the author: grace.dobush@gmail.com

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