Berlin's housing deadlock - trapped by rules, paralysed by rents

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Berlin is trapped in a housing paradox. Demand is high, vacancy is negligible, and rents in new contracts have soared by 74% for new-builds and 62% for existing stock over the past decade. And yet, the market is barely moving. For the average tenant, relocating within the city is unaffordable. The result is a city paralysed—rich in housing need, but increasingly poor in functioning solutions.

The data tell a clear story. In no other German city is the gap between new and existing contract rents as wide. Catella’s Lars Vandrei calculates the spread at 92%—meaning a household giving up an old tenancy would, on average, face nearly double the rent for a comparable apartment. In Hamburg, Munich, and Cologne, the gap hovers around 55–65%. In Frankfurt, Düsseldorf, and Leipzig, it's lower still. But Berlin leads by a margin that’s less a statistic than a structural warning.

That gap has become the motor of market dysfunction. With little incentive to move, households stay put—often in apartments larger than they need. Under-occupancy rises, circulation stalls, and new demand is funnelled exclusively into new contracts. As Vandrei points out, this dynamic becomes self-reinforcing: limited turnover inflates new rents, which in turn discourages movement, deepening scarcity in the lettable stock.

From the investor perspective, the logic is different. Philip Hetzer of DAHLER Invest sees opportunity in the spread between current rental income and market-level potential. The legal framework still allows for moderate rent increases, and private owners often forgo them entirely. Add to that Berlin’s chronic undersupply and near-zero vacancy, and you get what Hetzer calls a high-certainty income market. “That won’t happen again, and word has got around among investors,” he notes. Institutional buyers may have pulled back, but the market is attracting private and semi-professional investors with long-term horizons. The share of Berlin-based buyers of subdivided apartment blocks is now around 80%.

Turnover volumes are up. The number of apartment buildings sold in Berlin rose by 11.3% last year, with transaction value climbing 44% to €4.3 billion. Yet this recovery came at lower valuations: average prices fell by 8.5% to €1,954 per square metre, and net cold rent multipliers dropped from 26.1 to 23.1. The super-cycle mentality has gone; what's left is a cautious but quietly busy market.

Meanwhile, the supply side has stalled. Only 15,965 apartments were completed in Berlin in 2023, far short of the 20,000 per year needed just to stabilise the current imbalance. With construction costs and interest rates still elevated, developers have delayed or cancelled new projects, and the pipeline is shrinking. Isolated schemes—such as the timber-hybrid Falkenquartier in Weißensee or the conversion of Red Army barracks in Zossen—offer promise, but nowhere near the scale required.

One site remains politically explosive: Tempelhofer Feld. The city's CDU-SPD coalition wants to build up to 20,000 apartments on the fringes of the former airfield, reactivating long-abandoned plans. The public, however, is not onside. A 2014 referendum decisively blocked development there, and local activists, notably the “100% Tempelhofer Feld” group, are gearing up again. Opponents argue that once the open space is lost, it’s gone for good. Politicians, facing a city where 39% of voters cited housing as their top concern in 2023, appear willing to test that theory.

A legal loophole landlords love

But the market isn’t just short on apartments—it’s losing grip on regulation too. A loophole in German tenancy law exempts furnished, temporary rentals from rent control rules. The result: landlords list apartments as short-term furnished to sidestep the Mietpreisbremse, charging €30–50 per square metre, even as the citywide average hovers around €8.50. In Kreuzberg, two-thirds of apartments under 50 sqm now fall into this grey category. Platforms like Wunderflats and Housing Anywhere enable and monetise the practice, packaging it as “compliance support” for owners.

The consequence is not only unaffordable rents, but statistical distortion. These inflated listings push up the Mietspiegel—the city’s reference index for rent increases—making legal rents rise across the board. Enforcement remains patchy, and the regulatory tools intended to protect tenants are being eroded from within. Districts like Charlottenburg-Wilmersdorf and Pankow are attempting local crackdowns, but without federal reform, the loophole remains structurally intact.

In parallel, political frustration is mounting. Activists are once again organising a referendum to expropriate around 240,000 units owned by major landlords. Whether that measure gains traction remains to be seen. But as housing becomes less accessible, Berlin’s identity as a tenant city is being tested. Rhetoric around affordability increasingly collides with economic and legal realities.

The result is a market jammed at both ends: tenants can’t move, investors can’t build, and landlords are learning to game the rules. Transactional activity may be returning, but the underlying mechanisms are fraying. A return to balance will require more than construction targets or rent freezes—it will require political coherence, legal clarity, and a market that can function without driving out the people it’s meant to house.