May 28 (Bloomberg) -- Taxi driver Michael Ruedor lived for 20 years in a downtown Berlin apartment close to Checkpoint Charlie before rising rents forced him out.
“Only millionaires are in my building now,” Ruedor, 56, said in an interview last month. The native Berliner moved two years ago to the suburb of Britz, about 8 kilometers (5 miles) south of the central Mitte district that he used to call home.
Housing costs in Germany’s largest cities are rising at the fastest pace since reunification in 1990 as investors seeking to capitalize on growth in Europe’s biggest economy turn to real estate, according to data compiled by Berlin-based research firm Bulwien Gesa AG.
In a country where the ratio of renters to owners is among the highest in Europe, Germany’s housing boom is an unwelcome shock for many voters that threatens to turn into a liability for Chancellor Angela Merkel in federal elections on Sept. 22.
Housing is among the campaign themes on the agenda today as Merkel consults with members of her Christian Democratic Union to draw up the party’s election platform. Less than four months before the ballot, the main political parties are jostling for votes with pledges of subsidies and more regulation to limit rent increases they say will keep homes affordable for tenants.
“Politicians realize there’s unrest in the big cities where prices have risen,” Peter Grottian, a professor of political science at the Free University of Berlin, said in a telephone interview. “They see it as a wake-up call.”
Whereas Prime Minister David Cameron’s U.K. government has introduced a credit-easing program and pledged 3.5 billion pounds ($5.3 billion) to spur home ownership, in Germany the focus of Merkel’s coalition and her election challengers is on cushioning tenants from landlords seeking to profit from rising prices.
About 53 percent of Germans own their homes, compared with 70 percent in the U.K. and 72 percent in Italy, data compiled by LBS Research shows. In the U.S., the figure is 65 percent, according to the Census Bureau.
Merkel addressed the topic in a speech to city mayors in Frankfurt on April 24, saying the government agreed on steps in December to cap rent increases for existing tenants at 15 percent over three years. In February, her Christian Democrats said they will build more affordable housing.
“Our interventions in the housing market are necessary,” Merkel said, citing the need for affordable rents without strangling the construction of private apartments to increase the housing stock. She acknowledged divisions over the political response, saying that “judging by the selective applause, there’s still not 100 percent agreement here.”
Peer Steinbrueck, Merkel’s Social Democratic Party challenger, said yesterday that her government is committing a “massive failure” by not doing enough to help make housing affordable for pensioners, students and average earners at a time when incomes are failing to keep pace with rent rises.
German rents rose by an average of 15 percent in the past five years, while apartment prices gained 23 percent, according to Bulwien Gesa. Full-time workers earned an average 3,391 euros per month in 2012, 12 percent more than in 2007, according to the Federal Statistics Office.
The SPD’s solution is to cap rents that landlords can charge for new tenants to 10 percent above the neighborhood average to “put a brake on spiraling prices,” according to the party’s platform.
Polls so far suggest an electoral deadlock. Merkel’s coalition leads the SPD and their Green party allies by 44 percent to 40 percent in an Emnid poll published May 26. That wouldn’t be enough to form a government after the election.
Further legislation risks hurting the German real estate market by making it less profitable for developers to build and investors to buy homes, said Joerg Schwagenscheidt, chief operating officer of Germany’s fourth-largest residential landlord, GSW Immobilien AG.
“The ideas being discussed are completely misguided and counterproductive,” Schwagenscheidt said by phone. “Not only will they make investment more difficult, but the debate itself is making the market less predictable for investors.”
Germany’s gains run counter to the rest of the euro region, where apartment prices fell an average 3.7 percent over the past five years, data compiled by the European Central Bank shows. It also clashes with the sensibilities of many voters in Germany used to strict terms on mortgages including typical down payments of 20 percent and a rare use of interest-only loans. German residential-property values stagnated between 1995 and 2008 when most other European countries witnessed a decade-long boom.
Nowhere is the demand more evident than in Berlin. In the capital city’s central neighborhoods, where rapid population growth has led to Germany’s tightest housing market and construction cranes punctuate the skyline, real estate-related protests are frequent occurrences.
In Prenzlauer Berg, a fashionable Berlin neighborhood dotted with boutiques and cafes, luxury renovations have been banned by the local buildings council, led by the opposition Green party, to make it more difficult for investors to upgrade homes and resell them at a profit. Since January, it’s illegal to combine apartments, add floor heating or install fireplaces.
Rents in Berlin climbed 32 percent in the past five years while prices for existing apartments jumped 41 percent, according to data compiled by online broker ImmobilienScout 24.
“We want to stop the greed,” said Jens-Holger Kirchner, head of urban development in the district and a member of the Greens, who sponsored the legislation. “It’s OK to earn a decent profit from housing. But it’s not OK to invest to the hilt and squeeze out a whole group of residents.”
For all the uproar, German real estate is cheaper than in other large European countries. It costs an unmarried tenant about 25 percent of annual income to rent a studio apartment in Munich, Germany’s most expensive city, compared with 40 percent in London and 35 percent in Paris, data compiled by the IW Cologne economic institute shows.
The average monthly rent in Munich is about 14 euros per square meter, compared with 44 euros per square meter in London, according to data compiled by Chicago-based broker Jones Lang LaSalle Inc. It’s also cheaper to own property in Germany, with an average price of 4,590 euros per square meter in Munich compared with 9,270 euros in London, broker Knight Frank LLP estimates.
That’s little consolation to Ruedor as he picks up taxi fares in central Berlin, where he can no longer afford to live.
“Newcomers to Berlin are welcome,” he said, making a right turn into Unter den Linden, Berlin’s famous tree-lined avenue. “But it shouldn’t get to the point where people are driven out of their neighborhood.”
To contact the reporter on this story: Dalia Fahmy in Berlin at email@example.com