How One Major World Capital’s Bid to Boost Affordable Housing Backfired

livemint.com:

BERLIN—The German capital has long been a lab for daring experiments in tackling the crisis of affordable housing that is plaguing city dwellers from San Francisco to Hong Kong. Anti-gentrification rules are so strict that in some neighborhoods, luxury renovations such as walk-in showers, balconies or cement tiles are turned down. Airbnb is tightly restricted while rental caps have forced thousands of landlords to slash rents.

But the measures have largely failed to stop rents—currently rising at a record pace—from nearly doubling in the past 10 years. Instead, the rules have made it harder for newcomers to find affordable housing in Berlin. Now, authorities acknowledge that their efforts to shield tenants from market forces may be doing more harm than good.

And they’re trying a new approach: Build more. Berlin is one of the fastest-growing capitals in Europe, yet since 2008, it hasn’t built enough to keep up. Since 2014, the number of available rentals has dropped by half, the vacancy rate is under 1% and economists think the city needs some 200,000 additional apartments.

As a result, rents rose 16% in June from the previous year, according to real-estate service company Jones Lang LaSalle. Higher interest rates and rising building costs have contributed to the crunch. But developers, economists and now politicians blame Berlin’s myriad rules aimed at keeping rents low.

“There is this saying that the best way to destroy a city, short of bombing it, is through overregulation," said Olivier Bourdais, co-founder of Bertrange Capital Group, an investment and asset manager. “That’s what we’re seeing in Berlin…People aren’t moving, the market has seized up. It’s become petrified." German tenants enjoy unrivaled protections.