Housing construction keeps gathering momentum in Berlin. The BBU Association of Housing Entrepreneurs in Berlin and Brandenburg announced at its annual conference that Berlin's state-owned housing associations and housing cooperatives are planning to build 50,000 new rental flats. The projects are scheduled for completion by 2025. This would explain the rising investments in new developments by BBU member companies: In 2014, they rose by 80 percent year on year. The ongoing year is expected to see an increase by another 160 percent, give or take, in funds earmarked for the purpose. It would bring the investment total up to 561 million euros.

Ominous Trend in Construction Costs

The surge in investments has been caused not least by rising construction costs. These are in turn driven by the rising demand for plots and building works, on the one hand. But more than anything else, regulatory constraints create additional cost burdens in housing construction, on the other hand. As a result, rents for new units are on the rise as well. According to BBU figures, first-time rents for just completed units have perked up by about 2.50 euros per square metre and month over the past five years. This means that the absolute monthly net rent is nearly 200 euros higher today than it way as recently as 2009. The BBU considers this an ominous development.

It identified the surging prices for development land as the main driver of rent rates. In concrete terms, the price of land zoned for multi-family residential buildings climbed by 150 percent to an average of 864 euros per square metre between 2009 and 2014, according to figures released by Berlin's land valuation committee (“Gutachterausschuss für Grundstückswerte Berlin”). Other drivers of the build cost inflation include the tightened requirements of the German Energy Saving Ordinance (EnEV) and new structural, fire protection and soundproofing standards. Finally, the real estate transfer tax impacts construction costs and with it the rent level of new residential units. Between 1998 and 2014, the tax rate has been raised from 3.5 to currently 6.0 percent.

High Time to Curb Runaway Costs

To keep housing developments from placing undue burdens on tenants, the BBU has called on the Senate of Berlin to refrain from attaching any further qualifications to planning permits. One of the interest group's suggestions is to shelve the next stage of the German Energy Saving Ordinance, which would raise construction standards in 2016 and probably prompt cost hikes of seven percent. Another proposal is to develop cost-cutting incentives for new housing developments. Conceivable measures would include a reduction of the turnover tax rate for building works and of the real estate transfer tax. Moreover, an income-based subsidy scheme could also include a property tax cut. After all, the property tax raised through the operating costs averages up to 0.50 euros per square metre for new apartments built by BBU member companies in Berlin. Since 2007, the assessment rate for the property tax has equalled 810 percent in Berlin, making it the highest anywhere in Germany.