miércoles, 18 de junio de 2008

Rents in Berlin

One of the good reasons to live in Berlin is that it’s a city of low rents, comparing it with other German or European cities. By about € 400 ($ 622, £ 315) a month it is very probable to rent small apartments in centric zones.

What can explain these low prices? If we analyze the history of the city we find that the rents of East Berlin apartments, at the time of the German Democratic Republic (GDR), were highly subsidized. For instance, in the 1980s small apartments could be rented in this side of town by about € 20 ($ 31, £ 16) a month. These low prices continued after the German reunification, until the mid 1990s. From then the prices have been increasing more rapidly than inflation.

Until which level can rents keep increasing? The restriction of this increase of prices comes by the side of the demand. Berlin is a city with one of the greater levels of unemployment of Germany. This year it’s around 16%. It is a very high level if one considers the levels of full employment (around 4%) in southern cities like Stuttgart and Munich. The effect that has high unemployment on the apartment renting market is the one of an insufficiency of the demand that depresses the equilibrium rents. Thus the acceleration of the increase of rents must be very correlated with economic growth as long as the supply stays constant.