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28 02 2019

Historic District Protection Areas Jeopardise Investments in Residential Accommodation

Berlin is well known to have a penchant for zoning more and more sub-districts as historic district protection areas. In a historic district protection area, all capital improvements require approval while conversions of rental units into condominiums are virtually impossible. On top of that, the city may exercise a general right of first refusal with respect to any real estate transaction. For municipalities, the main purpose of declaring historic district protection areas is to prevent rent hikes – yet a recent survey by the IW German Economic Institute shows that historic district protection areas can cause enormous harm in the medium and long term.1

The survey, which was commissioned by the Society for the Promotion of Homeownership in Berlin (VWB), states, for instance, that historic district protection is an obstacle to loft conversions. Since the areas where historic district protection applies tend to have very little building land, infill densification measures such as the development of attics are one of the main ways to crease new residential accommodation. After all, it is short supply that causes strain and price hikes of the housing markets in historic district protection areas, which means that the protection itself seems to do little to alleviate the situation.
 

Regulations Prevent Modernisation

But it gets worse, as the IW survey shows, because by preventing investments, the zoning of historic district protection areas is at odds with the German climate protection targets. The real estate sector plays an important role in the efforts to achieve these targets, while the German housing stock is behind the times anyway in terms of energy refurbishments, as the survey authors emphasise. This should actually make it all the more important to promote investments into existing housing for the purpose of capital improvements and energy refurbishments, rather than hampering them. But in Berlin, for one, the opposite is happening, and the share of modernised flats in the city has undercut the national average since 2003 as a result.

Another thing almost impossible to achieve in historic district protection areas is handicap accessibility, according to the surveyors. Given the rising age average of tenants, however, there is every reason to step up investments in handicap accessibility, as the IW Economic Institute in Cologne argues.
 

Condominium Conversion Ban Creates Hurdle for First-Time Home Buyers

Another issue that the survey authors identified in the context of historic district protection areas is the subject of homeownership. They pointed out that Germany’s homeownership rate has stagnated at 45 percent since 2010—which is the lowest rate inside the European Union. In Berlin, that rate stood at 18.4 percent and thus well below the average of West German cities despite a steep increase lately. This is unfortunate in the sense that homeownership is invaluable in old age and because the persistent low-interest cycle makes condominium acquisitions extremely affordable. Home-buying should actually be encouraged, therefore. But the strict condominium conversion ban enforced in historic district protection areas diminishes any chance of becoming a homeowner.

Berlin is, by the way, not the only German city that practices historic district protection, as the Handelsblatt stressed in a recent article.2 According to the trade paper, the right of first refusal is regularly exercised by other metropolises as well—Munich, for one, has done so in 52 cases since 2001. In Berlin, there have been 39 cases since 2015. Cities halls in Hamburg and Frankfurt am Main are also taking advantage of their rights of first refusal.
 

1 www.iwkoeln.de/studien/gutachten/beitrag/ralph-henger-pekka-sagner-michael-voigtlaender-milieuschutz-in-berlin.html
2 www.handelsblatt.com/finanzen/immobilien/immobilien-deutsche-staedte-nutzen-ihr-vorkaufsrecht-um-bezahlbaren-wohnraum-zu-erhalten/24012190.html