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Rent Control: Senate of Berlin Passes 25-Percent Ratio

Affordable housing is one of the most controversial subjects under discussion in Berlin at the moment. In order to expedite the development of low-priced housing, the Senate of Berlin passed the revised guideline for the “Berlin Model of Cooperative Land Development.” The model stipulates that contractors planning to realise new construction projects will have to earmark 25 percent of the planned residential units for rent control and tenant selection requirements. Residents of such estates are supposed to pay no more than 6.50 euros per square metre and month (before service charges and heating). The idea behind the new arrangement is to help low-income residents. Previously, the model envisioned a flexible share of ten to 33 percent of rent controlled flats – depending on the local housing situation. According to Berlin’s Senator for Urban Development Andreas Geisel (Social Democrats), the uniform approach of the cooperative land development model will imply “higher costing accuracy” for investors.

However, representatives of the real estate industry take an extremely bleak view of the cooperative land development model. As it will place additional financial burdens on construction projects and thus on their investors, industry insiders expect the measure to put the damper on housing construction for a wide segment of society rather than promoting it as intended.

Investors Expected to Chip in with Social Infrastructure Costs

The 25-percent quota for affordable housing is not the only change in the model's guidelines. The Senate also specified more concretely what sort of infrastructure costs investors should share that are associable with the development projects. The performance obligation may apply to any development measure that is either a precondition or direct consequence of the construction project. It involves primarily the development of the technical and social infrastructure such as access and utility provision for the plot, the landscaping of green areas and the creation of extra capacity in day-care centres and elementary schools if needed. To ensure that the performance obligation remains within reason, the Senate will keep the costs for the investor below the increase in land value that the planning effort is likely to bring.

Construction Unlikely to be Boosted

Since the cooperative land development model obligates builders to contribute more than previously to the infrastructure costs generated by their development, the investment costs associated with housing construction will rise even further. This will in turn cause rents and prices for the units not included in the 25-percent contingent to go up. Accordingly, there is reason to believe that Berlin's cooperative land development model will neither stimulate housing construction in general nor increase the number of affordable flats in particular.