Berlin mulls ban on property purchases by foreigners as prices in city soar

BERLIN -- Germany's capital city is considering restricting foreigners from purchasing property in a move to keep housing affordable, Michael Mueller, the city's acting mayor, announced in Frankfurter Allgemeine Zeitung newspaper on Monday.

Mueller argued that tighter legal restrictions on foreign real estate investment would help ensure an adequate supply of affordable housing for Berlin's 3.7 million inhabitants. "The state finance minister is currently elaborating proposals for preventing speculation with living space," he said.

Towards this end, the mayor urged the federal government to make property which it owns in Berlin available for new social housing projects. "I want to buy all of the property owned by the federal government in Berlin to build affordable housing," Mueller told Frankfurter Allgemeine Zeitung.

Berlin is often seen as an emblematic case of growing pressure on housing in German cities which have witnessed a sharp rise in real estate and rental prices. The Federal Association of the German Construction Industry (HDB) recently estimated that between 330,000 and 340,000 newly built apartments will be completed in Germany 2018, slightly short of a government target of 350,000 needed to meet current levels of demand.

More worryingly, HDB drew attention to an overhang of 400,000 outstanding building permits which have yet to result in any actual construction. The association warned that the circumstance at least in part owed to the increasingly speculative behavior of investors in large cities who were delaying construction in anticipation of higher property prices.

Such speculation is particularly rampant in the German capital. Average rents have more than doubled since 2008, the fastest rate of increase recorded in the country. It is not unusual for several hundreds of interested parties to compete for available apartments, while foreign-owned properties are kept empty in the hopes that their value will rise as Berlin continues to grow.

Berlin, which was heavily bombed in World War II, still receives billions of euros in fiscal transfers from Germany's federal government each year. The city is sometimes described as being "poor but sexy." It is increasingly catching up economically with other European capitals, but the development is not unanimously welcomed by its residents.

The latest real estate market report by the city of Berlin showed a significant 25-percent rise in the transformation of rental property into privately owned property in 2017. For newly constructed property, the figure was even higher at 45 percent. Many of these units are then transformed into short-term tourist rental accommodations on platforms such as "Airbnb". Aside from reducing the availability of housing stock for local inhabitants, the U.S. company is regularly accused of failing to hold its users accountable for tax fraud.

In May, the Federal Central Tax Office (BZSt) confirmed that it had launched an investigation into thousands of apartments listed on Airbnb on suspicion of illegal tax evasion. If the ongoing probe results in back payments to fiscal authorities, Berlin would be the principal beneficiary. The city boasts at least 11,701 listings on Airbnb, more than Hamburg, Munich, Cologne, and Frankfurt combined.

In the meanwhile, city authorities are already resorting to creative ways to try to keep the cost of living in Berlin under control. Five "environment protection areas" have been created since 2016 which are intended to preserve existing housing structures and prevent the displacement of locals. Eight more are being scheduled to take shape in the course of 2018.

Much like Berlin, major cities in New Zealand have experienced soaring real estate costs as foreign investors pile into the market as well. Under a new law that was passed in New Zealand recently, foreign investors will only be allowed to acquire apartments in large-scale new housing development projects as part of a bid to boost the overall housing supply available to residents. "We are considering doing this as well," the mayor of Berlin said.