Manhattan Institute

Broke in Berlin

The city risks repeating history with its housing proposals.

Berlin is experiencing a housing crisis. The population is expanding much faster than the housing stock, with the unsurprising result that property prices and rent are rising fast. A city that used to be cheap, when compared with other metropolises, is now prohibitively expensive.

Housing shortages undoubtedly weigh heavily on living standards. In many European cities—London and Paris being two notable cases—housing or rental prices swallow a large part of an individual’s income, making an average salary, let alone a low one, nearly impossible to live on. This cannot be a good thing.

What is the solution to Berlin’s housing problems, according to its predominant political parties? Rent control and expropriation—precisely the solutions once offered by the German Democratic Republic, known familiarly as East Germany. It is depressing to consider that the city’s well-educated population, which has a living memory of these catastrophic policies, now largely favors such remedies. Most of its citizens, not just a small minority of militants, will likely support a proposed citywide referendum on nationalizing apartments.

The principles of supply and demand are not difficult to grasp, and yet they seem to be almost absent from the thinking of university graduates and people with doctorates. It is worth asking the question as to why this should be.

When people experience difficulties, their first inclination is to assign blame. This is a primitive response, no doubt, but one that does not disappear in conditions of prosperity and abundance—perhaps it even strengthens, inasmuch as difficulties seem anomalous in such conditions. To live in a country with a vast commercial surplus, and yet have difficulties in finding somewhere to live, seems incongruous and requires an explanation. The seeming injustice of private property proves the simplest and most gratifying explanation. Expropriate the expropriators, and all will be well.

With this explanation and solution comes the psychological reward of righteous hatred directed at those who have supposedly caused the problem. It is easier to seize a house than to build one. The infliction of displeasure on the rich—one joint stock company in Berlin owns 30,000 apartments—is its own reward, irrespective of the effects.

East Germany was a potent example of what happens when expropriation and rent control are made the basis of housing policy; and yet, only 30 years later, it is quite likely to be repeated. A return to housing allocation by political criteria, such as loyalty or connections to a party hack, will become the order of the day. Can people in New York be certain that their city has learned from experience better than Berlin? Or can they say, like the late President John Kennedy, “Ich bin ein Berliner?”

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