In this third article on the German housing market, we’re moving on to the third currently hot “M” in the German residential real estate industry – Milieuschutz. Unlike the Mietpreisbremse (a product of Germany’s current coalition government), protecting the character, identity and social mix of a neighbourhood via Milieuschutz goes back more than 40 years to the early 1970s.
Restricting the market
Milieuschutz is a law designed to stop individual streets and districts from becoming “too gentrified” and to preserve their “original” character and social mix. Local authorities are responsible for identifying the specific parts of their cities that are at risk of becoming too upmarket or expensive for “regular” tenants. These areas are then designated as Milieuschutz zones, and restrictions on what property owners are allowed to do to increase the value of there buildings are imposed. As mentioned in part one of this series, 86% of Berlin’s population live in rented housing. The figures for Munich, Frankfurt and Hamburg are not much lower. This naturally means that a large proportion of the people living in each of these cities is worried about being priced out of their neighbourhoods, particularly as a majority identify strongly with the district they live in and are not always so willing to accept change without a fight.
Germans are used to a social mix
One aspect of life in a major German city that is very different from cities in many other countries is the mix of tenants you’ll encounter in a single street, or even a single apartment building. Older housing stock, the pre-1918 Altbaus and inter-war developments, were often designed according to a philosophy of mixing social classes. Central, shared courtyards are often a major feature of apartment complexes, often running to two, three or more courtyards linking housing blocks together. Wealthier tenants might have occupied larger, lighter apartments on the street-front, whereas less well-to-do tenants would have paid lower rents for smaller apartments to the rear of the block, but everyone would have shared a main entrance door, along with the courtyard and other facilities, so would have come into contact with one another on a regular basis. The concept of housing different tenants from a variety of income groups together in one building, or one district, is something many German tenants still feel strongly about. Which is one of the reasons why Milieuschutz has become such a hot topic.
How does Milieuschutz work?
There are currently 22 Milieuschutz zones in Berlin. If you picture the city as a clock-face, the zones basically cover two-thirds of the clock, from 12 all the way round to 8. This includes large parts of Pankow, Prenzlauer Berg, Friedrichshain, Kreuzberg, and Schöneberg. In these areas, if you are property owner, you may be unable upgrade your apartments by, for example, adding balconies, under-floor heating, a lift, guest bathrooms or knocking two smaller apartments together to create a single, larger apartment. The restrictions are different from district to district, so owners need to check the criteria for the specific zone their building is in. If they own properties in numerous districts, they will probably have to deal with different criteria in different parts of the city. Milieuschutz doesn’t ban all upgrades and modernisations; it requires that owners submit an application and gain official approval for the work they intend to carry out. If the authorities determine that the improvements to a building will have a negative impact, i.e. price poorer tenants out of the local market, they can refuse to grant permission. Some authorities have already stated that any upgrades beyond essential measures to ensure that a building is of an acceptable modern standard will be blocked.
The three Ms combined
So, landlords and property owners have to deal with three Ms—Mietspiegel, Mietpreisbremse and Milieuschutz. Each is the result of laudable motives (guaranteeing transparency, tampering free market excesses and protecting the architectural and social mix of individual neighbourhoods). Each is also the subject of much criticism (normally including phrases such as unsound methodology, impractical, ill-conceived and illogical). Some of the measures will probably achieve their stated aims, others will have unforeseen consequences. Some may even achieve the exact opposite of what their proponents hope for. Whatever the results, these are certainly not going to be the last pieces of legislation to have an impact on Germany’s housing markets.
We’d love to hear your opinions on the three Ms! We’ll be writing about German real estate topics again in the near future, so make sure you follow our blog.