Rising Pressure: Berlin's Decline in Affordable Housing Dominance
In the bustling city of Berlin, the cost of building new apartments has significantly increased since 2019, presenting a major challenge for affordable housing. The rise in construction costs and higher financing expenses have driven up prices, with key contributing factors including interest rate hikes, demand shifts, supply constraints, and regulatory challenges.
According to recent data, new-build apartments in Berlin have faced high construction costs and interest-rate-driven declines in demand, causing price stagnation after a significant increase between 2021 and 2022. This implies that the most notable rise in building costs occurred during that period, with costs remaining elevated since.
The sector is burdened by interest rate hikes starting early 2022, which increased financing costs for developers and owners, leading to reduced demand and a cautious market environment. The average purchase price for residential and commercial properties in Berlin reached around €2,260 per square meter in mid-2025, increasing by about €150 per square meter compared to the previous year.
Key factors contributing to the cost increases include higher construction material and labor costs, interest rate increases, demand shifts, supply constraints, and regulatory challenges. The average size of apartments has decreased over the past 15 years, yet prices have more than doubled during that time, indicating stronger per square meter pricing driven by demand and cost dynamics.
For-profit developers have mostly focused on the higher end of the market due to the premium price of luxury flats offering an easier way to offset the cost of land and reliably make money. However, Berlin urgently needs more housing, with the city adopting a new development plan that calls for at least 222,000 new flats by 2040.
The city's government mandates that builders like Howoge plough any leftover rental income into new construction and buying existing buildings back from private owners. Yet, in 2023, only around 16,000 new flats were completed, and the city is expected to miss the mark again this year and in 2025.
The high costs of new apartments have led some residents, such as German actor Devid Striesow and his wife, to move to cities like Vienna due to the shortage of apartments. Enzesberger, from a building cooperative, notes that the costs for new buildings can add up, often making new buildings carry kalt rents well north of €1,200 a month for a two-room flat.
A family of three would need a monthly income of €5,600 for a four-room flat, while a single person living alone would need around €2,700 for a one-room flat, according to Berliner Mieterverein managing director Ulrike Hamann-Onnertz. Meanwhile, a report found that rents of just €5.50 per square metre would be enough to cover the costs of maintaining and operating existing apartment buildings across the city. The average rent on offer is significantly more: €18.16 per square metre.
Locals in Berlin are often wary about overcrowding in their neighborhoods and further strains on local amenities like Kita slots and parking spots due to increased urban density. Politicians and builders agree that Berlin urgently needs more housing, but the cost of construction materials, labor, interest rates, and land prices have made it difficult to construct new flats at affordable prices.
Critics call for costs to be socialised more broadly through public funding, instead of hiking rents at city-owned buildings to raise revenue. Public housing tenants in effect carry much of the burden of financing new construction, a financial model that some critics decry as unfair.
In conclusion, the rising costs of building new apartments in Berlin pose significant challenges for affordable housing. Efforts to address this issue include calls for broader socialisation of costs, increased public funding, and a focus on building more housing to meet the city's growing demand.
In the midst of increasing construction costs and higher financing expenses due to interest rate hikes, some investors are turning to real-estate investments as a potential solution for generating returns. For example, purchasing existing, affordable housing units could provide a steady income stream while addressing the city's housing shortage.
As the cost of new apartments continues to rise, exploring alternative financing options may be necessary for developers to maintain affordability. This could include negotiating financing terms with banks, seeking out grants or subsidies from the city government, or even appealing to venture capitalists or private investors who are interested in supporting sustainable housing solutions.
