Photo Gallery: Rising Property Prices in Germany

Foto: Arno Burgi

A Ghetto for the Jet Set Munich Faces Dark Side of a Housing Boom

Munich has the highest rents and real estate prices of any major German city. Luxury renovations are changing the face of entire neighborhoods, while lower-income residents are being driven out of the city. But not all are willing to let the rich take over the city without a fight.

Looking for an apartment in Munich can be a thrilling experience. Take, for example, the penthouse apartment of a newly renovated townhouse on Karlsplatz, in central Munich. The broker promises it will feature an "air-conditioning system tested for allergy sufferers" integrated into the building's façade, a roof deck with a Zen garden, a view of the Alps, a waterfall and a glass-bottomed hot tub. The building has a few other unique features, the broker adds, such as a sauna, steam bath and "an oversized aquarium suitable for saltwater fish." In short, it's a downtown "feel-good oasis" with 522 square meters (5,620 square feet) of living space.

But looking for an apartment in Munich can also be a sobering experience. The Karlsplatz penthouse goes for a monthly rent of €19,000 ($25,700), plus €1,300 in expenses, and the security deposit alone is €57,000.

Munich's property market is characterized by superlatives. The real estate website Immowelt recently named the Bavarian capital Germany's most expensive city once again. Average rents in Munich are €12.50 per square meter, or more than twice as high as they are in the rest of Germany. And those who would prefer to own can only afford it if they have high-paying jobs or a generous inheritance -- the average price per square meter is €3,680, or 124 percent higher than the statistical average in Germany.

Although Munich used to call itself the "cosmopolitan city with a big heart," it's turning into a jet set ghetto. According to the German Real Estate Association (IVD), "all types of properties are reaching historically high values" in Munich. Total sales of houses and condominiums last year amounted to €7.6 billion. With large numbers of investors anxiously searching for ways to shield their assets from looming inflation, the market is "practically swept clean," the IVD says. Indeed, new condos in downtown Munich are selling for €20,000 -- per square meter.

An Issue across Germany

Although Munich reaches extremes seen nowhere else in Germany, this trend can also be witnessed in many of the country's other large cities. Indeed, real estate sales are booming all over the country. The IVD estimates that houses and condos worth €80.75 billion were sold in the first six months of 2011, a 20 percent increase over the same period the previous year. According to financial experts, investors are literally seeking refuge in material assets. Owing to uncertainty in the financial markets and very low interest rates on mortgages, Germans are opting to invest their money in "concrete gold." Surveys conducted by the market research organization Forsa indicate that a quarter of all private investors plan to invest in real estate.

In Berlin, residential real estate sales went up by 48 percent, and prices jumped by 10 percent. Rents are also on the rise, climbing 6 percent in the first half of the year. Real estate broker Jones Lang LaSalle is calling it a "rally in Berlin rent prices."

Hamburg saw €3.7 billion in real estate sales in the first half of the year, and markets in the western state of Hesse and the northern state of Schleswig-Holstein are also booming.

In fact, the real estate market is even improving in economically troubled parts of eastern Germany. Investors are inundating the northeastern state of Mecklenburg-Western Pomerania, and eastern German cities like Halle and Dessau, both in the state of Saxony-Anhalt, are also becoming more attractive.

A Clash of Cultures and Classes

Munich is the most dramatic example of the potential effects of an overheated market. The rich and the beautiful are invading the city's former blue-collar neighborhoods -- and running up against organized resistance. Opponents of the unwanted gentrification have created a sticker that resembles a stop sign, but with the word "snob" printed inside the red octagon instead of "stop." In some neighborhoods, new residents are welcomed with particularly cordial slogans, such as: "Welcome to Giesing, you assholes." Unser Viertel, a local newspaper in the Giesing neighborhood, also chooses to address newcomers directly, writing on its website: "Speculators and yuppies out!"

Local initiatives of citizens connected through Facebook and the Internet are fighting to preserve affordable housing in threatened neighborhoods, pitting themselves against "locusts," luxury renovators and jet-setters. Artists like cabaret performer Frank-Markus Barwasser, aka Erwin Pelzig, and comedian Michael Mittermeier are joining forces with low-income residents, while singer-songwriter Konstantin Wecker is warning against an onslaught of "wealthy riffraff."

Indeed, the entire city is engaged in a war of cultures and classes, but one that no longer pits the lowest income group against the highest one. A study jointly commissioned by the Munich branches of the German Tenants' Association (DMB) and the German Federation of Trade Unions (DGB) found that, owing to high demand and horrendous prices, "many households are already experiencing significant problems with market access and services." According to the study, this applies not only to low-income groups, but also to the middle class. More and more people "live to work," it says, "but without making enough to live off."

It's not rare to find people in Munich spending half their income on rent. In fact, many residents are having to pay even more than that, making the city unaffordable even for those who have taken on a second job.

Gentrification also has serious consequences for the services available to big-city residents. The DGB notes a shortage in people working as geriatric nurses, firefighters, police officers and craftsmen. What's more, apprentice positions are not being filled because potential applicants can't find apartments they can afford. These factors are even causing some to worry that the real estate boom could jeopardize the city's economic future.

Forcing the Poor Out

Helga Flattinger hasn't had any illusions about her future in Munich for a long time. The 60-year-old lives in a basement apartment of a weathered concrete building that was used as a press center during the 1972 Summer Olympics.

Flattinger pays €630 a month for two small rooms and a tiny kitchen. When she moved in, she had to tile the floors and do all the painting herself. Security officers patrol the anonymous ghetto at night. The glamor of Maximilianstrasse -- with its luxury shops, hotels and galleries -- seems a world away.

Flattinger recently spent a few hours in that world, which she helps keep running as part of her job supervising a cleaning crew. She and some of her fellow cleaning women were protesting in the pedestrian zone. They are members of IG Bau, a construction workers' trade union, and they were demanding a wage increase of €1.45 per hour so that Flattinger and others like her can still afford to pay rent.

The protesters had laid a square meter of floor tiles on the boulevard. According to their service contracts, cleaning women have exactly 0.8 seconds to clean this amount of floor space. It's a fast-paced job in which the best make about €1,500 a month before taxes, while others need second jobs just to make ends meet. Most of the passersby who took any interest in them didn't bother to stick around for 0.8 seconds. "They probably thought I was trying to sell them a mop," Flattinger says disappointedly.

She'll be able to afford to live in her drab concrete building for a few more years, Flattinger says. But when she retires, she adds, "I'll have to move out to the countryside, where I don't know anybody. I'll be forced out of the city after 50 years of hard work."

Urban Saturation

Already in the late 1980s, then-Mayor Georg Kronawitter said that Munich's unfettered growth reminded him of a boiler. Whenever that boiler lets off excess steam, residents like Helga Flattinger are pushed out of the city. Still, there is no lack of new residents to replace her. Munich's population has grown by 11.8 percent over the last decade, and it's expected to increase by another 6.8 percent by 2025.

Indeed, it's getting crowded in the 310 square kilometers (120 square miles) the city covers. Though Munich has 1.35 million residents, it is smaller than Dresden, which only has 520,000.

What's more, there is hardly any room left over for new developments. Of course, the city could solve its overcrowding problem by building taller apartment buildings. But the Bavarians have been resistant to such changes. In a 2004 referendum, they approved a measure that prevents new developments from being taller than the north tower of the Frauenkirche cathedral, or 98.57 meters (323 feet). The consequence of this mélange is a real-life game of Monopoly in which long-term residents, low-wage earners and members of the middle class are falling by the wayside.

The Transformation of a Neighborhood

On the other side of the equation, there are properties like the former thermal power plant on Müllerstrasse, now known by the English phrase "The Seven." It has become the city's most exclusive address. The 700-square-meter penthouse, Munich's most expensive apartment, was sold to an anonymous businessman, reportedly for more than €14 million.

Josef Sattler and Dietmar Holzapfel bought a 200-square-meter unit on the next floor down, the 13th floor, which towers roughly 50 meters above the city. The two men paid more than €5 million for the apartment. They own the Hotel Deutsche Eiche in the Gärtnerplatz district, a trendy destination for the gay community.

When they bought the hotel in 1993, the rooms had no bathrooms or toilets, and the building was as run-down as the rest of the neighborhood. But, over the years, they have witnessed how their neighborhood has changed -- and how they helped it do so.

"In general," Holzapfel says, "there's a lot of displacement going on." Tenants in the neighborhood were bought out of their leases for up to €95,000 apiece. After the neighborhood had been renovated, its new residents included young people with wealthy parents as well as others with double incomes or high salaries, such as German soccer star Bastian Schweinsteiger.

'Crazy' Prices

Could policymakers have somehow averted this development? "The Seven," the former thermal power plant that now embodies the height of decadence in its new incarnation, was once owned by the city. The public works department sold it for a very high price, one even the city council called "crazy." As a result, it seemed settled from the get-go that the building could only be used to develop sinfully expensive residential real estate.

"Should I artificially bring down prices with subsidies?" asks Mayor Christian Ude defensively. "Of course, I could have spent millions to create an inexpensive apartment with 360-degree panoramic views in the Müllerstrasse power plant."

The project sparked debates in the city council, but the administration insisted that the plant had to be sold. Then, when the city hit upon the idea of putting a daycare center in the tower, it was forced to spend millions to buy its way back into a property it once owned.

Failed Mitigation Efforts

Still, the city has some tools at its disposal for calming the market. It can use historic-preservation rules for old neighborhoods to prevent major conversions or demolitions. It can also secure a right of first refusal for itself. But, for primarily fiscal reasons, this rarely happens.

The city also has exciting initiatives with appealing names, such as "Munich Prospects," "Living in Munich IV," "Munich Model" and "SoBoN" (Socially Appropriate Land Use), but none of this is enough to remedy the problem of a lack of housing space in a noticeable way.

The city also occasionally misses an opportunity, as was recently the case when it had to decide on the future of the women's prison in Munich's Au district. One association wanted to turn the prison into a hotel and educational facility for socially disadvantaged youth. It had collected 14,600 signatures and €1.5 million in donations. The list of supporters ranged from Uli Hoeness, the president of FC Bayern Munich, the city's professional soccer team, to actress Uschi Glas and former Munich Mayor Hans-Jochen Vogel. But the effort was unsuccessful, and the property went to the highest-bidding investor. The administration argued that the Bavarian constitution required it to solicit bids for the property. In reality, the budget committee could have approved an exception -- but it opted not to.

The next group of Munich residents is already worried about their homes. They are among the 85,000 tenants of the GBW property group, a former nonprofit organization whose portfolio boasts more than 10,000 apartments in Munich. Some 92 percent of GBW's shares are held by the state-owned bank BayernLB, which is liquidating its holdings in response to pressure from the European Union. The tenants, as well as members of the Green Party and the center-left Social Democratic Party (SPF), fear the shares will be sold to corporate raiders they label as "locusts," which could in turn bring rising rents and shifts in the city's social structure.

Protesting against Porsches

Urban sociologist Detlev Sträter already believes the city can only go in one direction. At some point, he says, the influx in residents will simply come to a halt because there will be no more housing to be had.

The only question, then, is: Who will be left living in Munich?

While giving a tour of his working-class neighborhood of Untergiesing, Maximilian Heisler offers an indication of how that question could be answered. Heisler, a student, is part of a neighborhood action group. He takes us to the old Petermeier bakery, which was put out of business by a chain of bakeries; to the former shop on Hans Mielich Strasse of the old shoemaker who could no longer afford the rent; and to the 23 architecture firms that have opened up shop there, forming the advance guard of the neighborhood's gentrification.

On Pilgersheimer Strasse, Heisler stumbles upon a symbol of change in the neighborhood: a black Porsche. He mumbles: "We don't have that sort of thing where I live." For a long time, the area didn't have any parking meters. When the city installed 60 of them, activists promptly covered them with garbage bags -- though it's hard to stop the world from changing using only plastic bags.

The protesters had also campaigned to preserve the neighborhood's old carriage houses. Now the little historic houses are gone, and a new four-story building is going up where they once stood. GBW also used to own properties in the neighborhood, and rents were low until they were purchased by Rock Capital. The company sent letters to residents informing them that it had "reviewed the individual leases" and was "unfortunately forced to adjust the rents to match the standard levels for the neighborhood." The company added that, "in the interest of goodwill," it would allow tenants to terminate their leases after the increase.

Heisler organized a protest with his supporters. Some 400 concerned residents showed up, testifying to the growing sense of anger in the neighborhoods. A "Munich gentrification map" can even be viewed online. It identifies gentrification hot spots with flame icons, 17 of which are near the downtown area alone.

Prioritizing the Common Good

Konstantin Wecker, the singer-songwriter, supports the protesters. He is sitting in a café eating breakfast. "I would've never imagined calling for a strong government in my life," he says. But now he sees that there is no longer any alternative. He and fellow artists have just protested for their old neighborhood. The protests were initially aimed at preserving a legendary bar, the Schwabinger 7, but there is really much more at stake, Wecker explains, adding that: "We cannot sacrifice everything for the sake of economizing." He wants the city to establish set conditions, obstruct speculators and use capital-gains taxes to subsidize housing. "We need an economy for the common good," he says.

Sociologist Detlev Sträter shares these ideas. He has even found them in Article 161 of Bavaria's constitution, which deals with the distribution of land and its appreciation in value. The article states: "Increases in the value of property that are not the result of special efforts or capital expenditures on the part of the owner are to be used for the common good."

The Lehel neighborhood is a perfect example of how property values have skyrocketed in Munich since the end of World War II. Wecker grew up there. Today, Lehel is considered the hippest neighborhood, with condominiums selling for millions. "It isn't a lively neighborhood anymore," Wecker complains. His mother lived there until she died. She had a large, 130-square-meter apartment. When she died, the owner took over the apartment and combined it with the one next door.

Wecker despises people like that. In his case, it was a respected member of the administration of then-Governor Edmund Stoiber.

Translated from the German by Christopher Sultan
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