Rising rents

Imagine an elderly woman living in a spacious apartment in downtown Munich. She's been there for decades, so her rent is much lower than that of her younger neighbors. But now, imagine that she wants to move to a smaller, more practical apartment with fewer rooms. Here's the problem: Over the past few years rents have gone up so much that a smaller apartment down the street isn't any cheaper than her current residence. She might even have to pay more.

Many apartment hunters are encountering high rents these days in popular cities such as Hamburg, Munich or Freiburg, according to Ulrich Ropertz, spokesperson of the German Tenant Association, a German advocacy group. More and more people want to move to the city, "and those who already live in the city do not move out of it anymore," said Ropertz.

Another problem: not enough new apartments are being built. "We're currently experiencing a huge demand in big cities," said Michael Voigtländer of the Cologne Institute for Economic Research. For instance in the capital of Berlin, only 6,000 apartments were built in 2011, although the population increased by about 41,000 people.

Expensive and limited

According to 2009 figures from the German Tenant Association, Munich residents pay the highest rent in Germany, at 9.99 euros per square meter ($1.24 per square foot). In other popular German cities such as Wiesbaden, Stuttgart and Cologne, renters pay about 7.30 euros per square meter ($0.91 per square foot) for an average 65-square-meter (700-square-foot) apartment.

By way of comparison, in less popular cities like Brandenburg (near Berlin), the tenants' association says rents are about 3.50 euros per square meter ($0.34 per square foot).

"Our regulations actually allow the landlord to demand whatever price they choose," Ropertz said. "After closure of a rental contract, there's no legal limit." This means that renters can pay "20, 30 and even 40 percent more than the comparative regular rent in the area" for a fresh rental, according to Ropertz.

'Social apartments'

The tenants' association thinks government at all levels - local, regional and federal - should take action against exploding rental prices. And it claims that to date, the government has shirked its duty in this.

"Politics has gone off the assumption that Germany is shrinking," Ropertz said. Which is in fact correct, as Germany's population has gradually been decreasing. But more decisive than the total population are demographic changes that have caused the number of households in cities to increase: Ever more people want their own apartment in the city.

The association promotes more investment in so-called social housing in order to combat the shortage. Social housing consists of government-supported living units with an upper limit on rent, which allow people with lower incomes to live in popular areas.

This has a long tradition in Germany - since Weimar Republic times in the 1920s, this offered people with low incomes the ability to live in nice areas.

Michael Voigtländer of the Institute for Economic Research is skeptical that social housing can solve the problem. He says it offers more disadvantages than advantages: "Housing can only be created for a small group of needy people. But sometimes it's the case that the limits are too high. In Cologne, for example, about 50 percent of renters would qualify for the program - so the target group is not provided for." In other words, not only the needy benefit from the program - also those who can afford expensive apartments qualify.

Another negative effect can be described as "ghetto-ization," where a disproportionate amount of social housing is available in a particular neighborhood. These areas quickly get a bad reputation as a higher-than-average amount of unemployed and low-earning people move in. Higher earners then move to other areas, triggering a vicious cycle driving the desirability of that neighborhood down even further.

Other potential solutions

The tenants' association believes that in addition to offering social housing, a rental limit should be established in order to keep rents in desirable cities like Düsseldorf and Hamburg affordable. Such limits, recently introduced in areas of Bavaria like Munich, would prevent arbitrary rent increases.

As long as rental prices keep increasing, metropolitan renters have to figure out the situation for themselves. Voigtländer offers this piece of advice for hopeful renters: "It's not a bad idea to consider moving to somewhere a bit outside of the city. There are many select locations with good transportation connections."