Berlin: Land Of Cheap Rents

A blog about business and economics.
Dec. 28 2011 9:30 AM

Learning From Berlin: Land Of Cheap Rents

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BERLIN, GERMANY - DECEMBER 27: Visitors arrive for the first day of the 28th Chaos Communication Congress (28C3) - Behind Enemy Lines computer hacker conference next to a model of a rocketship outside the Berlin Congress Center on December 27, 2011 in Berlin, Germany.

Photo by Adam Berry/Getty Images

I was recently reading a brief passage about the Berlin food scene in a not-yet-published book that surprisingly enough hit all the same themes as Om Malik's essay on why Berlin is poised to become Europe's new high-tech hub. For that matter, both of those essays recapitulate things I've read elsewhere about why Berlin has Europe's hottest art scene. It's all about the rent. Berlin was built in the first half of the twentieth century to serve as the financial and business hub of the German Empire. Then during the Cold War, it was doubly-built as the industrial center of East Germany and as a subsidized showpiece of the superiority of capitalism in West Germany. Then comes reunification and it turns out that all the business in Germany is conducted in Frankfurt or Munich or Hamburg or the Rhine-Ruhr area and now you're left with this massively overbuilt city. The result -- extremely low rents compared to the western world's other major capital cities and a vibrant/innovative food/tech/scene that's the envy of the world.

This is all true, as far as it goes, but it's worth thinking a little bit harder about.

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For one thing, if legacy structures and low rents per se were the key to success then Detroit would be the best city in America. Instead, Detroit is a "you get what you pay for" kind of city that's cheap primarily because nobody wants to live there. The difference is that Berlin, though not a major center of German business, has basically strong fundamentals. It's a bit on the grimey side, but it doesn't have the sky-high murder rate, dysfunctional school system, and generally abysmal public services of a declining North American city. And by the same token, Berlin is by no means immune to the forces of "gentrification" that have tended to strike American urban centers that do manage to improve their crime/schools/transportation fundamentals. It's just that Berlin isn't yet far enough along in the process to have become totally expensive/lame. But while Berlin's unique historical experience is not something that can be replicated, it is something we can learn lessons from. Great cities tend to generate high rents, but great cities are made by the combination of strong fundamentals and cheap rents. Short of a couple of world wars, the division of your country, and a few decades of Communism the only way to create that combination is going to be to try to ensure that the building stock can grow rapidly when improving fundamentals push up demand for living in your city.

CORRECTIO 12/28: The initial version of this article refered to a "Cologne-Stuttgart area" rather than Rhine-Ruhr.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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