New flats can do far more than simply provide a home for their future residents: they can ease pressure across the rental market and help curb rising rents. This is shown by a study from the Kiel Institute for the World Economy, which was reported on last week by DIE ZEIT, Frankfurter Allgemeine Zeitung and BILD. Using Berlin as a case study, the researchers compared the effects of using public funds to acquire existing housing stock with those of investing in additional housing construction. Their calculations show just how much a larger supply of flats could ease pressure on the rental market.
The focus is on a simple question: what could be achieved if billions were channelled into new housing? For a construction programme with a budget of around 40 billion euros, the authors estimate that some 71,000 flats would be completed by 2045. Around 28,000 of these would be built in addition to the new homes already expected to be built. Depending on the calculation method used, this could result in market rents in 2045 being around 2.2 to 8.7 per cent lower than they would be without this additional construction programme.
This does not mean that rents would automatically fall compared with today. They could continue to rise, albeit at a slower rate than would be expected without the additional flats. This would also make a noticeable difference to people looking for a home. The calculations relate to the asking rents for new tenancies, not to rents under existing tenancy agreements.
Why new-build housing also helps people who are not moving into a new flat themselves can be explained using an everyday example: a family moves into a larger new-build flat and vacates their previous flat. Another household can then move into the vacated flat, freeing up its own previous home in turn. Such chains of moves ensure that the additional supply is passed on through the market. The benefits of a construction project therefore extend beyond the new homes themselves.
This effect could be particularly pronounced if new flats were specifically built in the lower-rent segment. According to the calculations, this would alleviate rental pressure there more significantly, whilst other parts of the market could also benefit. However, it remains crucial that additional housing is actually built. Simply switching the funding source for projects that are already planned does not result in a corresponding increase in the overall supply.
The study was commissioned by the economic initiative ‘Berlin denkt weiter’, which brings together several trade associations. Its figures describe possible developments, not definitive predictions. How many flats can ultimately be built depends, amongst other things, on land availability, construction costs, planning permission and capacity in the construction sector. The key finding remains: an increase in supply can ease pressure on the rental market in the long term.
“Every additional flat can have a greater impact than meets the eye. When people move house, flats become available elsewhere too. That is why we need housing construction to move forward – with a stable policy framework, faster planning approvals and financially viable projects. The study highlights the potential this holds. The key now is to actually turn this potential into new housing,” says Jacopo Mingazzini, CEO of The Grounds.
