Berlin's rental costs have significantly soared, approximately doubling in value: unveiling the cause
In the heart of Europe, Berlin, the most populous city in Germany, is grappling with a housing crisis that has left many of its four million inhabitants struggling to find affordable accommodations. The situation has been well-documented in recent articles such as "Quality of Life at its Limit: How Berliners Suffer from the Rental Spiral!" published on 10th July 2025, and more recently, "Penthouse Instead of Plattenbau: Is Berlin Becoming a City of the Rich?" on 28th July 2025.
The root cause of this crisis can be traced back to a perfect storm of factors. Strong demand combined with persistent supply shortages have been driving up rental costs in Berlin, particularly in the rental market. These shortages are a result of structural constraints in new housing construction and a challenging financing environment influenced by higher interest rates.
The new construction sector in Berlin remains stagnant due to high costs. Despite more building permits recently, actual new housing completions and contracts remain low compared to previous years, causing a shortage of available rental units. For instance, only around 750 contracts for new-build apartments were notarized in H1 2025, a significant drop from thousands in prior years.
The rental market in Berlin Mitte—a prime area—shows rising rents, with average asking rents increasing about 2.6% to 3% year-over-year. New-build rents are notably higher, adding upward pressure on the overall rental market.
Despite moderate growth in real estate prices (especially for existing properties), rental prices have seen more significant upward pressure due to supply constraints. While apartment prices have grown by about 2.7% from Q2 2024 to Q2 2025, rents have risen by 42% since 2022.
The increased ECB interest rates have raised borrowing costs, limiting liquidity and increasing financing costs for developers, which discourages new housing projects and contributes to reduced supply growth. This is a key reason for the limited new construction despite building permits.
The ongoing war in Ukraine has indirectly contributed to the crisis by exacerbating energy costs and economic uncertainties, increasing operational costs for landlords and developers, and pushing rents higher. Economic uncertainty also influences investment behaviours, sustaining conservative supply increases.
Berlin continues to attract residents, maintaining strong rental demand, while landlords and investors adjust to the evolved market conditions post-pandemic and geopolitical tensions. By 2025, Berlin is expected to climb up the list of most expensive cities, potentially reaching 10th place.
The actual offer rent in Berlin is now more than double the official comparison rent of 7.21 euros per square meter, highlighting the stark reality faced by many Berliners who are desperately looking for an apartment and confronted with exorbitant prices. Christian Gaebler, Berlin's Senator for Urban Development, Building, and Housing, described the housing market in Berlin as "divided".
In conclusion, the rapid rental cost increases in Berlin from 2022 to 2025 result from the intersection of persistent structural supply bottlenecks in new housing exacerbated by high financing costs due to ECB rate hikes, strong demand fueled by population growth, and external economic pressures linked to the Ukraine war, which have all combined to push rents higher despite only moderate rises in property sale prices.
Investors are increasingly drawn to real-estate opportunities in Berlin, recognizing its potential for substantial returns, given the robust demand and shrinking supply of rental units. However, the high costs associated with new construction, fueled by challenging financing environments and higher interest rates, present significant barriers for developers, which may inhibit future growth in the housing market.
The ongoing housing crisis in Berlin, marked by soaring rental prices and a limited supply of affordable accommodations, has placed considerable pressure on the city's economy and finance sector, as many residents struggle to secure decent housing while the demand for real-estate investments remains strong.
