Sixty years ago, the great philosopher Martin Heidegger published his landmark “Bauen, Wohnen, Denken” (“Building, Inhabiting, Thinking”). In this pivotal essay he stressed the central role of housing for speakers of German, a language in which even the words for “being” and “freedom” are intrinsically intertwined with “dwelling” and “building.” For Germanophones, even the terms for the “poor” and “vagrants” are closely related to the lack of a roof under which to take shelter. Housing’s central role is even present in the original German constitutional rights and is, to this day, explicit in the city of Berlin’s constitution, which goes so far as to put the burden on the state to provide “living space.”

More than half a century later, the situation is much different. Today the German people’s desire to make Berlin a world-class city is pushing current residents out of their historical homes, while giving them jobs, services, and new neighbors about whom they harbor mixed feelings. Asked in a 2013 poll on BKULT.DE, a website devoted to the culture of building, whether gentrification was good or bad, respondents answered “yes” 60% of the time and no “40%.” The most common answer from politicians, architects, and journalists who submitted a comment was jein, a German word that means both yes and no simultaneously.

Berlin’s recent hype has had a significant impact on its inhabitants through gentrification and internal migration. Neighborhoods have been changed forever. For a society that struggles with immigration, a changing economy, an energy revolution, and an aging population, Berlin shows a window into a future Germany, or perhaps just a closed alleyway.

Berlin is the largest city in Germany in terms of population. The number of residents has been growing steadily since 2005, reaching 3.5 million as of January 1, 2012, according to Eurostat. While Germany’s population is nearly static, Berlin’s increases a little more than 1% a year.

A significant segment of Berlin’s population growth can be attributed to immigration. Approximately 470,000 non-Germans from close to 190 countries currently live in the city, according to the Representative of the Berlin Senate for Integration and Migration. Some 65,000 new inhabitants moved into the city on the Spree river between 2006 and 2011. Two-thirds of the migrants are young, between ages 18 and 33. In a continent undergoing a rapid aging of its population, Berlin stands out as an oddity, with a quarter of its populace under age 25.

Berlin is the center of the country’s creative industries, with more than 24,000 companies and 170,000 employees working in this field.

One of the reasons for Berlin’s unique population patterns, compared to the rest of Europe, is that unemployment has declined from 18% to 10% over the last decade. The city’s economy has outperformed the rest of Germany. Berlin is the center of the country’s creative industries, with more than 24,000 companies and 170,000 employees working in this field. Activities such as the performing arts, music, software programming, and design generate 20% of the city’s GDP. People and companies come to the city to benefit from good education opportunities, cheaper housing and office space, and a creative and uninhibited atmosphere.

Berlin’s art scene is among the most vibrant in the country and in all of Europe. The capital is home to more than 13% of Germany’s artists and about 12% of design studios, according to Berlin Partner, the city’s corporation for economic development and location marketing. The city boasts 170 museums and collections and more than 500 art galleries, and plays host to one of the most famous film festivals in the world, the Berlinale. As described on the festival’s website, Berlin is “an exciting cosmopolitan cultural hub that never ceases to attract artists from around the world.”

This creative and friendly environment actively fosters the development of new businesses. At least one start-up is founded every day in Berlin, which has come to be known as Silicon Allee, in reference to Silicon Valley in California. Indeed, companies such as Skype, SoundCloud, Game Genetics, and Rocket Internet were born and nurtured in Berlin. Now successful and world-famous, they come back to invest in up-and-coming entrepreneurs. As Skype co-founder Niklas Zennström observed in an interview with Spiegel Online in 2011, “there are a lot of people who worked for me at Skype who left to start their own companies. You end up with entrepreneurs who become investors, and people working for start-up companies who become entrepreneurs themselves.”

Berlin’s start-up scene could develop further if large mature tech companies such as Intel and Microsoft established R&D departments in the city. As Yair Re’em, CFO of Hasso Platner Ventures in Berlin, notes, “Then we will have the inbound/outbound circle of employees/entrepreneurs.” Such a movement would foster development similar to that by the likes of Xerox and HP in Silicon Valley in the 1970s, adding to the above-mentioned contributions of Zennström and others. Berlin would become even more attractive for entrepreneurs, adding to the city’s population. Could this added stimulus for people to move to Berlin have side effects?

In addition to the creative and innovative atmosphere, one current advantage of Berlin, Re’em notes, is the low cost of living, especially when one compares the German capital to other technology centers such as Munich and San Francisco. According to Numbeo, a database of user-contributed data about cities and countries, one would need about  €4,312.08 (US$5,762.50) a month in San Francisco to maintain the same standard of living one can have with €1,496.60 (US$2,000) in Berlin (assuming one rents in both cities). But can Berlin continue to attract artists, entrepreneurs, and investors? Will these new residents be able to afford living in the city? How long can the current hype last? And how long will Berlin’s advantages last?

The Impact of Immigration

Young entrepreneurs and venture capitalists continue to pour into the city. They are young, highly educated, and career-centered. Laura Otero, a Spaniard who worked for a venture capital company in Berlin, highlights the city’s ability to attract educated immigrants. “People who move to Berlin are more open and less snobbish than those who go to London or Hamburg/Frankfurt. In Berlin, there [are] only a couple of posh places to go out or eat; everything else is pretty laid back.”

Entire neighborhoods in the downtown area have been renovated and upgraded, and many of their former inhabitants are pushed out by the newcomers.

The arrival of these entrepreneurial immigrants, however, is not without controversy. Locals complain about rising prices and rents. The new word being tossed around, and the latest addition to Berlin’s vocabulary, is Gentrifizierung (the German word for gentrification). Entire neighborhoods in the downtown area have been renovated and upgraded, and many of their former inhabitants are pushed out by the newcomers. Rocio Caces, who became part of a commune in the Kreuzberg neighborhood, has lived in Berlin for six years. She arrived with the first wave of alternative-culture immigrants, or pioneers, who are now being pushed away by the richer consultants who work for the government or by the start-up techies. “I feel this city has less to offer me. I don’t see myself living in Berlin 10 years from now. I just can’t afford it anymore.”

Over the last decade, consumer prices and housing prices in Berlin have gone up by 10% and 20%, respectively. While the average rent in the city is still below the German average, neighborhoods such as Prenzlauer-Berg have lost 80% of their original populations and, while becoming shining examples of architectural and urban recovery, have lost the entirety of their original social tissue. In general, the city seems to be chasing its tail. According to Caces, “Kreuzberg is the new Prenzlauer-Berg, and Neuköln is the new Kreuzberg.”

Still, it is hard not to appreciate the benefits. Low unemployment and an increase in the number of Germans moving to Berlin are unequivocal signs that things are relatively better here than in other areas of Germany. Berliners these days go around repeating the words of their mayor like a mantra, “Berlin is poor but sexy.” The problem is that sexy does not stay poor forever, and the numbers point that way.

In her book Mythos Kreuzberg, Barbara Lang promotes the term “symbolic gentrification,” pointing out that gentrification in certain neighborhoods has been a superficial process associated with public works and that the original inhabitants have been taking on new rituals. Kreuzberg, for instance, still counts as neighbors a good number of the same people; they just make more money and pay more for their rent. This seems to be confirmed by data from the GfK, a German consumer advocacy office, which notes that the average rent in certain neighborhoods has gone up by less than one euro, and that only 3% of the people say they cannot afford living in their neighborhoods anymore. In contrast, a quarter of the renters fear they will be thrown out of their homes at some point in the future.

A Nation of Renters

More than half of Germans rent their homes or apartments, placing the country at the bottom of the European league in terms of home ownership, surpassing only Switzerland. In Berlin, nearly 85% of the population rents. Part of the reason is cultural, but the absence of tax breaks for homeowners and the policy of rent control also play very important roles. Moreover, banks require down payments of at least 40%, and loans must be paid back in 10 years, compared to 30 years in the U.S. As a result, construction of new dwellings has been historically slow. According to the Deutscher Mieterbund (DMB), the German Tenants’ Association, only 6,000 apartments were built in Berlin in 2011, even though the population increased by about 41,000 people, most of whom are young.

As prices rise, those who had given Berlin its hype, brilliant art scene, and exciting nightlife are now starting to leave.

In recent years, faster economic growth has propelled prices for both owning and renting to higher levels. The real estate market in Germany has attracted tremendous investor interest. A 2013 PricewaterhouseCoopers study ranked Berlin and Munich ahead of London and Paris in terms of investment prospects. With institutional investors moving into the market and pouring billions of euros into housing, inevitably there is going to be an increase in housing prices in a land-scarce country such as Germany.

While mortgage payments tend to be fixed over the life of the loan, rents are rarely stagnant for long. The large number of tenants in Germany means that people are seeing their budgets being squeezed. Moreover, newcomers suffer the most. According to the DMB, tenants who lease a new apartment in Frankfurt have to pay 31% more rent than the average in the area. The difference is 28% in Munich, 25% in Düsseldorf, 24% in Hamburg, and 19% in Berlin. This trend led the opposition Social Democratic Party (SPD) to propose a ceiling on the rent of a re-rental to 110% of the average rent in that area. Unfortunately, the proposal was outvoted in the German parliament by the ruling coalition of Christian Democrats (CDU/CSU) and Liberals (FDP). As a result, everyone expects rents to continue to soar.

As prices rise, those who had given Berlin its hype, brilliant art scene, and exciting nightlife are now starting to leave. Low prices, artists, and the brave old Berlin are slowly becoming things of the past, and what gave Berlin an edge over the rest of Europe may be slowly fading away, endangering the city’s momentum and creative vibrancy. In a city and country in which being and freedom are linguistically and economically linked to dwelling and building, much of the future hinges on the evolution of the real estate market.

This article was written by Carolina Benevides Lima, Kamran Mahmood and Juan Antonio Abraham, members of the Lauder Class of 2015.