Berlin > House interest tax

Berlin's house interest tax was introduced in 1924, four years after the grand merger of communities that created Greater Berlin. The inspiration for the tax, however, went back 20 years earlier. The cash-strapped Berlin government adapted the earlier proposals of Martin Wagner, the city's chief building planner, to create a way of generating income from new housing developments. Thanks to this new levy, private landlords, who largely escaped the steep currency devaluation of the early 1920s, suddenly found themselves drawn into the financing of public housing. Politicians agreed to invest a fixed part of this tax revenue in public housing and to control the outcome, thresholds of quality and eligibility were set. This policy was welcomed especially by Berlin's left-wing parties, as it helped to stem the widening income gap between rich and poor.

Two things were instrumental in the policy results. First, housing construction in the late 19th century lay almost entirely in the hands of wealthy landowners and investors. Second, construction and property were an extremely secure investment in times of inflation. As inflation surged between 1914 and 1924, property values remained stable compared to cash and savings deposits, which rapidly lost purchasing power. At the same time, the dwindling value of cash quickly became a problem when rent was due. Since property ownership in big cities like Berlin was primarily the domain of the wealthy, the divide between the rich and poor widened rapidly. As a result, house and land ownership is today still considered a safe investment and is often referred to as "concrete money".

The house interest tax only bore fruit after the introduction of new housing companies and new quality standards for residential developments to be subsidised by the tax. Only "good" projects would qualify, to be determined by the state in advance. Proceeds of the house interest tax only went into construction projects that met predefined terms for apartment sizes and floor plans.