War, Housing Rents, and Free Market: A Case of Berlin's Rental Housing Market During the World War I

Abstract

Before the World War I, the urban rental housing market in Germany could be described as a free and competitive market. The government hardly interfered in the relationships between the landlords and tenants. The rents were set freely. During the World War I, the market was hit by several violent shocks. The outbreak of the war led initially to a huge outflow of men from cities to the fronts. Towards the end of the war, the cessation of construction as well as an inflow of workers and mustered out of service soldiers produced an acute housing shortage. Using a unique data set of asking rents extracted from the newspaper announcements, we constructed a monthly time series of rents in Berlin over 1909-1917. This variable is employed to measure the effects of demand and supply shocks on different segments of housing: from small dwellings for poor to large apartments for rich. The analysis shows a decline of rents (especially of the cheap dwellings) in the first half of the war, followed by a moderate increase. This stands in marked contrast to a steady and strong increase of the overall price level.