Before the war, Berlin was a major industrial center, with big arms manufacturers and heavy industry. After the war, the Allies demolished much of the industry

Before the war, Berlin was a major industrial center, with big arms manufacturers and heavy industry. After the war, the Allies demolished much of the industry -- Siemens, for instance, moved to Munich. With the division of he city, many people moved away, leaving postwar Berlin with a loss of almost a third of its population. Since then, the city hasn't recovered its peak population, leaving many empty houses and low rents. In addition, the economy in Berlin has always been, and still is, very weak, and unemployment is high. All this helps to keep the cost of living low (even if, Berlin having become capital and sort of a hip place, it's higher now than it was 15 years ago).