Learning from other countries
The case of Berlin
In 2019, Berlin introduced a form of rent regulation in the shape of the Mietendeckel (rent cap). The capital city’s rental market witnessed rent increases of 40% in the period 2013-2019 - extreme when compared to increases of 28% and 20% in Munich and Cologne respectively. When federal states were permitted to intervene on the housing market, Berlin’s city council decided to curb rent increases by capping rents.
Regulatory instrument The Mietendeckel in brief: - Five-year rent freeze, based on 2019 rents;
- Maximum rent: €3.92 to €9.80 per sq m, depending on the property’s characteristics such as year of construction and facilities;
- Rent increases only permitted within these limits;
- Rent cap only applied to homes dating from before 2014, so not for new construction.
Schedule The legislation was introduced in January 2020, with the first rent regulation coming into force in November 2021. The Mietendeckel was not destined to last long, however: in April 2021 it was declared unconstitutional and therefore null and void.
Effect on the rental market
Despite its short lifespan, the Mietendeckel had an enormous impact on Berlin’s housing market. The lower rents - and therefore income for owners - led to a dramatic drop in rental housing stock. This was further exacerbated by the lack of turnover among tenants: people experienced difficulty finding other affordable housing. Following the announcement of the cap in 2020, the number of available properties fell by 35% versus a year earlier, while rates remained stable in other German cities. The pressure on the regulated and unregulated rental markets increased considerably, causing rents in the latter segment to soar (8% on an annual basis). Although new construction remained at the same level, it was unable to meet the high demand.
Even after the rent freeze was abolished, the Berlin housing market continues to be tighter than it was before: housing stock is down by 60% compared to 2019 and rents in the deregulated sector have risen by 23% to €20 per sq m. Any increase of the housing stock would seem to be unlikely in the short term. The tightness on the Berlin housing market will therefore persist for the time being.