The plan to cap rents, agreed on in coalition talks between the parties’ general secretaries, Andrea Nahles (SPD) and Hermann Gröhe (CDU), would prevent landlords from charging more than ten percent above the area's average rental price.
It is hoped that the plans will prevent low-income residents, and those that have grown up in an area, from being priced out of up-and-coming districts in cities which have seen large rent increases,
The rules are only planned for areas with a stretched housing market and it will be up to each state to decide where these areas are. Likely to be affected are trendy areas in big cities and university towns, where rents are rising fast.
According to Gröhe, state intervention will only be used in parts of cities where there is an "acute need" for more affordable accommodation, the newspaper Taz reported.
The new proposals were welcomed by Germany's Tenants Association, which called it "a big step in the right direction".
The organisation's president, Dr. Franz-Georg Rips, and its director, Lukas Siebenkotten, said the planned changes signify an improvement in Germany's housing policy.
"It is right and good that a cap on rents is on its way," said Rips in a statement. "We wanted a nationwide rule. But it is important that big cities, overcrowded areas and university towns will limit new rent prices and that rent increases will be capped on existing rental contracts."
But the house owners' association Haus & Grund has spoken out against the reforms. "If in a few years’ time when the German housing market is visibly underdeveloped, the CDU, CSU and SPD... will not be allowed to claim that it wasn't foreseeable," warned the body's president Rolf Kornemann.
He urged the Christian Democrats (CDU) not to be led by the SPD on the issue and said the party's housing experts know full well that the changes would be a serious error.
Kornemann wrote: "It creates an insider-outsider problem, meaning it would benefit those with a flat at their disposal, whereas it would disadvantage those who are looking for an apartment but don't stand a chance on the [housing] market."
Landlords also argue that developers would be deterred from investing in poor areas because of the limits on the amount of rent they could charge.
The far-left party, Die Linke, meanwhile, argued that the reforms do not go far enough.
The party's deputy parliamentary leader Caren Lay warned there was no guarantee that rent caps would be introduced by Germany's state governments. She said that passing the decision to individual states rather than keeping it at national level was a "dodging of responsibility."
The cap on rental prices would apply to new rental contracts for existing apartments, whilst rents for current tenants could be increased by no more than 15 percent over four years. Currently such an increase is allowed within just three years.
If the changes go through, the landlord alone would be responsible for covering rising estate agent costs and could not simply transfer these fees to the tenant.
But Gröhe insists that the focus is still on using tax contributions to build new apartments. "Build, build, build - that's the way forward," he said.
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