Germany’s controversial rent control law works after all (at least in central Berlin)

The Local Germany
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Germany’s controversial rent control law works after all (at least in central Berlin)
A flat advert. Photo: DPA

Research published by a leading economic institute on Wednesday shows that the much lamented rent control law has had some effect in slowing down the pace of rental increases.

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Given the fact that average rents in some German cities have risen by close to 50 percent over the past decade, there were high hopes for the Mietpreisbremse (rent control law) when it was introduced in 2015.

But last year the federal government had to concede that price inflation on newly advertised apartments had actually sped up nationwide since the introduction of the law.

So it was something of a surprise on Wednesday when the German Institute for Economic Research (DIW) released research showing that the law has had some success.

The only catch is that the impact has been felt by only a tiny proportion of tenants in the 313 cities which have adopted the law.

As the DIW explains, “the rental control law can only work in its current form if new rental contracts in the region rose by at least 3.9 percent each year for the four years before the law was brought in.”

In other words, in the districts where rents have been spiralling upwards most dramatically, the law has worked.

The rent control stipulates that new rental contracts cannot exceed 10 percent of the average price of an apartment in the area. According to the DIW, this margin has given landlords so much wiggle room that the law is only relevant in areas where the prices have been rising yearly by at least 3.9 percent.

READ ALSO: The German cities where rents have been going up the most

“The Mietpreisbremse takes effect only in certain regions with particularly dramatic rent increases and this affects only a small part of the population,” said DIW real estate specialist Claus Michelsen. “That doesn’t mean it is fundamentally flawed. In the regions where it can work, it does.”

The researchers found that average prices of new contracts had even dropped since 2015 in the parts of the country where rents had been rising fastest.

In Berlin’s Mitte and Neukölln districts, as well as the Munich neighbourhoods of Schwabing and Laim new rental contracts were 3 percent cheaper than before the law was brought in, the DIW found.

“The rent control law is better than its reputation - the expectations were simply too high,” said Andreas Mense, another researcher on the team.

DIW researchers looked at 200,000 online rental adverts and categorized them according to their postal code before comparing them against flats with a similar quality in the neighbourhood.

But they warned that the rental control law in itself was not enough to solve Germany’s growing housing problems.

"The government has to increase incentives for the construction of new housing - this is simply unavoidable,” researcher Konstantin Kholodilin said.

SEE ALSO: What you need to know about renting in Germany


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