Berlin’s rental cap has ‘more than halved the size of market’

Economic researchers have come to a negative conclusion about Berlin’s controversial rental cap law: while it has pushed down rents in the capital substantially, it has also caused the rental market to shrink by more than 50 percent.

Berlin’s rental cap has 'more than halved the size of market'
Berlin apartments. Photo: DPA

By analysing adverts in newspapers and online, the German Economic Institute (DIW) found that rents in Berlin dropped by roughly 11 percent after the rental cap was introduced on February 23rd last year.

While that meant that the Berlin city government’s stated aim of bringing rents back under control had been achieved, the analysis also laid bare the downside of the cap. The number of apartments on the letting market dropped by 57 percent.

“The supply shortage that comes with the rent cap is alarming,” co-author Konstantin Kholodilin said. “It makes it much harder for people who need to move, for example because they are new to Berlin, or are expanding their family, to find a place to live.”

SEE ALSO: Here’s how Berlin residents can find out if they’re paying too much rent

Berlin has been hit by an escalating housing crisis over the past decade, as the city’s population has grown by between 20,000 and 60,000 a year.

With young people in particular moving to the fashionable capital in droves, the stock of empty apartments has sunk from under 3 percent of the total in 2010 to less than one percent now, a fact that has driven up rents.

At the same time, the number of flats being offered through social housing has slipped down steadily to less than 5 percent of the total.

The skyrocketing rents moved Berlin’s left-wing government to introduce the country’s only rental cap, which came into force last February for new lets, and for all houses built pre-2014 in November. Over 94 percent of the total housing stock in Berlin is impacted by the rent cap.

But the city’s liberal and conservative opposition was furious about the law, saying that it would damage the savings of small time landlords, while eroding the incentive of private investors to build in the city.

Several legal complaints against the law are waiting to be considered by the Federal Constitutional Court.

Rising rents in commuter belt

The DIW report also found that the prices in Berlin’s commuter belt have shot up over the past year, as people looking for apartments in the capital have had to widen their search.

In Potsdam, which is well connected to Berlin by train, rental prices have increased by 12 percent in the same period.

“The rent cap only superficially achieves its goal and has some unpleasant side effects,” said Sofie Waltl, a researcher from the Vienna School of Economics, which collaborated on the project. “The shortage of supply in Berlin leads to rising rents in the well-connected surrounding areas, to which it is no longer possible to switch cheaply.” 

The study also found that landlords are using various tricks to get around the rental cap, with just a quarter of rental offers actually conforming to the new law.

The authors urged the capital city’s government to instead invest its efforts in increasing the overall housing stock in the city.

“Private developers should be seen as allies in the fight for affordable housing rather than deterred by rigorous measures,” said Kholodilin

The study found that the current rate of building, by which some 17,000 new apartments are put onto the market every year, barely covers new arrivals in the city, let along those currently trying to find living space.

Pointing out that number of planning approvals has stagnated since 2015, the authors concluded that the city needs to reduce red tape for building construction while increasing personnel in its building authorities so that applications can be assessed more efficiently.

Member comments

  1. As a resident of Manhattan I can only say that “rent stabilization” has been anything but a success here. Capping rents for city residents is undoubtedly a popular position both for tenants currently in residence and politicians looking for reelection. My own observations over the thirty years I’ve been a stabilized tenant is that the solution needs to be a true collaboration between building owners, developers, tenant representatives and Berlin city planners. It’s no surprise developers want to take advantage of strong housing demand, building owners want to increase the return on their holdings and tenants fear being priced out of their homes. If cooler heads and a semblance of humanity can prevail, a long term solution could be devised. None of the previously mentioned entities will be satisfied and each group will make a persuasive argument in their favor, but that’s what “compromise” is. The only “winner” will be the City of Berlin. Otherwise be prepared for an interminable mess that repeats itself every time there’s a local election, (I’m sure there are internet video’s of chaotic NYC Rent Stabilization Board meetings). Best of luck! I was fortunate to visit Berlin in 1999 and it was apparent to me then that it’s future as an international destination was a given.

  2. “The number of apartments on the letting market dropped by 57 percent” yeah… because there’s a freaking pandemic and no one can leave their homes! Who is going to move right now??

    Not even going to put someone’s name on the byline for this?? Really? A Friday, 17:00 publish time with no author?

    With sources coming from the DIW and the Vienna school – two institutions based on neo-liberal and conservative economic perspectives. Laughable.

  3. Like all quasi-socialist local government gestures, this only pushes the problem back awhile or pushes it somewhere else. Great if you´re living in the housing stock with a 5 year rent freeze, but grossly unfair if you aren´t. Fixing the problem correctly entails controlling the level of housing supply, de-incentivising the large conglomerats who buy up large percentages of stock and re organising the extent to which the Finanzamt taxes small scale property owners at the maximum quadrat metre possible, which propagates the problem of high and ever-increasing rents and adds unfair value to what remains the same bricks and mortar as elsewhere..

  4. This analysis smacks of propaganda funded by organizations against rent caps. New developments are not (to my knowledge) effected by this rent cap so the idea that this in any way effects new developers is wrong. About the only thing that the analysis got right is that red tape for new development must be reduced.

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Living in Germany: Battles over Bürgergeld, rolling the ‘die’ and carnival lingo

From the push to reform long-term unemployment benefits to the lingo you need to know as Carnival season kicks off, we look at the highlights of life in Germany.

Living in Germany: Battles over Bürgergeld, rolling the 'die' and carnival lingo

Deadlock looms as debates over Bürgergeld heat up 

Following a vote in the Bundestag on Thursday, the government’s planned reforms to long-term unemployment benefits are one step closer to becoming reality. Replacing the controversial Hartz IV system, Bürgergeld (or Citizens’ Allowance) is intended to be a fair bit easier on claimants.

Not only will the monthly payment be raised from €449 to €502, but jobseekers will also be given a grace period of two years before checks are carried out on the size of their apartment or savings of up to €60,000. The system will also move away from sanctions with a so-called “trust period” of six months, during which benefits won’t be docked at all – except in very extreme circumstances. 

Speaking in parliament, Labour Minister Hubertus Heil (SPD) said the spirit of the new system was “solidarity, trust and encouragement” and praised the fact that Bürgergeld would help people get back into the job market with funding for training and education. But not everyone is happy about the changes. In particular, politicians from the opposition CDU/CSU parties have responded with outrage at the move away from sanctions.

CDU leader Friedrich Merz has even branded the system a step towards “unconditional Basic Income” and argued that nobody will be incentivised to return to work. 

The CDU and CSU are now threatening to block the Bürgergeld legislation when it’s put to a vote in the Bundesrat on Monday. With the conservatives controlling most of the federal states – and thus most of the seats in the upper house – things could get interesting. Be sure to keep an eye out for our coverage in the coming weeks to see how the saga unfolds. 

Tweet of the week

When you first start learning German, picking the right article to use can truly be a roll of the “die” – so we’re entirely on board with this slightly unconventional way to decide whether you’re in a “der”, “die”, or “das” situation. (Warning: this may not improve your German.) 

Where is this?

Photo: picture alliance/dpa | Boris Roessler

Residents of Frankfurt am Main and the surrounding area will no doubt recognise this as the charming town of Kronberg, which is nestled at the foot of the Taunus mountains.

This atmospheric scene was snapped on Friday morning, when a drop in temperatures saw Kronberg and surrounding forests shrouded in autumnal fog.

After a decidedly warm start to November, the mercury is expected to drop into single digits over the weekend. 

Did you know?

November 11th marked the start of carnival season in Germany. But did you know that there’s a whole set of lingo to go along with the tradition? And it all depends on where you are. First of all, the celebration isn’t called the same thing everywhere. In the Rhineland, it’s usually called Karneval, while people in Bavaria or Saxony tend to call it Fasching. Those in Hesse and Saarland usually call it Fastnacht. 

And depending on where you are, there are different things to shout. The ‘fools call’ you’ll hear in Cologne is “Alaaf!” If you move away from Cologne, you’ll hear “Helau!” This is the traditional cry in the carnival strongholds of Düsseldorf and Mainz, as well as in some other German cities.

In the Swabian-Alemannic language region in the southwest of the country, people yell “Narri-Narro”, which means “I’m a fool, you’re a fool”. In Saarland at the French border, they shout “Alleh hopp!”, which is said to originate from the French language. 

Lastly, if someone offers you a Fastnachtskrapfe, say yes because it’s a jelly-filled carnival donut. And if you’re offered a Bützchen? It’s your call, but know that it’s a little kiss given to strangers!