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Germany's top court rules Berlin's disputed rent cap unlawful

AFP/DPA/The Local
AFP/DPA/The Local - [email protected]
Published: 15 Apr, 2021 CET. Updated: Thu 15 Apr 2021 11:03 CET
Germany's top court rules Berlin's disputed rent cap unlawful

Germany's highest court has ruled that Berlin's 'Mietendeckel', or rent control law, is unconstitutional.

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The Federal Constitutional Court said that a policy to freeze rents in Berlin for the next five years to combat soaring living costs was unlawful in a ruling published on Thursday morning.

The capital's "Mietendeckel" law or rent cap "violates the Basic Law and is thus ruled void", the court in the southwestern city of Karlsruhe said in a blow to millions of tenants.

A total of 284 parliamentary members had filed the petition for a judicial review against the rent cap, questioning whether such a regulation could be implemented at a state level.

In addition, several private landlords also appealed to the Constitutional Court.

The tribunal ruled in favour of MPs from the centre-right Christian Democratic Union (CDU) and the pro-business Free Democrats, who are both in opposition in Berlin.

The court agreed with their argument that rent policy falls under federal not state jurisdiction.

The rent freeze, passed by Berlin's legislature in January 2020, was a flagship policy of the local governing coalition of the centre-left Social Democrats, the Greens and the far-left Linke parties.

It is a blow to them ahead of September elections both in Berlin - its own city-state - and for a new federal parliament and successor to Chancellor Angela Merkel who is stepping down.

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Once described as "poor, but sexy", Berlin has seen its housing costs double over the last decade as employees lured by a strong job market moved into the city.

READ ALSO: Berlin rent freeze: 340,000 tenants 'paying too much' for housing

What effect did the rent cap have?

The law capped rents until 2025, after which any increases would have been limited to 1.3 percent per year in line with inflation.

According to the city's department for urban development and housing, it affected more than 1.5 million apartments.

Exceptions included social housing and new apartments built since 2014.

Some particularly high rents were even temporarily lowered, pending the court ruling, with landlords who broke the rules facing fines of up to €500,000.

Those tenants will now generally be required to repay back rent. Several took to social media to express their disappointment at the ruling.

The rent cap faced fierce opposition from the property sector, which argued that the freeze discouraged developers from building in Berlin and ultimately worsened the capital's housing crisis.

According to the property website Immowelt, Berliners spend an average of one-quarter of their income on housing costs.

Only 18.4 percent of the city's roughly four million residents own their own property, one of the lowest rates in Europe.

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julia.pivniouk 2021/04/15 17:21
I said that the new buildings being built are not being built for the poor. The new buildings on the Spree are all high-rise, expensive apartments for the rich and privileged. Then there needs to be a law where people can only have one apartment and it needs to be occupied. There needs to be better control anyway for subletting at any price landlords want as there are many slumlords in Berlin, and I and many other expats have experienced that. Are you a landlord? From walking around Berlin, I see so many unoccupied apartments. Why? Because of people who live outside of Berlin and just have it as a summer apartment and then it sits empty or they rent it out to tourists, causing a shortage that we see now. There are many issues with housing, but to allow landlords to raise the rent as much as they want and lead to what happened in NYC will also destroy Berlin and what it stands for. Thanks for the article. Just because it hasn't worked before doesn't mean it can't work now. There needs to be more accountability in general. The name landlord itself shows the privilege. We're not in medieval times anymore. Let's move forward and find a new solution that will help everyone live and work in a city that they love.
hurleywhore 2021/04/15 14:55
While some points are justified, generally we are going to have agree to disagree. Consumer surplus is as empty a theory as the theory proposed by you that fully unregulated markets result in the highest standard of living aka trickledown economics. Essential necessesities are regulated in just about every economy in the world, because left unregulated it has proven to lead to abuse. unless im wrong about the rent cap and new buildings, the argument of not being rewarded for new investmetns is moot. This is still possible, and would net higher rewards. What you mean to say, assuming this is true, is that people cant milk their long term assests that they dont invest in at the expense of the consumer..... where is the justice? Your last point is a rediculous hypothetical, people dont just rent more appartments becuase they 'can'. If they do, its for an attempted business purpose such as AirBnB, which is not related to this topic. No average German is paid that level of income even with rent caps.
skyjur 2021/04/15 14:44
Is there a proof that above certain threshold increased rental costs increase number of housing that is being built? From what I observed I don't quite see correlation between rent prices and homes being built. London is example where despite high rent prices - not enough homes are being built. In fact the higher the property prices grow the stronger pushback becomes against building new properties - because everyone who had invested in their homes would be losing if additional housing would been built, housing bubble would collapse with dare concequences if you'd suddenly built enough houses to meet demand in London.
hkurbardovic 2021/04/15 14:28
Putting a cap will not fix the problem, it will only enhance it. Not everyone can live in a city like NY or London, let's say we put a cap, who will rent the property then? What makes you think it will be poor people? Rich people will simply rent more than one apartment and deny that opportunity to someone who is willing to pay a higher price. This will also lead to less money going in new buildings so if you want to make the problem worse, then yes, put a cap on it. Here's a nice article on rent control: https://mises.org/wire/rent-control-history-failure
hkurbardovic 2021/04/15 14:19
If a lot of profits can be made in a certain line of work, then we want to encourage more capital to go in that industry. If landlords are making a lot of money, then this will encourage other businessman to build buildings which will in turn lower the price. Manipulating prices is never a good idea because it leads to capital misallocation which leads to lower standard of living. "More money going to a single entity like rent reduces the consumer surplus" - so we should punish people who are providing a valuable service? Btw, consumer surplus is irrelevant, just another empty theory justifying redistribution of wealth. Unhampered market economy leads to higher standard of living for everyone, we want people who had a good sense to invest in housing to be awarded, this will lead in the future to more investing going in that direction which means: lower prices. "Lastly, as a business they simply seek to maximize profits and not create true value, therefor getting rid of the rent cap hurts poor people the most." - Considering that they are making profits proves that they are creating value, there are a lot of people willing to pay for the service that they are offering. No industry should be regulated, controlled, limited, etc. Any distortion of the workings of the free markets leads to lower standard of living. As a final note, if you are going to put a cap, that will allow some people to rent more than one apartment because they can afford it. Putting a cap on a price means that the resource will be allocated on a different basis, which means that people who are willing to pay more money will be denied the opportunity to rent an apartment even though they are willing to pay the price. Where is the justice here?
hurleywhore 2021/04/15 13:10
So much wrong with your statements its hard to know where to start. But simply put Id question your understanding of basic economics. More money going to a single entity like rent reduces the consumer surplus and reduces the amount of money available for discressionary spending in a circular economy thereby reducing the total amount of money being spent at small businesses (resteraunts, bars, coffee shops, etc.). This combined with the generally poor pay for Berlin and Germany in general translates to less enterepreneurship opportunities for small business owners, because people have less surplus to spend on other items. Landlords and building housing is not "entrereneurship" its simply a business (there is a difference). The fact the rent cap as far as understood did not apply to anyging new being built would void your entire arguement. Lastly, as a business they simply seek to maximize profits and not create true value, therefor getting rid of the rent cap hurts poor people the most. Utilities and other absolutely necessary industries are regulated, controled, and limited in how much they can charge.... there is simply no reason housing which is a necessity, and rent prices, in a country with such dismally low ownership numbers should not be regulated.
julia.pivniouk 2021/04/15 11:55
You want rents like in NYC and London? Those cities have become completely unaffordable to normal people. Why can't buildings be built with affordable rents? We all know the buildings that are being planned to be built are not for poor people.. And no, living in another city when you work in a specific industry that is in capital cities is not an option.
hkurbardovic 2021/04/15 11:13
It's kind of ridiculous that we have so many people in the 21st century who don't understand basic economics. Rent control is not a good idea, for that matter, any price control is not a good idea. It only distorts the equilibrium price. Punishing people for good entrepreneurship is not going to lead to better capital allocation. In this case it would lead to less buildings being built which will hurt the poor the most. Good that the highest court stepped in.
hurleywhore 2021/04/15 11:04
I hope that everyone remembers this and the poor response to corona when they hit the voting booths later this year.
lynsey111 2021/04/15 10:56
Just what everyone needs on top of everything else going on here in Berlin! 😢
julia.pivniouk 2021/04/15 10:53
As usual, courts rule in favor of the rich and privileged and capitalism lives another day. I really thought that this law was a great thing. Now Berlin may become like NYC. Extremely disappointing and disheartening. Berlin you could have done better.

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