As Bundestag debates the planned second extension of Mietpreisbremse rent controls until 2029 and is almost certain to pass it, I have a question: isn’t it actually high time we got rid of the ‘rent brake’?
Your first reaction – especially if you are one of the 50 percent of German households living in rental accommodation – might be to ask back: scrap legislation intended to limit rent price increases at a time when rents are shooting up? What are you, nuts?
To which I would answer: rents have been shooting up ever since German cities were given the option of putting controls in place ten years ago.
They’ve risen by almost 40 percent in my part of Hamburg, for instance, as this interactive infographic map illustrates, and Berlin is another story altogether…
But surely, you might object, without the Mietpreisbremse, these rises would have been even worse? That can’t be proved either way. After observing Germany’s increasingly dysfunctional housing market for almost two decades now, however, I’d say: probably not. In fact, my creeping suspicion is that rent controls are ineffectual at best and, at worst, may actually be contributing to rises.
Wait, so you think the Mietpreisbremse is making rents higher now…? No, please: hear me out!
Ineffective on its own terms
First off, experts agree that, even on its own terms, the Mietpreisbremse is ineffective – that’s why those in favour of it usually also argue that it needs to be more stringent.
In their current form, controls only apply to new rental contracts, and come with enough loopholes and exceptions that any landlord looking for one will find a semi-legal workaround.
The easiest option is to either limit the length of the rental contract to less than one year or to part-furnish the letting – which has led to a market where unscrupulous operators are now demanding top-dollar for sticking a flat-pack wardrobe in the bedroom and then coming back for more a year later when the contract needs to be renewed.
READ ALSO: Four scams to be aware of while navigating Germany’s rental market
Theoretically, this shouldn’t be happening, of course. In Germany’s tenant-friendly housing law, leases can only be time-limited if there is good reason – e.g. if the renter needs a short-term let for professional reasons – and any furnishings need to be high-value enough to warrant higher prices.
Yet for legal protections to apply, tenants have to know – and exercise – their rights. And as my colleague Paul Krantz has explained, even in simpler cases where the rent has been set too high on a standard lease, many who could challenge it do not – for lack of understanding, lack of time and energy, or lack of confidence confronting a potentially Scrooge-like landlord.
Then there are the grey areas where well-meaning letters can easily end up unintentionally contravening the Mietpreisbremse. Under the rule, rents should not exceed a local average price by more than ten percent in tight housing market areas. But local rental averages are determined in rent price indexs – Mietenspiegel – which themselves are for more complicated than many assume: this is Germany, after all.
In Hamburg, for example, figures are declined in a detailed table according to the specific location of buildings and when they were completed, leaving ranges of between €3 and €5 per square metre to take account of amenities such as balconies, bathtubs, and bicycle cellars…
What is more, the Mietpreisbremse doesn’t apply when significant works have been carried out prior to letting: but what does ‘significant’ actually mean? You might not be surprised to learn that, in cases which have gone to court, complicated formulae have been applied and a range of factors taken into account…
The upshot is now that, to be sure of being able to make back money invested, law-abiding landlords are now likely to have more work done than might be strictly necessary (and then need to set rent even higher to recoup the extra costs…). Others, meanwhile, simply do the place up on the cheap and hope that tenants never challenge them to show their receipts.
Setting the wrong incentives
Why wouldn’t they try? After all, once they are out of Mietpreisbremse territory, the sky is the limit – so the clear incentive for landlords is to look for any way to get an apartment out of regulatory purview and then set rent at market rates. Or, simply, to invest in new-builds, which are wholly exempt from rental controls – and rarely available for under €20 per square metre.
In this way, the Mietpreisbremse is entrenching a two-speed rental market where high-earning tenants with good credit records have their pick of snazzy new-builds and souped-up Altbau flats while those lower down the socio-economic scale are left fighting for increasingly pricey scraps.
As I’ve written before, it’s a trust issue: anyone with a flat to let is now acutely aware that its rental value is capped even as inflation, wages, and market values aren’t. So increasingly, landlords max out the 10% the Mietpreisbremse allows – and then make use of all legal options to keep upping the rent.
That is one reason so many new rentals are now using the unloved Staffelmiete (defined raises every year) and Indexmiete inflation-linked contracts, which allow for increases of 15 or 20 percent in a three-year period.
Previously, it was standard practice – especially among ethically-minded private owners – to issue standard contracts and leave rents more or less untouched for sitting tenants before upping them on re-letting. Now, as rents continue to soar but the Mietpreisbremse limits raises, many private landlords are, perversely, having to hike rents in existing leases to avoid trouble with the Finanzamt further down the line: not charging market rates is, of course, considered a form of tax avoidance. These in-tenancy rises then drag up the averages on which the 10 percent maximum is calculated, and so the ‘rent brake’ is being applied at the same time as the price accelerator.
Overly-complex – and potentially unconstitutional
This reveals the fundamental problem with rental controls. Like it or not, Germany’s rental market is just that – a market. Yet by selling off swathes of social housing stock over recent decades, many major cities have deprived themselves of the best means of slowing price rises in this market -- offering affordable rental accommodation to those who need it.
Instead, they now find themselves shelling out huge sums in housing benefit – Wohngeld – to low-income households and hoping that middle-income tenants have the gumption and courage to apply the complicated Mietpreisbremse themselves. All of this, meanwhile, puts the majority of well-meaning landlords at a disadvantage and encourages those with the ways and means to maximise revenue (or to simply ignore the system). No wonder rents are going up faster than ever.
So for me, it’s simple: the Mietpreisbremse should be scrapped. Even in this market, asking rents currently can’t go much higher – prospective tenants can no longer afford them on their wages – and there is every reason to suspect that the legislation may actually have pushed prices to this point faster than would otherwise have been the case. This, in turn, is contributing to stasis as people are forced to stay put and make do, with vacancies in most cities far below the 1 percent generally considered the minimum necessary for a functioning rental market.
What is more, the Mietpreisbremse will eventually become unconstitutional: in our market economy, the state is not allowed to use price-fixing legislation to force a lasting devaluation of assets.
Thus far, Karlsruhe has accepted the rent controls because they are temporary, being implemented for defined periods of time. Yet when this planned extension reaches its term in 2029, the measures will have been in place for almost 15 years – making them ‘temporary’ in the same way that the exceptionally ugly shelving unit I ‘temporarily’ put in my hallway when we moved in 2010 is still ‘temporary’ one-and-a-half decades on.
Mercifully, we haven’t had our rent raised since then. Then again, we moved in before the Mietpreisbremse and paid top-whack in the first few years.
That’s how things used to work. Our newer neighbours, however, all seem to get regular rent increases. Call me crazy, but…
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