One year of frozen rents – the consequences of the rent cap

The Berlin rent cap (official German name: “Gesetz zur Neuregelung gesetzlicher Vorschriften zur Mietenbegrenzung”, abbreviated to „MietenWog Bln“, translating as “Law on the Revision of Legal Provisions regarding Rent Limitation”) came into effect on 23.02.2020. Due to the surge in rent prices over the previous years, the Berlin Senate felt compelled to give tenants breathing space, according to the Left Party’s Sebastian Scheel, Senator for Housing.

The law, which is unique within Germany, affects approx. 1.5 million apartments in Berlin. It restricts the amount of rent than can be charged to a certain level [1] (under this link you will find a more detailed explanation as well as the "rent cap calculator"). Rent prices can only be increased again from 2022, and then only by 1.3% in line with the rate of inflation.

But what have been the effects of the rent cap in Berlin over the past 12 months?

The rent cap is a very controversial law. This is not only because it represents a major interference with the market, but also because its legality has always been contested by many legal experts. For this reason, many people are eagerly awaiting the verdict of the Federal Constitutional Court and the Berlin State Constitutional Court. Numerous constitutional complaints have been submitted against the rent cap. These are aimed at individual clauses as well as the law as a whole. The wording of the law and the legal uncertainty the rent cap is causing have created several issues that must be identified.

  1. Since the law came into effect, the quoted rent prices for apartments built before 2014 have declined by only 7.8 % . [2] The law and the legal uncertainty it has created have resulted in so-called shadow rent-prices.
  2. 80 % of the quoted rent prices are above the rent cap. [3]The shadow rent-prices are above the rent cap and indicate to tenants the rent they can expect to be charged if the rent cap should be declared illegal by the courts.
  3. Non-regulated new-build rent prices have increased by 17 %.[4]
  4. The number of rental apartments on the market in the regulated segment has declined by 30% . [5]In September 2020, this collapse in supply went as high as 59.1 % [6]when the second stage of the rent cap came into effect.
  5. By contrast, the number of apartments for sale in the same segment increased by 19 % .[7]
  6. The demand for rental apartments has increased. From approx. 130 to approx. 220 per rental apartment.[8]
  7. The number of planning permits for owner-occupied apartments has declined by 21.7 %.[9]

The consequences of the rent cap occupy us daily and now make up a large percentage of our information-provision work. This applies to sales as well as renting. The number of apartments we let per month has sharply declined. Before the rent cap, it was 10 to 20 apartments per month; now, it is merely 1 to 4. By contrast, the number of prospective tenants has increased considerably, as has the level of despair.

We are thus often only able to advertise our rental apartments (in the regulated segment) for 30 minutes online, as we will receive over 250 enquiries within this short period; the telephone never stops ringing. The despair felt by tenants has grown. Although the rent cap has ensured that rent prices have been frozen, this has also resulted in a freeze on the rental market as a whole. Those who were already tenants when the law came into force can be glad and are the only group benefiting from the rent cap. For everyone else, however, the rent cap provides no advantage.

Apartment owners are also uncertain and approach us because they don’t know what to do. They have many questions.

  • Should I sell my apartment now?
  • Under what conditions can I let my apartment and what is this rent cap?
  • What is this shadow rent I keep reading about in the media?
  • Does it make sense to renovate the apartment before re-letting it?
  • Should I live in my apartment myself for a spell?
  • Should I leave my apartment untenanted until I know what comes next?

So there are many questions that have been raised by the rent cap. Every day, we are asked all these questions by owners, but also many others by tenants. And we are happy to help and advise everyone.

Despite all its consequences, the rent cap has not achieved its intended purpose. There has been no breathing space for Berlin’s tenants. Although a small group of tenants is enjoying reduced rent, there hasn’t been a drastic reduction in quoted rent. The legal uncertainty surrounding the rent cap is also creating huge problems in finding a new apartment. The clear losers of the rent cap are those people needing a new apartment.

Do you have questions regarding the rent cap or on any tenancy-related issues? Our team are here to help you. Please simply contact us at:

E-mail: contact@aden-immo.com
Telephone: +49 30 61 67 51 15

Legal note: This article does not constitute tax or legal advice in individual cases. Please have the facts of your specific individual case clarified by a lawyer and/or tax advisor.

____________________________________________________________

[1] https://mietendeckel.berlin.de
[2] https://www.presseportal.de/pm/31321/4841822
[3] https://www.presseportal.de/pm/24964/4845589
[4] https://www.presseportal.de/pm/24964/4845589
[5] https://www.presseportal.de/pm/31321/4841822
[6] https://www.presseportal.de/pm/31321/4737434
[7] According to a study conducted by Immoscout24 https://www.presseportal.de/pm/31321/4841822
[8] According to a study conducted by Immoscout24 https://www.presseportal.de/pm/31321/4841822
[9] https://ivd.net/2020/11/baugenehmigungszahlen-2/

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