World waits to see how Berlin’s new rental moves work

World waits to see how Berlin’s new rental moves work

Rising rents and public protests have urged the Berlin senate to introduce a rent cap, bringing all rents back to the level of 2013.

While there are multiple legal and administrative challenges, Annika Werner and Constance Quinlan argue there could be lessons here for the Irish Government.

Rising prices, rising rents, and public protests have forced the Berlin government to introduce a rent cap to tackle the city’s housing crisis.

Last week, the legislative body of the German capital voted to introduce the cap, which places strict limitations on the rental market.

The long-term effects of the bill are unclear. Nevertheless, politicians are willing to experiment and introduce measures that have never been used in Germany before.

The new law is essentially twofold: All rent prices are frozen and there are now maximum rates of rent.

For rents below the maximum rent, landlords will only be able to increase their prices gradually from 2022, as long as they stay under the rent cap.

Even then, the augmentation must directly correlate to the rate of inflation.

As for the rent cap, the limits are regulated by a table released by the senate.

It categorises the apartments depending on how old the flat is and how well it is equipped.

For example, for an apartment from between 1950 and 1964 that has a collective heating system and a private bathroom, a landlord is not permitted to charge rent higher than €6.08 per square metre.

The highest prices, meanwhile, can be charged for the newest buildings affected by the rent cap, namely those built between 2003 and 2013. The highest rate of rent is €9.80 per square metre.

The prescribed rate can be slightly exceeded if the flat offers certain amenities, such as a fitted kitchen, energy efficiency, or an accessibility elevator. Or, the rent can be adjusted depending on the location (though only by a few cents more or less per square metre).

Certain types of buildings are excluded from this rule: The rent of post-2014 constructions is unrestricted by the bill, and social housing is exempt (though rents here are already government regulated).

The former exemption is an important aspect of the regulation: It is hoped that it will stimulate developers to redirect efforts towards building new spaces and thus expand the housing market.

In the end, the senate is aware that landlords and their ability to invest is essential to a positive development of the housing market. The law will allow landlords to benefit from their investments, but only to a certain degree: The rent cap is where the senate seeks to draw the line between rightful capitalisation and exploitation.

The law is an immediate reaction to the pressure exerted by Berlin activists that that climaxed in summer 2019.

In June, 77,000 signatures were handed over to the administration of the senate calling for the expropriation of the big real estate groups that are currently shaping the German housing market.

The group Deutsche Wohnen & Co Enteignen (Expropriate Deutsche Wohnen & Co, the major real estate groups) celebrated the senate’s decision, but continued to call for appropriation of the properties in the long run.

“Not all holes have been fixed,” they announced in a tweet, “but we’re counting the result as a first victory for the tenants of Berlin.”

The rental market has been a growing issue for years in Berlin. While not compar-able to the sums demanded for Dublin flats, rent in Berlin has almost doubled between 2005 and 2019, with a rise from roughly €5/sq m to €9.50/sq m.

The cap of existing rents, in addition to the prohibition to raise prices, means the rent will either stay stable or potentially go down to a 2013 level. This is a result that previous legislation in Germany, such as the 2015 rent control laws, has not yet managed to achieve.

Expectedly, it has led to outcries from landlords, real estate groups, and developers. Though it is a softer blow than expropriations, the rent cap is a massive infringement of the right of ownership that is secured in the German constitution.

It will remain to be seen how the rent cap will affect the market once in practice.

The high economic stakes at both sides of rental contracts will make it likely for cases to go up the highest courts and eventually challenge the constitutionality of the law in front of the German constitutional court in Karlsruhe.

Because the responsibility for civil law and economic issues lies with the German state on a national level, there are legal concerns about whether the city of Berlin is capable of issuing the rent cap in the first place.

Furthermore, the law constitutes a major challenge for the city’s administration.

Since their bodies will be responsible for dealing with resistant landlords and obey the compliance with the law, a whole new range of jobs and capacity will need to be created in order to impose measures and create the intended results.

The severity of the law also depends on how the administration handles exceptions.

Since landlords are allowed to address the city and claim rents that surpass the limits when this is deemed necessary to protect them from financial losses or to allow necessary renovations, it remains to be seen what the city will consider economic hardship to be.

All of these struggles seem to be risks worth taking for the Berlin senate.

Its unusual approach is a clear indication of its willingness to take on obvious deficiencies and a refreshing change compared to the housing policies in other European capitals and Ireland.

“For the next five years, no tenant needs to be afraid of losing their home because of exorbitant rent increases or the costs of modernisation,” Katrin Lompscher announced when the senate publicly shared its decision.

While Berlin may struggle with the implementation of the law, the rest of the world is in the comfortable position of being able to watch, take notes, and learn.

Whether the experiment fails or excels, whether one supports or rejects governmental interference with the market, Berlin has set a foot in cold water and the rest of Europe can now await whether they will stay afloat.

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