My Neighbourhood — The Berlin rent cap — blessing or burden?
Affordable housing is an issue that many people are confronted with when finding a new home. As an exchange student coming to Toronto — I can talk about finding a place to stay for hours. I can tell you, it was no fun (and with the prices in Toronto’s hot housing market, I am kind of glad that the semester abroad only lasts three months)!
When talking about cities and urban policies in class, housing as a topic came up every week: Who is responsible for regulating the market?
This made me think about an urban policy solution from my home town: Berlin, Germany’s capital. Like many cities, Berlin also suffered from skyrocketing prices in the housing sector. Berlin’s rents have doubled within the last 10 years — income, unfortunately, has not. Every year, the city adds between 40,000 to 50,000 people on top of a population of 3.9 million (2019). The best solution to this problem would be to build new apartments. But housing constructions cannot keep up with Berlin’s population growth.
Or how the New York Times titled the Berlin rent cap:
To solve the problem and to give tenants a pause, the Berlin governing coalition of red-red-green suggested in 2019 a rent control law effectively only in Berlin. Starting on January 30, 2020, the rent cap applied for around 1,5 million apartments, which had been built before 2014. For these apartments, the rents were frozen at the level of June 2019. In addition, a rent ceiling was implemented, which was based on the year of construction, equipment, and location. As of November 2020, rents were prohibited that were more than 20% above a defined upper limit. A range between EUR 4.42 to EUR 12.50 per square meter applied .
Stories of Berlin’s citizens
Instead of just writing a simple text explaining what implications the rent cap had on Berlin’s tenants (and believe me, there are many different perspectives), I want to walk you through it with some personal stories and quotes. Let’s understand together, what different perspectives need to be considered when talking about the rent cap!
Blessing — “I am living in Prenzlauer Berg in a very beautiful Berliner Altbauwohnung. This area is the place to live when you are young in Berlin — very multicultural, with many restaurants and bars, and many recreation places. Before the rent cap was effective, I paid EUR 20 per square meter. With the rent cap, I am currently paying only half of the rent. This makes my monthly expenses much easier. I can afford much more in everyday life and invest in other things. — I am glad, that the government proposed the rent cap.”
Burden — “Eight years ago, we bought an apartment with 125 square meters for just under EUR 400,000. We saw it as our retirement provision. Before the rent cap, we rented out the apartment for EUR 16 per square meter. The rent was to cover both the loan installment and the taxes. Now we can only rent the apartment for EUR 12.50 per square meter. This means a lot of extra costs for us per month. We are unsure, whether we can keep the apartment. We might need to sell”
Burden — “My landlord did not accept the rent cap. Like many landlords, he assumed that the rent cap will not last and that the Court will declare it unconstitutional. Thus, he became quite creative and concluded a contract for the furniture in my apartment. I now pay additional rent for the bed and kitchen utilities. Of course, this is illegal. But this is business as usual since the rent cap had become effective.”
Burden — “The rent cap had a downside for everyone who newly moved to Berlin and had to find a new apartment. I moved to Berlin at the end of 2020 and had great problems finding an apartment. Why? When the rent cap came into effect, the supply in the rental market collapsed. The rent cap only helps at first glance — in the long term, the supply of rent drops significantly.”
Burden — “As one of Berlin’s biggest investors, I just started a new project of building 114 new apartments in Berlin’s city center.
There won’t be any of those projects in the near future — thanks to the rent cap. With this legal uncertainty, it is too great of a risk to invest in Berlin’s real estate market. This can be seen across the Berlin real estate market: drastic losses of income are being lamented and investments are being cut back. In addition, budgets for maintenance and modernization are being reduced. In the tightly calculated real estate market, this is too expensive for us as investors.
This halt in refurbishment will have a major impact on the quality of the apartments in the coming years.With the rent cap, the Berlin government has overturned all the rules of the market economy: Right of ownership, protection of legitimate expectations, freedom of contract
Burden — My apartment was not among the 1.5 million apartments affected by the rent cap. Why not? The rent cap only affected apartments that were ready for occupancy before January 1, 2014. Even though my apartment was not counted among them — I still felt an impact. Rents for apartments ready for occupancy after 2014 rose very sharply due to the rent cap — more sharply than in other major German cities.
“In our view, this is an appropriate way to enable development in Berlin that will continue to enable the socially mixed city, that will counteract gentrification, and that will also ensure that people don’t end up in the existential position of being afraid of losing the roof over their heads” Katrin Lompscher, Berlin Urban Development Senator in 2019
Another political statement is giving an insight on what the opposition says:
“They don’t want money in the city, they don’t want an influx, they don’t want private investment. At their core, it is about expropriation. That is what they are all about” Christian Gräff, CDU in Deutschlandfunk 2019
We now got to know some perspectives on the Berlin rent cap. What seemed to be a great solution for the very hot Berlin housing market, actually turned out to only favor some of Berlin’s tenants. Let’s see, what happened to the Berlin rent cap! And let me tell you, it is all about which government level is responsible — like I said in the very beginning.
Yes, that is right. On April 15th, 2021, the highest German court declared the Berlin rent cap to be unconstitutional — just only after being effective for 14 months. The Court’s decision focused on the following question: Did the State of Berlin have the legislative competence to enact the Act on Rent Restrictions? (I told you: all about responsibility and legislative competence)
It was argued that the state of Berlin had no legislative competence, because the federal government had already made a comprehensive regulation with the “Mietpreisbremse.” This policy already regulates rents on a federal level — however, the Berlin rent cap went far beyond the “Mietpreisbremse”.
The Court’s decision was, of course, highly discussed in Germany (as you can imagine).
Reiner Wild, the CEO of the Berlin Rent Association said: “We extremely regret the decision of the Federal Constitutional Court, it is a slap in the face not only of Berlin tenants” He further claims that the rent cap has undoubtedly provided relief for existing tenancies in terms of rent development.
Obviously, the Court’s decision had great impact on all citizens, whose rent had been reduced due to the rent cap.
“We are sharing an apartment in downtown Berlin and were happy about the rent cap as we are students with limited budgets. That the rent cap was declared unconstitutional, is very painful. But much worse is that our landlord demands that we pay back the difference in rent that we saved over the past months. Unfortunately, we have not made any savings — just like about 47% of all affected people in Berlin. The government promises to support us and all other affected citizens financially. We hope they keep their promise because we cannot pay for this alone.”
“I had many hopes associated with the rent cap. I had looked forward to a rent reduction. Especially with my small pension this makes a big difference. It is the task of politics to support us with the rising rents. Now we stand alone again.”
Another voice of a friend on the Berlin rent cap:
What is the situation now in Berlin?
After the rent cap was overturned, it was clear there were many question marks among tenants and landlords. After the failure of the rent cap in Berlin, the federal regulations now apply again.
A survey showed, however, that a majority of citizens and as many as 51% of landlords now want a regulation at the federal level on the rent cap.
What did we learn about the rent cap? There were winners and losers. The winners were clearly the tenants whose apartments had rent reductions. But they also had to pay back the difference in rent — so they were not real winners in the end. The losers were clearly the landlords, who had less rental income. Especially small landlords, who see the apartments as an investment for e.g. retirement provision, were knocked on their heads. Additionally, the investment stop would also have ended in poorer quality apartments in the long run. And for all those who newly moved to Berlin and were looking for an apartment during the rent cap, it was now even more difficult to find an apartment due to the reduced supply.
At least, however, the rent cap was a step taken by Berlin’s government to do something about the expensive and increasing rents in Germany’s capital. The rent cap may be gone, but the issue of affordable housing remains central. Policymakers clearly need to create new solutions and focus even more on new housing construction than on rent regulation.
Don’t forget to check out my related Instagram account to read even more personal stories on how the Berlin rent cap affected Berlin’s citizens!
