vdp-Spotlight: Rent cap places a burden on the Berlin housing market

Berlin, 4 February 2021

vdp study encourages the reduction of construction overhangs to address market bottlenecks

The Law Revising the Statutory Provisions on Rent, which came into effect in Berlin one year ago and is more commonly referred to in Germany as the “rent cap”, places certain groups of tenants at a disadvantage and is a disincentive to modernization measures, including those intended to save energy. In order to ease Berlin's housing market and curb the rise in new contract rents, the pronounced construction overhangs would have to be reduced. These are the findings of a recent study conducted by vdpResearch GmbH and published as part of the “vdp-Spotlight” series, which is issued by the Association of German Pfandbrief Banks (vdp). The study first examines policymakers’ motives behind the law before considering whether these political objectives are being met.

“In practice, what is proving to be the case is what we – and many others – warned would happen, long before the law entered into force: the rent cap is unfair and distorts the housing market in Berlin,” remarks vdp‘s Chief Executive Jens Tolckmitt. “Tenants who move into a newly built apartment only because they cannot find an apartment with a “capped” rent pay a considerably higher rent than tenants living in older buildings.” This, he explains, is because the law prevents a natural fluctuation of tenants. “Tenants who pay a lower rent are not going to move into a newly built apartment that does not have a rent cap, even when their individual need for dwelling space has changed.” This, Tolckmitt goes on, also makes it increasingly more difficult for newcomers to Berlin to find a home.

The latest edition of the vdp-Spotlight expresses the concern, moreover, that the stock of older buildings may no longer be modernized to the extent necessary in order to meet the ambitious climate-protection targets. As long as rents are capped, landlords are more likely to be reticent about investing. “The rent cap de facto prevents modernization of the building stock,” comments Tolckmitt. Thus, in the medium and long term, tenants will suffer as a result of modernization measures not being carried out.

“Rents for the greater part of the housing stock will be completely frozen, regardless of the respective household’s financial capacity. On the other hand, the rent cap fails to address the market bottlenecks,”

concludes Dr. Franz Eilers, Head of Property Market Research at vdpResearch and co- author of the study. According to Dr. Eilers, given the backlog of construction work, building permits would not necessarily have to be granted for more apartments in order to eliminate these bottlenecks. Rather, the apartments for which a permit has already been issued would only need to be completed.

“This requires, on the one hand, building capacity and, on the other, motivated property developers – both from the private sector and from the cooperative and municipal housing sector.”