Jens Tolckmitt: Rent cap produces only losers

31 January 2020

Pfandbrief banks fear massive consequences for Berlin's property market

The Pfandbrief banks have criticised the rent cap law adopted yesterday by Berlin’s House of Representatives in the strongest terms.

“Against better judgement and in spite of numerous warnings from political, industry and academic experts, the House of Representatives has passed a law that shakes the foundations and proper functioning of the Berlin rental housing market,”

explained Jens Tolckmitt, Chief Executive of the Association of German Pfandbrief Banks (vdp).

“The rent cap is a historic mistake, which – paradoxically – prevents exactly what Berlin so urgently needs: new housing.”

He pointed out that in five years’ time, when the rent cap ends, there will no longer be any qualified rent index to serve as a binding basis for future rentals.

“It is unclear when the Berlin residential property market will once again become fully functional. The rent cap undermines our market economy,” said Tolckmitt.


Housing shortage will increase further

The Pfandbrief banks fear that the tense situation in Berlin’s housing market will not improve as a result of the rent cap in either the short or the long term; on the contrary:

“The housing shortage is likely to increase still further due to the rent cap,”

said Tolckmitt. The examples of Stockholm and Geneva, where rent caps have already been in place for some years, demonstrate that the housing market practically grinds to halt.

“The rent cap produces only losers.”

Those moving to the city, students and young families looking for a home in Berlin will in future find it even more difficult, since the rent cap will lead to existing tenancies being held for longer. Meanwhile, landlords could see the values of their properties fall. Where these properties are debt-financed, banks may potentially demand that they provide additional collateral. Furthermore, even current tenants will only benefit from a rent cap or any rent reductions for a short time: in the medium to long term, they will suffer from a resulting lack of modernisation measures.


Rent cap hinders investment

Signs of the adverse effects of the rent cap are already becoming clear to the Pfandbrief banks. Investors have been pulling out of Berlin since discussions on the rent cap began, and the transaction volume has fallen, with grave consequences: initially, modernisation measures are being scaled back; while over the next few years, new residential property construction is also likely to decline.

“Property investors’ confidence in Berlin as a location has been seriously undermined,” says Tolckmitt.

In addition, the rent cap seems a completely inappropriate approach in view of the objectives set by policymakers both at European level, with the Green Deal, and at national level, with the Climate Protection Act adopted in Germany.

“If there are virtually no financial incentives for landlords to undertake energy-saving renovation measures, they will not do so. Without the private sector making urgently needed investment in existing properties, the ambitious climate protection targets set by policymakers cannot be achieved,” stressed Tolckmitt.