Rent Cap 2.0?

Already more than six months have passed since the legislator has introduced new rules related to caps on residential rent, the so-called Mietpreisbremse (literally “rent brake”). Pursuant to these rules, increases in rent in certain regions are subject to new statutory restrictions. According to the rules, in regions with a so-called tightened/overheated resi-dential real estate market (Gebiete mit angespannten Wohnungsmärkten) the initial rent due under newly concluded residential lease agreements may not exceed the comparative local customary rent (ortsübliche Vergleichsmiete) by more than 10%, unless the rent owed by the previous tenant was higher.

By means of the new rules, the legislator intends to fight housing shortages, open the market for socially weaker segments of the population, avoid the marginalization of existing inhabitants of certain quarters (gentrification) and, last but not least, an abatement of increases in rent.
By means of the Act, governments of the federal states have been authorized to - by means of ordinance and for periods in time not exceeding five years - establish those regions with tightened/overheated residential real estate markets, to which the respective rules shall apply. In fulfillment of the respective authorizations and following the entering into force of the Act on June 1, 2015, many ordinances have already been enacted in numerous federal states and, sometimes– as recently in 16 Bavarian municipalities - have already been abolished. Currently, regions with tightened/overheated residential real estate markets for example include Berlin, Potsdam, Hamburg, Düsseldorf and Stuttgart.

But what are the achievements of the new rent control rules so far?

Critics are of the opinion that the newly-introduced rent control rules have proven to be a ”toothless tiger”, in particular as regards Berlin. Rather than putting a hold to the increase in rents, rents have allegedly increased by 6.7% on average if compared to 2014. Based on a market study recently published by the Berlin investment bank (Investitionsbank Berlin, cf. pages 58 et seqq. of the IBB Wohnungsmarktbericht 2015), Berlin citizens which rent new housing today on average pay EUR 8,80 cold per square meter, i.e. 6.7% more than two years ago. Also according to a current report of the Empirica Institute (cf. empirica paper no. 232 dated January 2016), to date the rent control rules “hardly show any sustainable effects”. While at the beginning, rent payable under new residential lease agreements had decreased, this effect has allegedly been balanced by subsequent increases.

Nevertheless, at least for the time being, not too much importance should be given to such analyses, as in order to clearly isolate the effects of the new rent control rules from other effects, additional data will yet have to be collected.

Irrespective of the rather unclear consequences of the recent amendments, the German Federal Minister of Justice, Heiko Maas, would not eliminate the possibility of further amendments to tenancy law. In this context, not only further aggravations of the statutory rules (as inter alia demanded by the Berlin tenants’ association) are under discussion. For the time being, one will have to wait for the current plans to materialize and to see what changes will finally be enacted. What seems to be clear, however, is that at least individual regulations (e.g. comparative local customary rent, qualified rent index) will be amended (in this context cf. articles “Envisaged changes to German regulations related to standard rent tables”, “Reduction of modernization surcharge”, “Tax benefits for the promotion of investments in new rented housing”).

If the changes in question will in fact be enacted, this will most likely improve or aggravate the effect of rent control rules.

While it is not entirely clear, yet, how German courts will interpret the newly-established rent control rules, owners and investors should closely monitor the further legislative developments and take the existing and potential additional future limitations on rent into consideration when taking investment decisions. 

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