Berlin’s Rent Cap Causes Housing Supply to Shrink
Capping Berlin’s residential rents was supposed to prevent unchecked rental growth. But an analysis by the ImmobilienScout24 real estate portal just found that the total number of rental housing listings in Berlin declined by 41.5 percent year on year. The period covered by the analysis extends from September 2019 to September 2020.1
Under the rent cap, landlords in Berlin are obliged to freeze their base rents for the next five years after adjusting their rates to the rent ceiling defined by the city. The idea is to curb excessive rents and to ensure that affordable housing remains on the market.
The drastic drop in listed flats concerns mainly existing rental units that were completed before the year 2014. Listings for these plummeted by 59.1 percent, whereas listings for new-build apartments (completed in 2014 and thereafter) showed a modest increase by 6.7 percent. Frustrating the hopes vested in it, the measure arguably failed to relieve the strain on the city’s housing market. A direct comparison with other cities demonstrates that this supply contraction cannot be blamed on the coronavirus crisis. German metropolises like Hamburg, Cologne, Munich and Frankfurt am Main saw their rental housing supply increase significantly: During the period under review, the number of listings increased by an average of 35.3 percent for standing properties and by 38.5 percent for new-build properties.
Demand Pressure on the Housing Market
Regardless of the ongoing pandemic, demand on the housing market remains as high as ever. Demand in Berlin, though, is higher than in any other German city. According to an analysis by the ImmobilienScout24 real estate portal, every listing for a flat in Berlin here receives an average of 137 requests for information, which is twice as many as for listings in Cologne.2
Berlin’s rent cap has arguably not only missed its goal of increasing the supply of affordable housing, but has actually exacerbated the pent-up demand on the city’s housing market as listings for available flats have dried up. Another reason for the dilemma is that the absence of planning certainty leaves investors with few incentives to start new development projects.
Growing Supply in Condominiums
The drop in apartment listings is mainly explained by financial reasons. Since the rent cap has made letting unprofitable for a large number owners of residential property, many decide to sell their flats. Landlords have limited options now to recover the costs of refurbishment and modernisation measures from their tenants. Indeed, capping the rents has brought some owners in financial difficulties because the reduced cash flows no longer suffice to meet their obligations. As a result, the number of available condominiums in Berlin increased by 13.2 percent on the ImmobilienScout24 real estate portal alone (during the period under review, September 2019 through September 2020).
In the greater Berlin area, available-for-sale listings of existing flats that were built and completed before 2014 increased by 23 percent. But despite the surge in the number of listed condominiums completed before 2014, their price tags also increased by 5.8 percent. The average square metre price went up from 4,788 euros in September 2019 to 5,068 euros a year later.
Rather than delivering the promised benefits, Berlin’s rent cap has actually triggered an adverse development for the city’s housing market. Meanwhile, a ruling by Federal Constitutional Court whether the underlying law, the Act on Rent Limitation for Housing in Berlin (MietenWoG Bln), is constitutional at all is still pending.