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German States Starting to Rescind Rent Freeze

Some of the German states have done their math at long last. They have finally realised that the rent control measure colloquially referred to as the “rent freeze” is not an adequate way to address the keen housing demand or the rent hikes it causes. Rather, the rent freeze has had the very opposite effect in recent years. Following the introduction of the rent freeze, rents have continued to push up while housing construction has declined. According to the latest projections, Germany’s housing supply is now up to 1.2 million units short of demand.

Coalition Agreements the Silver Lining on the Horizon

In the wake of state-level elections in North Rhine-Westphalia and Schleswig-Holstein, the incoming state governments intend to act – and a closer look at the coalition agreements provides a glimmer of hope. The agreement between Christian Democrats and Liberals in North Rhine-Westphalia, for one, includes an auspicious section. “The rent freeze has not served its purpose in North Rhine-Westphalia. It has failed to curb rental growth, but has stalled private investments in housing construction instead. In order to expand supply on the housing market, and to ensure that more low-priced accommodation is available, we intend to make private investments more attractive again. To this end, we will repeal the rent increase cap ordinance and the rent control ordinance. Federal law already includes extensive tenant protection rules. State-level regulations exceeding the latter are therefore unnecessary. We will repeal the notice lock-up period ordinance, the zoning ordinance against the misuse of residential property, the condominium conversion ordinance, and will review the state-level housing supervision law.”

The coalition agreement that the incoming government of Christian Democrats, Liberals and Greens signed in Schleswig-Holstein also includes a section on the rent freeze. “The price trend on the residential rental market is fast-paced even in Schleswig-Holstein, generating pressure for political action. The experiences with the instruments of the so-called rent freeze and the rent increase cap ordinance shows in the case of Schleswig-Holstein that the intended effect, namely to ensure the stability of rent rates, was not achieved. We will therefore replace the ordinances in question with more suitable instruments.”

Rent Freeze Stalls Investments

Of course, the two coalition agreements differ in character. The key statement of the three-party coalition agreement in Schleswig-Holstein in this context is the concluding sentence, suggesting that “more adequate” instruments will be employed – which is a bow to the Greens which continue to see the rent freeze as a suitable means to combat rising rents on the housing market elsewhere. That being said, the incoming state government in Kiel has yet to specify what sort of superior instruments it has in mind. One recommendation made by the real estate industry is to speed up the planning permit procedure and to zone more land for development.

The agreement in North Rhine-Westphalia, by contrast, clearly bears the handwriting of a liberal-conservative coalition. The body politic in Düsseldorf has understood that the rent freeze, rather than slowing the rent growth, slowed and discouraged investments. While all is well that ends well, it is an insight that comes several years late.