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Rent Freeze Exemptions Fail to Encourage New-Build Construction

Contrary to the Federal Government’s plans, the exemptions from the rent control measure colloquially called the “rent freeze” (“Mietpreisbremse”) have failed to stimulate new-build housing construction. This is the upshot of a survey by the University of Erlangen-Nuremberg that the German Society of Property Researchers (gif) commissioned. As the Immobilien Zeitung real estate trade paper reported, the exemption of new-build rents from the regulation is supposed to encourage investors to step up the development of non-rent-controlled new-build flats.1

Faith in Policymakers Shaken

However, the survey authors doubt that the effect will materialise because the housing industry is losing its faith in the body politic. They argue that the flurry of regulations in recent years—such as the tightening of the rent freeze and the reduction of the modernisation allocation—fuels concerns that further and far-reaching interventions are looming. Against this background, statements are no longer considered credible. Rather, property developers consider it necessary to anticipate policy measures that will compromise whatever positive effects have been promised.

For the purpose of their survey, the researchers compare residential buildings subject to the rent freeze with unregulated ones. Whenever special circumstances in a given city made it impossible to establish comparability, they were excluded from the sample. This was the case in Berlin, among other cities, but the authors still consider their figures meaningful. These suggest that the exemptions had an effect only in the case of municipal housing companies, and even here they barely made a difference. Meanwhile, the stagnation diagnosed by the survey is confirmed by the latest statistics. The Federal Statistical Office recently announced that the number of planning permits issued between January and April 2019 nationwide undercuts the prior-year figure by 1.4 percent.2

Federal Government Stresses Importance of Private Housing Investments

Yet Germany’s coalition government upholds its set targets and emphasises the importance of private investments for housing construction. In an interview with the Frankfurter Allgemeine Zeitung daily, Horst Seehofer (Bavarian Christian Democrats), the competent Federal Minister for the Interior, Building and Community, also pointed out a backlog of around 700,000 flats have been approved but not yet completed.3

Addressing the annual meeting of the DMB German Tenant Union, Chancellor Merkel emphasised that the only way to check rental growth is the creation of new housing. She reaffirmed her plan to create an investment-friendly climate. To this end, a total of 13 billion euros are said to be earmarked for social housing development and urban development funding, for the child tax credit for first-time home buyers as well as for an increase in housing benefits.4