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Rent Table: Tweaking the Facts?

What the Rent Table is Supposed to Do

Rent tables are data pools whose purpose is to deliver qualified details about the housing market to landlords and tenants. They are supposed to serve as indicative benchmark when defining rent rates, and may be referenced to settle rent disputes. Compiling and citing rent tables became established practice after the enactment of Article 558, German Civil Code, which governs the margins for rent increases. Pursuant to this article, landlords may raise the rent on unexpired leases only up to the level of the “local reference rent.” In 1974, the institution of the rent table was created as a source for this sort of reference value. “Simple” rent tables are compiled in a collaboration of property owners' associations and tenant associations, subject to approval by the cities and municipalities who commission them. Much higher standards apply to “qualified” rent tables, which must be compiled using “recognised scientific principles,” and which are mandatory in many cities. Today, about 100 cities with populations of more than 100,000 commission and publish such rent tables. The law requires that rent tables take the residential rents of the past four years into account. It also states that only lease agreements either signed or amended during this time period may be considered.

Dubious Methodology

So far, no rent increase caps were applied to new leases signed. Owners used to be at liberty to set their rent rates, but no more: The rent freeze to be introduced next year will change all that. According to the new law, the rent rates written into new lease agreements must not exceed the local reference rent by more than ten percent. The seemingly innocuous benchmark, however, poses a serious problem: Pundits have complained for some time that the rent tables that people check to determine the local reference rent represent anything but adequate market conditions. They also tend to be contested as soon as they are published. Just like with many things, the findings depend on the survey method chosen – and the one chosen in this case is controversial. Many rent tables, for instance, weigh new rentals at just ten percent. Especially during the past four years, however, new rentals have skyrocketed in conurbations characterised by high fluctuation rates. The influence this factor plays in the equation is thus entirely diluted, with rent rates reduced as the result of an arithmetic effect. The criteria applied to take quality characteristics into account are just as dubious. For instance, fit-out features such as the nature of the sink or the presence of stucco on the ceiling will influence the calculation. Other aspects, like the level on which a flat is located, the orientation of its balcony, or an unobstructed view of the city, will not: These characteristics are ignored.

Skewed Rental Reality

Restrictions of this kind obviously impact the trustworthiness of the data. According to Berlin's rent table for 2013, people paid a monthly square-metre rent of 6.35 euros for a flat in a “fair” location but only 6.19 euros for one in a “good” location. This would imply that tenants were prepared to pay more in unattractive locations than in popular ones. The previous rent table of 2012 presented a similarly paradox picture, listing substantially higher rents for flats in partially refurbished period buildings than for completely refurbished ones. What all of this adds up to is a distorted picture of the housing markets – the proposed but questionable basis for the implementation of Germany's new rent control legislation.