You won´t go far in the German housing market these days without hearing the words “Mietpreisbremse” or “Mietpreisdeckel”. These terms refer to regulatory efforts to slow down or cap rent rises, the government having recently discovered this populist tool. The idea is to dampen down rent rises in urban areas in particular and improve the supply of accommodation available to tenants, especially in the lower and middle price segments. Specifically it involves restricting rent rises in existing and new lets to a certain percentage above comparable rents in the local area.
Essentially it is about transferring and tightening the model for capping rents already applied under rental legislation to other segments of the housing market. However, only the basic rent is capped, not the ancillary costs, which are in any case apportioned to the tenants. This aspect is often overlooked. Clearly residential property as an investment will become less attractive as a result of this cap. There are fears of a reduction in investment in new buildings and in renovation and modernization. Index-linked and graduated rental contracts will become more popular for new lets, as will temporally limited termination exclusion clauses. Black-market activity will be favored, and the achievement of other political goals, e.g. climate protection and urban renewal, will be endangered.
Seen across Germany as a whole, the problem is in any case only a regional one. Rent rises of the kind being reported in Berlin, Hamburg and Munich, are by no means the rule. Only a few local-authority areas are affected. The majority of cities and local authorities are reporting stable trends. Tenants there can only dream of rent rises. What our booming metropolises really need is more housing to meet the demand, not more interventions in the market that just exacerbate the situation and help prolong the housing shortage. In these areas households with a small or even medium income are already among the losers.
In my view the brake on rent rises will not help improve the supply of affordable housing in tight markets. The only way to alleviate the situation is to create more housing. I see many opportunities to do this under the terms of existing building law, for example, and these opportunities have by no means been fully exploited. It is regrettable that the politicians are not making use of other tools to encourage more investment in housing in places where it is needed.
