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Berlin Plans Five-Year Rent Freeze in Response to Anger Over Housing Crunch

Berlin Proposes Rent Freeze on Anger Over Housing Squeeze

(Bloomberg) -- Berlin plans to freeze rents in response to public outrage over a growing shortage of affordable housing, setting a legal precedent in Germany on an issue that’s increasingly creating political waves across Europe.

The city’s Social Democratic-led government agreed that rents should remain fixed for five years, Katrin Lompscher, Berlin’s senator for housing, said at a news conference on Tuesday. What’s more, tenants who can show that they’re paying unreasonably high rents will have the right to demand a reduction from their landlord.

“This should set an example for other states,” Lompscher said. “Now it’s up to them to see if measures like these would also work for them.”

Berlin Plans Five-Year Rent Freeze in Response to Anger Over Housing Crunch

Germany has the lowest proportion of home owners in the European Union, and renters are by far in the majority in Berlin. Previously known for its ultra-low living costs, the city has been particularly hard hit by rising housing prices as construction fails to keep pace with the German capital’s growing population. The situation has fueled mass demonstrations and sparked a push for a referendum to force Berlin to expropriate apartments from large landlords.

German Finance Minister Olaf Scholz added his support to the rent freeze last week, saying in an interview with Frankfurter Allgemeine Zeitung: “We don’t want to end up like London.”

Not on Agenda

While the measures offer temporary respite for renters, they don’t offer a path to increase supply of affordable living space. Real estate experts and big landlords argue that a relaxation of construction regulations would do more to ease the crunch by helping developers to keep up with demand.

When asked about plans to boost supply, Lompscher said: “It wasn’t on today’s agenda.” A draft law on the rent freeze is expected in October, and the measures are likely to come into effect next year, she said.

Large German landlords Deutsche Wohnen SE, LEG Immobilien AG, and Vonovia SE erased gains in Frankfurt trading after the announcement.

Think Twice

The move risks souring investors on the German capital and choking off resources needed for new housing, according to Andreas Mattner, president of Germany’s ZIA real-estate lobby.

“Berlin is walling itself in,” he said. “One will think twice about investing in Berlin.”

Concerns about surging housing costs is an issue beyond the country’s biggest city, with protests in Frankfurt, Cologne and Stuttgart in recent months. Other countries are also feeling a public backlash.

In Barcelona, where housing costs have jumped by more than 50% in the past five years, landlords of properties in the most desirable neighborhoods will soon have to negotiate leases based on benchmark prices set for each property. That regulation follows a national law, implemented in March, that caps annual rent hikes at the rate of inflation.

Price Caps

In Amsterdam, the local government wants to force home buyers to stay in their property for at least three years to prevent short-term profiteering. At the same time, the Dutch interior minister is working on legislation that would give municipalities with tight housing markets the power to cap prices for new rental contracts.

The pushback may be having an impact. Rents in Berlin are currently increasing by an average of 2.5%, as measured by the “Mietspiegel” -- an index of the rents actually paid by tenants. That’s down from 4.6% in 2017.

After a 12-year boom led by the country’s largest cities, advertised rents have stagnated across Germany since January, according to Scout24 AG, which operates Germany’s largest online real estate site.

“This could herald a period of smaller rental increases,” Chief Commercial Officer Ralf Weitz said last month.

--With assistance from Lukas Strobl.

To contact the reporter on this story: Andrew Blackman in Berlin at ablackman@bloomberg.net

To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Iain Rogers, Chris Reiter

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