Berlin’s Biggest Landlord Has a Warning Over Soaring Rents

(Bloomberg) --

Berlin’s plan to control surging housing costs is diverting investment from the squeezed market even before a rent freeze comes into force, according to the city’s largest residential landlord.

While German courts are likely to strike down legislation to control rents for five years, “the damage has already been done,” Philip Grosse, chief financial officer of Deutsche Wohnen SE, said in an interview at the property owner’s headquarters.

The initiative by Berlin’s government has been sowing doubt since it was proposed in June and caused delays to “much-needed investments” in the city’s housing stock, Grosse said. “The longer we have that uncertainty, the worse it will be.”

Deutsche Wohnen has postponed construction projects in Berlin and will instead focus on other cities. The company said earlier this month that its inability to raise rents significantly, combined with potential mandated rent reductions, presents a risk to cash flow of as much as 330 million euros ($363 million) over five years.

“The city of Berlin is creating its own civil code which conflicts with the federal regulations,” Grosse said. “Our constitution explicitly forbids that.”

For the Berlin government, the effort has helped defuse tension that spurred a call to expropriate large for-profit landlords like Deutsche Wohnen -- the main target of public ire in the city because of its large presence.

The CDU -- Chancellor Angela Merkel‘s party, which is in the opposition in the city -- plans to challenge the measures in Germany’s constitutional court, according to a party spokesman. But any challenge can only happen once the new legislation takes effect, which is expected to be during the first quarter of next year.

“I have great trust in our legal system and, in my very strong opinion, the law will not survive a constitutional review,” Grosse said.

There has been one upside to Berlin’s rent freeze for Deutsche Wohnen: the movement to force the city to buy out big apartment owners is faltering. Only 29% of Berliners are in favor of a proposed referendum, according to a survey published in the Berliner Morgenpost on Friday. In the same poll, 71% backed a rent freeze.

“It’s losing steam, and it’s not going to happen,” said Grosse, who attributes the loss of momentum partly to the other measures against landlords. “If there’s one good thing about the rent freeze, it’s that.”

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

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Chris Reiter, Iain Rogers

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