Berlin Rent Freeze Has Cut Prices, But Good Luck Finding a Flat
(Bloomberg) -- It’s been nearly eight months since Berlin introduced a five-year rent freeze and restrictions forcing landlords to reduce prices by as much as 40%. While some people are paying less, it’s harder to find a new rental—and some prospective tenants are being asked to sign shady side contracts.
In September, the number of homes available for rent in Berlin was down 42% from a year earlier, and those affected by the new legislation—built before 2014—dropped by 59%, according to ImmoScout24, Germany's dominant online real estate platform. “There are often several hundred inquiries for each apartment, and ads are frequently taken down within a day,” says Thomas Schroeter, the company’s managing director.
Some Berlin government officials and tenant groups attribute shortages to a drop in turnover due to the pandemic, but data from ImmoScout and other market watchers indicate otherwise. While the German property market ground to a halt early in the lockdown, big cities across the country are seeing more rental activity than last year—except Berlin. “People might blame Corona,” says Christian Oberst, a real estate analyst for iW, the Cologne-based German Economic Institute. “But I'm quite certain the effects we see in Berlin are due to the new legislation.”
Finding a home in Germany's trendy capital has gotten steadily more difficult over the past two decades as new residents, investors, startups, and companies have moved in. Rental prices in many neighborhoods have more than doubled since 2009 as construction has lagged demand.
In February, Berlin’s left-leaning government introduced the so-called Mietendeckel—rent cap—to keep Berlin from going the way of cities such as London and New York, where the lower and middle classes are being priced out of the center. “It was necessary to slam on the brakes so investors couldn’t keep making endless amounts of money at the expense of tenants,” says Wibke Werner, deputy head of the Berliner Mieterverein, a tenant-rights group.
City officials say the freeze was intended to give renters “breathing room” while Berlin seeks to increase construction to at least 20,000 new homes annually, more than four times the level in 2010. That goal is now in sight as developers in the city last year built 18,999 new homes.
But the legislation, which is being challenged in federal court and risks being overturned next year, has spooked landlords. Some are selling apartments rather than renting them at reduced Mietendeckel prices. In September, the number of Berlin homes for sale was up 13% from the year before, and the increase for those built before 2014 was 23%, ImmoScout reports. Traditionally, Berlin has been a city of tenants, with more than 80% of the population renting. If the trend of buying homes continues, that number will shift toward the national average of about half.
Those who can’t afford to buy, or don’t want to, are often faced with onerous contracts and grey market deals. To avoid losing income, many landlords have begun requiring tenants to sign leases with two different prices, one that will be in force if the rent freeze continues and a higher figure that would apply—retroactively—if the law is deemed unconstitutional.
Less scrupulous landlords are demanding tenants pay outrageous prices for, say, furniture or kitchen equipment as a condition for renting, according to ImmoScout chief Schroeter. “For example, there’s a chair here; it’ll cost you 15,000 euros, or this stove, it’ll be 10,000 euros,” he says. “This grey market exists. It’s absolutely obvious.”
Still, Berlin’s government stands by its legislation, saying it shouldn’t be blamed for the housing crunch. “The Mietendeckel is not the cause of Berlin’s overburdened market,” says Sebastian Scheel, the city’s senator for urban development and housing. “It’s the result of it.”
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