ADVERTISEMENT

Germany’s Biggest Landlord Expects Rent Cap to Cut 2020 Berlin Revenue by a Tenth

Germany’s Biggest Landlord Expects Rent Cap to Cut 2020 Berlin Revenue by a Tenth

(Bloomberg) --

Vonovia SE expects a rent cap proposed by the Berlin city government to cut revenue next year by as much as 25 million euros ($28 million), or about 10% of its rental income from the German capital.

Germany’s biggest landlord said it remains convinced that the planned legislation, which needs approval from the city’s senate, is unconstitutional. The proposal includes a cap on monthly net rents of less than 8 euros ($8.90) per square meter for houses built before 2014, according to a weekend report in the Berliner Morgenpost newspaper.

Berlin’s left-leaning coalition government -- made up of the Social Democrats, the Greens and the former communist Left party -- is trying to rein in landlords after a sharp increase in living costs led to mass demonstrations and a grassroots initiative to try to force the government to buy out large property owners.

A property boom has driven rents in Berlin up by more than 50% since 2011 and turned landlords such as Vonovia and rival Deutsche Wohnen SE into top stock-market performers. Previously the city, where a large majority of residents rent, was known for its low living costs.

The rental initiative has been championed by the Left party’s Katrin Lompscher, the state minister for urban development and housing. A draft law on the proposed measures is expected in October, so that the legislation can take effect at the start of next year as long as the three ruling parties agree and vote it through.

“We want to call a halt to speculation and promote affordable rents and a social city,” Lompscher was quoted as saying in German media Monday. She added that the details cited in the media come from a document that will form the basis of the eventual draft law and not from the draft itself.

Deutsche Wohnen shares fell as much as 5% in Frankfurt, while Vonovia dropped as much as 2.5%. Deutsche Wohnen, Berlin’s largest commercial landlord, has lost about a quarter of its market value since the capital announced its intention to clamp down on landlords. New leases in Berlin were 9 euros per square meter last year, the company says on its website.

“A rent freeze law would be going in the wrong direction and in no way solve the problem for tenants in Berlin or for the tens of thousands of people who move or want to move to Berlin every year,” Vonovia said in a statement Monday. It said it plans to redirect cash earmarked for modernization of its Berlin properties to other regions.

Insufficient Supply

The proposal, which would be part of a package that would also freeze rents for five years, will likely “exacerbate the problem of insufficient supply of new housing” and “prevent much needed investments in energy efficiency,” Vonovia said.

“The creation of a rent-cap law is completely counterproductive and won’t relieve the pressure in Berlin’s housing market,” Deutsche Wohnen spokeswoman Manuela Damianakis said in an emailed statement. “The state is arbitrarily setting rents without taking into account the location of properties, their condition or the income of the tenants.”

Legal experts are divided on whether the proposals will stand up to scrutiny. An opinion from the Bundestag has said that it would be against the law to impose an upper limit on rents. The rent cap “wouldn’t stand up in court,” Kai Wegner, local CDU party chief in Berlin, told DPA. “Obviously, we’ll need to take a look at this law as soon as its presented to us.”

Heiko Sauer, a law professor at Bonn University, said a rent cap would be “legally viable” as long as the city administration was able to show that it wouldn’t be permanent.

Vonovia said Monday it expects the “imbalance” between supply and demand to become “even more pronounced” if the rent freeze plan is enacted.

--With assistance from Monica Houston-Waesch and Alexander Kell.

To contact the reporters on this story: Iain Rogers in Berlin at irogers11@bloomberg.net;Andrew Blackman in Berlin at ablackman@bloomberg.net

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

©2019 Bloomberg L.P.