Further watering-down of Mietpreisbremse in the pipeline

There had been rumours swirling around for a couple of weeks that the justice minister in the Berlin coalition government had been weighing up further measures designed to water down the effects of the coming Mietpreisbremse legislation, the new rental cap on German residential housing.

He surprised the market at the weekend by suggesting that new construction would be exempt from the dampening effect of the proposed new law, a key pillar of the coalition government’s programme to promote affordable housing despite rapid rises in rent levels in Germany’s larger cities.

Opponents of the rental brake have argued that the measure would strangle badly-needed new housing construction, as investors would be unable to charge rents that would provide any incentive to build. As it stands, the law envisages new leases as being capped at 10% above an agreed local ‘rent table’ in localities with housing shortages, with the law applicable for five years.

It is also becoming clear that the new law is running up against a number of bureaucratic hurdles – including the difficulty of establishing what is an acceptable Mietspiegel or ‘rent table’ for the purpose of measuring acceptable rents in a neighbourhood to underpin allowable rent increases on new leases.

The head of RICS in Germany, Martin Eberhardt of Bouwfonds, recently warned the lawmakers of over-hasty introduction of the law as defined before the latest watering-down. “We need to look at the rental facts in a European comparison as well as the consequences of such rental caps in countries that have already introduced the instrument before coming to premature decisions,” he said.

While rents in Germany have risen significantly in the large cities over the past few years, when compared with growth rates since 1997 across all 28 European countries Germany still come in in last place last with a 1% annual average over the period. “In practice, this means that the majority of rents were not raised at all and increases only affected a small percentage of rental stock,” he said. “The ‘urgent demand’ for a rental cap formulated by politicians has no real basis in factual justification from an international viewpoint.”

Eberhardt drew unfavourable comparisons with the experiences in neighbouring Austria, which has had a form of rental cap for nearly 100 years. “The results of these constraints were frequently: non-carried out maintenance backlog all the way to collapsing houses, landlords excessively paying tenants to move out, unattractiveness of free-financed rental apartment construction, quasi monopolisation of communal and public rental apartment construction, determent of international investors, confusing laws with several loopholes and illegal utilisation of flats – among many side-effects,” said Eberhardt.