Guideline rent reform: housing sector critical of draft statute
Against a background of increased housing pressure across Germany, the extension of the review period for the calculation of local comparable residential rents (the Mietspiegel) has been attracting heavy criticism of the proposed reform measures.
The German government’s new draft legislation for the reform of the guideline rental price schedule (Mietspiegel) is intended to restrain rental price growth. This involves a new method for the calculation of the local comparable rent. This is now a bone of contention at the judiciary committee’s consultation in the Bundestag lower house of parliament, with the primary criticism comes from the housing sector itself
The federal government would like to reduce the effects of short-term fluctuations in the rental housing market on the comparable rent and also subdue increases in existing and future rental prices by extending the review period for its calculation. The draft legislation was approved by the federal cabinet on 18th September and received its first reading in the Bundestag on 25th October.
So, what does this mean in real terms? The review period for the local comparable rent - and thus also for the guideline rental price schedule for the use of local councils – will in future be extended from four to six years. The Bundesrat upper house decided not to raise any objections to this on 8th November. However, for the Greens in the Bundestag, the draft does not go far enough - they want to see the local comparable rent based on new leases concluded over the last 20 years, instead of just four or six years.
BFW questions the constitutionality of the proposed rent control
In the run-up to the public hearing at the judiciary committee of the Bundestag on 13th November, experts from the housing economy again came out strongly against the proposed rent control.
The federal association of independent real estate and housing companies (Bundesverband Freier Immobilien- und Wohnungsunternehmen – BFW) made a statement raising the matter of the legal effectiveness of the proposals: the rent control foreseen by the draft legislation is supposedly in breach of the underlying legal intent of §§558 ff. BGB (German Civil Code), which allows for rents to be raised to the local comparable rent. “As many rents are already capped by state intervention in landlord and tenant law, the rent control is already enshrined in law by the local comparable rent” says BFW president Andreas Ibel.
The decision of the federal constitutional court relating to the rental price brake, which in essence has “just about” approved the constitutional effectiveness on the basis of the four year review period plus a rental price brake until the year 2020, raises the question whether the extended review period would result in a situation which would no longer be compatible with Article 14 of the German constitution relating to the protection of property.
GdW foresees risk to housing policy forces driving new-build activity
What a shorter review period would actually do is inject housing policy impetus into the market. This is the principal argument offered by the federal association of German housing and property companies (Bundesverband deutscher Wohnungs- und Immobilienunternehmen – GdW) against the new rent control proposals by the federal government. Others argue that the objective should be the invigoration of residential new-build activity.
“The extension of the review period is the wrong signal because of the current requirement for new-build completions, particularly in the affordable segment, in which there is now a shortfall of around 80,000 subsidised apartments and 60,000 reasonably priced rental apartments” is the GdW’s view at the expert hearing. This is particularly relevant in view of demands for a much longer review period requested by the Greens.
“Extending the review period for the calculation of the guideline rental price as an instrument of regulation causes more problems than it solves”, says GdW president Axel Gedaschko ahead of the hearing at the judiciary committee. This would result in increases in financing costs, which would increase construction costs and ultimately the cost of living.
Rental price brake coupled to the local comparable rent
“The local comparable rent should actually allow the landlord to review the rents to the current dynamic in the market, and rent control is already enshrined in the local comparable rent by the statutory rental price cap”, says BFW president Andreas Ibel ahead of the hearing. “The extension of the review period would, in practice, give us yet another level of rental price brake.”
In addition to rental increases for existing leases, the rental price brake is also used to couple the rent for newly agreed leases to the local comparable rent. In areas subject to a rental price brake, the rent for newly agreed leases may only be up to a maximum of 10% above the local comparable rent.
Instead of an extended review period, the BFW feels it is important to improve the acceptance and legal compatibility of the qualified guideline rent by advances in scientific rigour during the process.