Law freezing rents in German capital passed by Berlin’s Senate

After all the threatening and debating about the likely fallout of its historic decision, the ruling Senate of the city and State of Berlin finally passed their controversial law last week which will formally introduce a rent cap on residential housing in the German capital. Berlin is the first state in Germany to impose a cap on residential rents.

The law envisages that rents in Berlin will be frozen for five years and may not exceed the level "effectively agreed" of €9.80 per sqm (per month) in mid-2019, according to the new law. The law will come into effect retroactively to July of last year.

The rent cap does not apply to buildings that were constructed after 2014, while, according to the provisions of the law, certain categories of social housing provided by social agencies and dormitories are also excluded.

In crude money terms, a measure from Berlin’s Urban Development Department puts the savings to Berlin renters at €2.5bn over the five-year period, with landlords losing the same amount.

"The rent cap will again create something like an eye level between lessors and tenants," said urban development senator Katrin Lompscher of the Left Party. "We have created an instrument that will stop the evolution of partially absurd prices over the next five years. It is up to politicians to create the basic conditions so that lower and middle-class workers can afford to live in Berlin."

After the law was passed, the conservative CDU - which is not part of Berlin's ruling coalition - reaffirmed its intention to sue against the rent cap at the Federal Constitutional Court. Germany's real estate and housing industry has also been unanimous in its criticism of the measures. The rent cap would mostly affect small lessors "without tackling the real causes of the precarious situation on the Berlin housing market", according to the federal association of free real estate and housing companies (BFW).

"Only the construction of new apartments can solve the housing problem, whereas capping or lowering rents exacerbates the problem," the BFW has consistently stated. According to data provider Empirica, Berlin rental prices have risen by 30% over the past five years, double the rise in London, and more than 75% over the past ten years, largely due to population growth and higher demand, along with a shortage of new supply. Home ownership in the 3.5 million- inhabitants city is put at 18%, at most. (ssk)