SPD pushes for ‘Mietenstopp’ to cap rental growth

by

Germany’s SPD party is pushing for a 12-step ‘Mietenstopp’ to cap residential rent hikes in the country, in a move it is hoping will curb excessive rental increases following the abject failure of the Mietpreisbremse, or rental brake law.

Earlier this month (September), the SPD proposed curbing rental hikes in major German conurbations so that rent increases do not exceed inflation (currently 2% a year) over a five-year period. ‘We need a breathing space for renters,’ said Thorsten-Schäfer-Gümbel, SPD leader in Hessen, speaking to ZDF news on 8 September. ‘We want to introduce a Mietenstopp for five years in order to have a chance in that time to build new apartments.’

Other points of the proposed plan include: introducing incentives to enable faster construction of new houses and to make speculation less attractive; greater transparency, with a property and land register; abolishing share deals to avoid real estate transfer tax and a new social agreement between public housing companies and private investor/homeowners.

However, many in the industry believe that the new proposals will fall as flat as the widely-derided Mietpreisbremse: ‘I don’t think this is going to work,’ Corvin Tolle, CEO of Rohrer Immobilien Berlin, told REFIRE. ‘The move is designed to keep voters calm ahead of the state elections (in October). You can’t build a significant amount of apartments in five years. Besides, the CDU/CSU opposes it, so I don’t think the Mietenstopp will even go through.’

Roman Heidrich, team leader of residential valuation advisory at JLL in Berlin, agrees. ‘Whether the proposed changes will be successful is to be doubted,’ he said. ‘Since the introduction of the Mietpreisbremse, average new rents have shot up by 29% in Berlin. The story is not so different in other major German cities,’ he added.

In addition,‘most of the mentioned points are from a very left wing perspective’, Heidrich pointed out. ‘I don’t expect that the CDU/CSU is willing to discuss it or bring it into law. From my perspective, the 12-point plan is a pure election battle on the part of the SPD. Besides, as the ZIA mentioned “we need more new housing units in the big cities instead of an act of desperation”’.

For Klaus-Peter Hesse, director of the ZIA, the 12-point plan is an attempt to get voters onside as the SPD slips in the polls. ‘We want to see more actual incentives,’ he told REFIRE. ‘For example, at the moment, you get a 2% reduction in your tax if you buy a new or refurbished home. If they raised this to 3%, that would be better and 4% would be a proper incentive. Also, it can take a very long time to get building permits in cities such as Berlin. This really needs to be speeded up.’

Others fear that capping rents further will put the brake on investment. ‘What the SPD is proposing will lead to an ‘investment stop’, which is exactly what we don’t need,’ said Jan-Marco Luczak, head of the CDU in Berlin, speaking to ZDF news. ‘I think it will cause an investment stop,’ said Felix von Saucken, head of residential at Colliers International. ‘Landlords aren’t going to invest in their buildings if rent can only go up by 2% a year. The SPD and CDU are now in discussions, so we might see some of the points implemented, particularly in Bavaria and Hessen.’

Rainer Schorr, chairman of Berlin-based real estate investor PRS Family Trust, told REFIRE that the government should look to history to avoid making the same mistakes: ‘Almost fifty years ago, Swedish economist Assar Lindbeck came to the conclusion that rent limitation was the most successful method known to destroy a city, with the exception of bombing it,’ he said. ‘Surely, this is a strong picture and certainly deliberately exaggerated. But with regard to the requirements of the SPD, it helps to understand what a rent freeze would mean for the development of our cities. An investment stop would be ruinous for the building fabric as well as wear and tear at the same time. It is of little comfort that the regulation is supposed to be limited to five years. In the event of a rental stop, building activity would be reduced. The demand, however, remains and probably no politician will find the courage not to extend this unfortunate rule. Another question is: Will anyone remember the SPD in five years’ time?’

Heidrich agrees: ‘If there’s a Mietenstopp, landlords will stop investment in maintenance, modernization etc., causing a higher maintenance backlog in the future. There could also be a decrease in market capitalisation for listed housing companies like Vonovia and Deutsche Wohnen because it will become less attractive to invest in listed companies,’ he said.

When it was introduced in 2015, the Mietpreisbremse was designed to put a rental cap on residential rents. Under the terms of the law, Germany’s federal states could impose rental caps on residential markets, freezing them at 10% above an agreed ‘rent table’, or Mietspiegel, or an acceptable average price for a neighbourhood. The aim was, as the name suggests, to put the brakes on rents spiraling out of control in popular cities and to protect tenants who were in danger of being priced out of their neighbourhoods.

A year ago, Berlin’s district court ruled that the rent control law violates the constitution, citing paragraphs 556d and 556e of the German Civil Code. The judges complained that landlords are not treated equally across the country because the local benchmarks used to calculate rent increases vary massively in different areas. In addition, the rent brake law does not apply to rentals that were more than 10% above the local benchmarks when the new law was introduced in June 2015, which has enabled those landlords to continue charging higher rents.

Property associations such as ZIA and Haus & Grund have been fierce critics of the Mietpreisbremse, pointing out that it does nothing to promote the construction of new housing which is so badly needed in major cities. Indeed, one broker told REFIRE that such is the demand for good quality housing in some districts of Berlin that tenants are willing to turn a blind eye to unlawful rent hikes, even paying a premium if it means they can beat off stiff competition for an apartment in a sought-after area. Moreover, the rental cap does not apply to new buildings or to first-time rentals which have undergone sizeable refurbishments, which is defined as a capex injection of about a third of the price of a new apartment.

Since Germany formed a GroKo coalition in February, the CDU and SPD have introduced several proposals to boost the country’s housing market, including the introduction of Baukindergeld, a subsidy for families to help them buy a home, which applies retroactively from January this year.

Next up: a rejigged version of the Miepreisbremse: a new version is currently being drafted which will force landlords to disclose to new tenants how much rent outgoing tenants were paying. Given that it took around 18 months for the first version of the Mietpreisbremse to be passed into law, its new incarnation is unlikely to be implemented before the end of this year, according to those who track the market.

For von Saucken, the German government needs to encourage more workable solutions for the country’s residential market: ‘In the end, if you don’t have enough plots of land on which to build, you should work with what you already have. One idea would be to add one or two storeys to existing three-to-four storey buildings. This circumvents the need for new sites. Aldi is already building apartments above its supermarkets in Berlin and I think other retailers could follow suit. This could help solve the housing shortage.’ (ssk)