Berlin vs. Munich: Two Paths to Overregulation in German Real Estate

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Richard van de Beek is Head of Asset Management at the ROSA-ALSCHER Group, a Munich-based developer and investor active across residential, office and mixed-use projects. In this guest column, he examines how overregulation—whether overt and political in Berlin or bureaucratic and procedural in Munich—is stalling urban development and deterring much-needed capital.

While Berlin often grabs headlines for radical housing policies, and Munich quietly creates equally daunting hurdles, these two cities exemplify broader challenges faced across Germany’s regulated housing market. Both cities are accused of overregulation, but the nature of their regulatory thickets differs. Both, Berlin’s confrontational interventionism and Munich’s entrenched bureaucracy each undermine investment in office and residential projects. Compared to Berlin, Munich’s “hidden” overregulation is just as investor-hostile – if not more – for slowing development and stifling innovation.

Berlin’s Overt Political Interventionism

Berlin’s regulatory battles are highly ideological and public. In recent years the capital tried unprecedented measures to control the housing market. Most notably, the city government enacted a five-year rent freeze known as the Mietendeckel (rent cap) in early 2020, which suspended the free market for rentals – banning most rent increases and even forcing landlords to reduce rents above certain ceilings. This extreme policy was a response to intense public pressure: by 2018, tens of thousands of Berliners were marching against Mietenwahnsinn (“rental madness”), with some protestors explicitly demanding the expropriation of large landlords. Indeed, in a 2021 referendum, 57.6% of voters backed a proposal to nationalise corporate landlords owning more than 3,000 units – a startling mandate that led Berlin’s senate to convene an expert commission on how such a housing nationalisation could be legally implemented.

Berlin’s interventionist streak has clearly been confrontational toward the private sector. The rent cap law, for example, triggered immediate legal challenges and was ultimately struck down in April 2021 by Germany’s Constitutional Court, which ruled that Berlin had no authority to impose rent controls (a federal prerogative). The abrupt invalidation of the Mietendeckel – “void” from the start, as the court put it – sowed chaos and distrust. It also illustrated the unintended consequences of such blunt regulation.

During the rent freeze’s brief life, many landlords simply withdrew units from the market, awaiting the court’s decision. This led to an unofficial “shadow market” for rentals, with many apartments changing hands informally and off the books. One study found 60% fewer apartments were listed for rent under the Mietendeckel, as supply contracted in anticipation of the legal reversal.

Berlin’s government, dominated by a mix of socialist and green coalition partners until 2023, also pushed other aggressive measures (e.g. expanding rent price brakes, restricting condo conversions, and using the city’s pre-emptive purchase rights until courts curtailed them). The tone has often been one of political crusade – City Hall versus landlords – which, unsurprisingly, has made investors wary.

The irony is that Berlin’s overt policies have largely backfired or been rolled back, but not before chilling investment sentiment. Even today, an expert commission’s report in 2023 concluded Berlin can draft a law to seize big landlords’ holdings (under Article 15 of the German Constitution) and suggested a framework for compensation. This keeps alive an extraordinary threat to property rights – even if just as a bargaining chip.

Such ideological skirmishes create a highly unpredictable climate for real estate. Developers and institutional investors see Berlin as a place where rules might change overnight by decree, where profits are openly vilified. It’s a city of political risk.

Munich’s Subtle but Stifling Bureaucracy

Munich, by contrast, wears a veneer of stability and cooperation with the private sector – but investors on the ground encounter a thick web of bureaucratic constraints and policy burdens. Munich doesn’t grab headlines with rent freezes or talk of expropriation; instead, it slow-rolls development through rigid plans, protracted procedures, and expensive requirements that are deeply entrenched in the city’s governance culture. The result is an environment often just as frustrating for developers, albeit through different mechanisms.

One major issue is slow approvals and procedural drag. Well before today’s economic slowdown, Bavaria recognized that permitting in cities like Munich was glacial. In fact, a 2020 reform of the Bavarian building code introduced a “Genehmigungsfiktion” – essentially a rule that if a building permit isn’t decided within three months, it’s automatically deemed approved. This drastic step came after lawmakers acknowledged that “much takes far too long” in current processes. Even with these reforms, anecdotal evidence suggests that in Munich the complex requirements and back-and-forth with authorities can delay projects for years. Long waiting times and uncertainty raise financing costs and often cause investors to miss market windows.

Munich is aligning with aggressive climate targets that stipulate all new buildings should be net-zero emissions by 2030, which will require advanced (and costly) construction techniques and materials. While laudable in principle, these standards, when coupled with already high construction costs, can tip marginal projects into infeasibility. The city’s approach often feels like a one-way street: extensive obligations, but limited incentives or flexibility for private initiative.

Developers notice that forums for meaningful dialogue are scarce – many decisions are handed down via detailed programs and statutes rather than negotiated case-by-case. In short, Munich’s regime might not be as outwardly antagonistic as Berlin’s, but it is a labyrinth of red tape, protracted negotiations, and non-negotiable social demands that can be just as discouraging.

Consequences: Slowed Development and Lost Investment

Both Berlin’s and Munich’s brands of overregulation are now visibly undermining development. Berlin’s bold interventions scared off some investors and, at least temporarily, shrank the rental supply – a lose-lose outcome of higher unmet demand. Munich’s quieter overregulation, meanwhile, is contributing to a severe slowdown in construction. The city has been falling dramatically short of its own targets for new housing and offices.

In 2024, Munich managed to create only about 25% of the planned new housing development rights it aimed for – roughly a quarter of the 4,500 units goal. Local officials openly debate the causes of this shortfall, and even members of Munich’s governing coalition admit the results are “not satisfactory,” with opposition voices calling it a “bankrupt declaration” of housing policy.

While external factors (rising interest rates, higher construction costs) play a role nationwide, Munich’s “many homemade reasons” – as one city councillor put it – cannot be ignored. These include the very hurdles discussed: lengthy procedures, stringent quotas, and restrictive planning rules that slow down or hinder projects even when capital is ready to invest.

The knock-on effects are worrying for the industry and city alike. Housing shortages persist, affordability worsens, and innovative concepts (like modular construction or co-living spaces) struggle to get approved under old regulations.

On the commercial side, Munich risks missing out on investment in modern office or mixed-use developments that could rejuvenate aging building stock – especially if investors perceive the city as too slow or onerous to bother with. There is evidence that Germany’s broader economy is suffering from such regulatory drag. A late-2024 study by the Munich-based Ifo Institute found that half of all companies view complex administrative procedures and documentation requirements as the single biggest obstacle to growth, with excessive bureaucracy estimated to cost the economy up to €146 billion in lost output each year.

In real estate, a recent sentiment index by the ZIA (Germany’s central property industry association) showed 70% of professionals believe that simplifying regulations, building codes and technical requirements should be the top political priority. The message is clear: without a serious effort to cut red tape and create a more investor-friendly climate, even Germany’s most sought-after cities will struggle to meet development needs.

In conclusion, while Berlin and Munich present two different cautionary tales for real estate investors, they also reflect broader patterns of overregulation seen in many German cities. Berlin’s open political interventionism – from rent caps to talks of expropriation – creates headline risk and an unstable policy outlook. Munich’s stealthier overregulation – via bureaucratic rigidity and heavy-handed planning mandates – creates a slower, grinding impediment to investment.

For developers and asset managers, the outcome can feel similar: projects that should go ahead don’t, capital that could be building housing or modern offices is sidelined or leaves for other markets. Both cities desperately need new housing and economic vitality, yet both are, in their own ways, throwing up roadblocks to the very investment that can deliver it.

It’s time for a rethink in Germany’s leading cities – a balance between public interest and private initiative. Streamlined approval processes, more flexible planning, and genuine partnership with the private sector are in order. Otherwise, Berlin’s ideological battles and Munich’s administrative hurdles will continue to thwart development, to the detriment of residents and investors alike.