Composite: dizanna/Depositphotos.com, REFIRE
Germany's Mietrecht II reform package has passed cabinet and is now in parliamentary procedure, with the federal government targeting passage before the summer recess. The five measures it contains each sound, in isolation, like modest adjustments to an existing framework. Together, practitioners argue, they represent something more significant.
"It is the accumulation of all these many pinpricks," said Sascha Nöske, CEO of Berlin-based property manager Strategis, at a Rueckerconsult webinar on the implications of the reform. "Each individual measure seems moderate. But they all land on the same side of the scale."
The five elements of the package, as presented by Ulrich Creydt of audit and tax firm Ypsilon GmbH, cover furnished apartments, index-linked rents, short-term tenancies, eviction protection and modernisation rent increases. On furnished apartments, landlords must separately disclose the furniture surcharge in the lease contract — failure to do so risks the apartment being classified as unfurnished and subject to full Mietpreisbremse provisions. The surcharge is capped at either 10% of the net cold rent or 1% per month of the current furniture value.
Uwe Bottermann of BK-Law noted that previous market convention allowed considerably higher rates, making the new 1% monthly cap a genuine tightening rather than a simple codification. Short-term tenancies are being simultaneously reduced from a maximum of twelve months to six, with extension to eight months available only in unforeseeable circumstances — and Bottermann flagged that lettings of six months or less now attract VAT at 7%, adding an administrative burden for smaller landlords that has received little public attention.
The index rent argument
The measure with the largest implications for institutional investors is the cap on index-linked rents. Under the proposed rules, applicable only in designated tight housing markets, landlords may pass through CPI increases in full up to 3%; above that threshold, only half of any additional inflation can be applied. In a market running at 5% CPI, the effective maximum rent increase would be 4%.
Arnaud Ahlborn, managing director of Industria, which manages 24,000 residential units with €6.3 billion in assets under management, described the impact directly. "The investor has entered this investment with the expectation of full inflation protection," he said. "That argument is now being curtailed." He noted that construction cost inflation has been severe — technical building equipment costs are up 45% since 2020 — making the timing of the index rent cap particularly poorly judged. For private landlords relying on property as pension provision, Ahlborn warned of "cold expropriation": a gradual erosion of real returns that was never in the original calculation.
Creydt identified a further paradox. The cap applies specifically in tight housing markets — precisely the locations where new investment is most needed. "A regulation inserted into markets where supply is already scarce is not likely to motivate investors and parties who would like to create housing," he said. Restricting returns in conditions of scarcity is more likely to produce less supply than lower rents.
Nöske noted that this logic is already producing visible market behaviour. Several developers he knows have explicitly redirected capital toward data centres and defence real estate to escape the residential regulatory environment. The irony is not lost on those who track housing supply: less private capital in residential means less construction, which means the conditions that prompted the regulation in the first place are likely to worsen.
One nuance that rarely enters the public debate: Nöske acknowledged that many investors voluntarily chose not to exercise their full index rent entitlement when inflation was running high. "This is done with a sense of proportion by those who know what they are doing," he said. That admission complicates the political framing of the reform as a necessary corrective to unchecked landlord behaviour.
Brussels has offered its own verdict on the broader direction of travel. Germany's housing construction investment has fallen for five consecutive years, down 20% since 2020, and the EU Commission has explicitly warned that rent controls do not address the root causes of housing shortages and risk further weakening investment incentives. The ZIA described the Mietrecht II package as "well-intentioned but counterproductive," warning that weakening the inflation protection of rental income should not surprise anyone when new construction fails to materialise. GdW President Axel Gedaschko was blunter still: Germany needs to move "from regulating to enabling."
Germany's housing shortage is fundamentally a supply problem. The parliamentary debate now centres on whether further regulation can solve it without discouraging the investment needed to expand it.