ifo Institute and Immowelt: Berlin’s Rent Cap Puts the Brakes on Rent for Existing Apartments, but Pushes Rent Up for New Buildings
In Berlin, the rent for almost all apartments advertised on real estate portal immowelt.de (96.7 percent) is above the rent cap. In 83.5 percent of cases, the rent exceeds the cap by over 20 percent. This is the result of an analysis conducted by the ifo Institute and Immowelt. When the law comes into force, rents 20 percent above or higher must be reduced – even if the rental agreement was signed before the cut-off date in June 2019.
Almost all apartments advertised are above the rent cap
“Our findings suggest that owners of rental housing covered by the regulation will lose part of their rental income. We can expect a large number of these apartments to be withdrawn from the rental market when they become vacant and sold as condominiums. Landlords aren’t the only people who stand to lose from the rent cap; people looking for accommodation in Berlin will be affected, too,” says Clemens Fuest, President of the ifo Institute.
Rent on apartments covered by the law has risen considerably more slowly since the cap was announced
The announcement of the rent cap has already started to influence landlords in Berlin. Since July 2019, the rent prices for regulated apartments have increased more slowly than in the 13 other German cities that have over 500,000 inhabitants. In contrast, rent for unregulated apartments (new buildings built since 2014) rose faster than in the other major German cities.
Escalation in new buildings: rent on apartments outside the scope of the cap is still rising strongly
As a result, the divide in the Berlin real estate market is widening: new buildings, which are often found in preferred locations, are becoming increasingly expensive while prices for existing housing are developing less strongly. This weakens the incentives to develop these buildings.
“Based on the observed effects, the Berlin rent cap will most likely not have the intended beneficial impact; instead, it will cause the housing market to drift further apart,” says Cai-Nicolas Ziegler, CEO of Immowelt AG. “This is evident from the notably stronger increase in rent for new buildings not covered by the regulation. Such a development cannot be good for an urban society and contradicts the very purpose of the law. Instead of interfering with the ownership rights of mostly private landlords and hindering investment in housing, policy should focus on creating subsidized housing where needed.”
Moderate purchase price effect also observed for condominiums
Condominiums are also feeling the effects of this development. Asking prices in Berlin are rising at a somewhat slower rate than in the other major German cities. However, the differences are moderate.
The rent cap was passed by Berlin’s House of Representatives at the end of January and stipulates a rent freeze on existing apartments built before 2014 as of the date of the announcement (June 18, 2019). Rent ceilings also apply, the amount depending on the property’s year of construction, location, and amenities. These are benchmarked to the price level according to the current Berlin rent index. The study analyzed advertisements on Immowelt between January 2017 and January 2020.
