Berlin’s Rent Cap Slows Rents and Shrinks Supply of Rental Properties

In Berlin, rents and purchase prices for properties affected by the city’s rent cap have developed more weakly than in other major German cities. Berlin introduced its cap exactly one year ago. At the same time, the supply of rental properties in the regulated segment declined. This is the finding of a new ifo Institute study comparing Berlin with other major cities with more than 500,000 inhabitants. “Purchase price growth rates in Berlin have been 5 to 9 percentage points below the control group since the third quarter of 2020,” says ifo President Clemens Fuest, one of the coauthors. By contrast, rents and purchase prices for uncapped properties in Berlin have recently been rising faster than in the control group.

The trend in the number of rental advertisements in the regulated segment is also weaker, while rental advertisements in Berlin’s unregulated segment have recently been growing at a faster rate than in the control group.

“The decline in rental advertisements in the regulated segment is the first clear sign that the rent cap has reduced the supply of rental housing in Berlin,” says Florian Neumeier, another of the study’s coauthors. “This slowdown in real estate price growth illustrates the shortfalls that the rent cap has caused apartment owners,” says Mathias Dolls, another coauthor from the ifo Institute. He explains that the rent cap in the regulated segment not only lowers rents, as intended, but also reduces the supply of rental housing available to apartment seekers. The main reason for this is probably that falling rents are encouraging tenants to stay longer in rented apartments, while rented apartments that become vacant are sold as owner-occupied apartments or used by the owners themselves.

The study’s results also suggest that market participants are increasingly pricing in the reduced profitability of regulated apartments due to the Berlin rent cap as well as a possible extension of the rent cap after five years. However, rent increases in the unregulated segment have not translated into meaningful increases in the value of these apartments. This may indicate that buyers of apartments in the unregulated segment of the market fear the risk of a future expansion of the rent cap.

The authors add that the data consists of rental and purchase offers, not actual contract signings. In addition, the advertisements examined at immowelt.de were not necessarily representative of the real estate market as a whole. Commercial providers in particular may be overrepresented in the sample. As a contrast, the analysis assumed a situation in which rents and prices developed as they did in other large cities. Whether the real estate market in Berlin would in fact have developed in this way is unclear, despite the parallels in development before the rent cap was announced.