Rental regulation in German metropolitan areas is failing

Berlin - Last year, German cities began to regulate rents to stop the rapid rise in prices. However, the measures have failed, with real estate agents suggesting that in some cities the average rent increased by up to ten percent year-on-year despite the regulation. Experts see the problem in the shortage of available apartments, which prevents tenants from asserting their right to lower rents.

Berlin was the first to introduce rent regulation at the beginning of last June. Gradually, more than 200 other cities joined in. According to the regulation, property owners can charge tenants a maximum of ten percent more than the local average rent when signing new contracts. An exception applies in cases where the previous contract already had above-average rent; in that case, the owner can keep the rent at its current level for the new tenant.

The measures were intended to slow down the rent increases, which, for example, in Berlin and Munich, rose by an average of one-third in the five years prior to the regulation. However, according to agents, the impact of the regulation is not evident. In Berlin, rents increased by an average of six percent year-on-year according to the company Empirica, in Munich by nine percent, and in Stuttgart by ten percent. In Düsseldorf, where rents increased by 6.7% between 2010 and 2015, there was a year-on-year rent increase of four percent after the regulation was implemented last year.

"Tenants are ignoring the rent regulation. Anyone who violates it will hardly face any consequences. The law does not impose any penalties; at worst, tenants have to lower the rent to the level prescribed by the regulation,” said the head of the German Tenants' Association, Ulrich Ropertz.

According to Ropertz, the problem also lies in the fact that the supply of available apartments in large cities does not come close to meeting demand. In Berlin, up to 40 prospective tenants come to viewings, in Cologne there are over 50, and in Stuttgart and Munich, over 70. "When a tenant succeeds in such competition and manages to secure an apartment, they certainly have no motivation to immediately go to court over a rent regulation dispute,” Ropertz noted.

Andreas Geisel from the Berlin city council also points out that many new tenants do not know how much their predecessors paid for the apartment. Even if the rent exceeds the local average, the property owner can argue that they did not increase the price compared to the previous contract. According to Geisel, there are areas in Berlin where the rent is up to a third higher than it should be according to the regulation.

According to experts, the situation can only be resolved by building new apartments. "Nothing stops the rise in rents better than sufficient supply of affordable apartments,” said the state minister for construction from North Rhine-Westphalia, Michael Groschek.

The federal government had previously approved support for social housing and offered tax advantages to investors who will build affordable apartments. The measures are expected to increase the number of completed new apartments to levels seen in the 1990s, which means over 400,000 apartments per year. Currently, around 250,000 are entering the market annually.