Berlin rental cap causes rents to fall
Photo: Der Robert
Within a month of coming into effect, Berlin's rental cap has already caused rents to fall in the German capital.
The rule, called the "mietpreisbremse" or “rental price brake", was implemented by Germany's government on 1st June 2015 in an attempt to halt accelerating rental increases, as inner city areas became increasingly unaffordable for long-term residents.
The law now forbids new rental contracts to raise rent more than 10 per cent above a city district's median value - something that onlookers from the UK eyed enviously, as the British private rented sector also Sees rental rates rocket, thanks to high demand amid a supply and affordability crisis.
New figures from Germany now reveal just how effective the cap appears to be. Data from ImmobilienScout24 shows that the average price of new rental contracts in Berlin has fallen 3.1 per cent, a reversal of the capital's typical rise of 0.3 per cent per month. In other cities where a cap is not in place, values have risen or held steady: in Frankfurt, rents increased 0.1 per cent; in Munich, rents decreased slightly by 0.1 per cent; and in Dusseldorf, they remained steady.
"In other big cities marked by high-pressure rental markets that don't have a price brake, rents are rising still further," Jan Hebecker of the site told Frankfurter Allgemeine Zeitung.
Wibke Werner of the Berlin Tenants' Association told The Local that there "seems to be a connection", but that it was too soon to draw an immediate conclusion.
Werner added, though, that it was unlikely to be a reaction to last-minute increases by landlords in the immediate weeks before the cap was introduced.
"I don't believe that rents were seriously increased in the months before, but rather over the preceding four years," she commented.
If the Berlin rental cap is helping to make the city more affordable for its residents, should other countries consider following suit?
The idea of introducing a similar measure in the UK has been met with fierce opposition from the UK buy-to-let sector, which has boomed in recent years, during rising demand from tenants and falling homeownership levels. Indeed, all the proposals from the Labour Party ahead of the May general election relating to regulating the buy-to-let market were roundly rebuked by landlords and letting agents.
A new interim report by the London School of Economics and Political Science (LSE), commissioned by the National Landlords Association, argued that the cap could not be easily replicated in the UK.
Kath Scanlon of LSE London commented: "In light of the various proposals put forward before the General Election, we were asked to explore evidence from other countries about how rent controls and other regulatory policies affect the private rented sector.
"We found clear evidence that inflexible controls reduce supply, but the strongest message was that what may work in one country cannot simply be transferred to a different market and institutional environment."
The report cited examples in Ireland - where "controls introduced in the last few years have had very limited effect... The country is experiencing a housing crisis, with rapidly rising rents and a near-standstill in new housing production..." - and in San Francisco and New York, where "the main beneficiaries are older middle class households and the young hardly get a look in".
Carolyn Uphill, Chairman of the NLA, said: "Private rented sectors in many countries, regulated or not, are facing major problems in high demand areas. Market fundamentals cannot just be regulated away."
What do you think? Should the UK consider its own Berlin-style rental cap?
For more on the Berlin rental cap, read the perspective from Your Place Berlin.