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The Mietpreisbremse Rental Price Accelerator

Mietpreisbremse BerlinThe Mietpreisbremse – literally the rental price brake – was introduced in Berlin in June 2015. Politicians hoped that the legislation would slow the rate at which rents were rising by limiting property owners’ freedoms to raise rents. In actual fact, rents are now generally increasing faster than ever.

 
According to a recent study from the Cologne Institute for Economic Research (IW), rents for apartments in Germany’s major cities are now rising at a faster rate than they were before the Mietpreisbremse. Taking Berlin as an example, the study reports that 62.3% (i.e. one percent more than in pre-Mietpreisbremse 2014) of apartments listed on the Immobilienscout24 platform have asking rents that exceed their district’s local comparable rent by more than 10%. As long-time readers of this blog will already know, the Mietpreisbremse supposedly limits rents to 10% above the local comparable rent, as specified by official rent indexes.

Evidence of significant rental price increases in Berlin

The IW’s study found that Berlin’s lower-to-mid-market residential neighbourhoods have seen the fastest rental price increases. Whereas 40% of apartment listings in these areas exceeded the Mietpreisbremse’s 10% ceiling in 2014, by 2016 the figure had surged to over 70%.

 
As many commentators have observed, there is no going back for Germany’s legislators. Once they made the decision to intervene in the rental market and decided to make housing a social issue, rather than leaving the market to govern itself, politicians embarked on a one-track path.

Key weaknesses of the Mietpreisbremse

The onus is on tenants:

One of the major problems that tenants’ rights groups have highlighted with the current iteration of the Mietpreisbremse is that the onus is on tenants themselves to challenge their landlords if they believe their current rent breaches the rules. As very few tenants have actually made use of their rights, the only approach legislators can adopt is to tighten the rules and make it easier for tenants to challenge their landlords. So far, this has been limited to improving tenants’ rights to find out what a rent a previous tenant was paying. But many commentators believe that further measures to strengthen the Mietpreisbremse are on the way, particularly as the housing markets in many cities show no signs of easing any time soon. With elections on the way later this year, tenants’ rights are a key policy battleground, especially as Germany’s major cities are still very much dominated by renters.

Leases are like any other contracts:

As things currently stand, rental agreements are treated like any other contracts under German law. They are (freely) entered into by two parties, and if one party is unhappy with the agreement, they have to either renegotiate or terminate the agreement. Current market conditions mean that landlords hold nearly all of the cards. With tenants in the weaker position, the chances of a voluntary renegotiation are slim.

The courts have the final say:

Tenants who think that their landlord is charging them too much rent can consult a lawyer or their local Tenants’ Union, but if they want to recoup any excess rent and get their rent reduced, they will need to take their landlord to court. Most tenants are understandably reluctant to sue their landlords. The fact that they have managed to find a decent apartment in such a tight market is often enough to put them off rocking the boat and getting on the wrong side of their landlords. Ultimately, rights only matter if you (can) claim them.

Municipalities pull the strings:

Although they have the power to declare that the housing markets in certain districts are “overheated” (the precondition for applying the Mietpreisbremse), there is nothing in the law that forces municipalities to do so. Even if populations are rising, rental prices are increasing and a local market clearly meets the criteria for the Mietpreisbremse, a local government could decide, for whatever reason, not to intervene. This makes application of rent controls both a decidedly political issue and geographically patchy.

New-builds and “extensively” refurbished apartments are exempt:

Politicians wanted to restrict the rate at which rental prices are increasing in specific “overheated” sub-markets, but they also wanted to make sure that they offered visible support to the construction of new housing. So, in October 2014, they decided to exempt new-build rental housing from the Mietpreisbremse’s regulations. As they also want a relatively high-quality stock of existing rental housing, legislators also decided to exempt apartments that are being let for the first time following “extensive” refurbishment.

Existing rents still apply:

If a landlord had previously charged a rent that was more than 10% above the local comparable rent, the Mietpreisbremse regulations do not require any reduction in that rent when the apartment is relet. The landlord isn’t allowed to increase the rent, but can continue to charge a rent at the existing level. The Mietpreisbremse only applies if the landlord wants to raise the rent charged to a new tenant.

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