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Mietpreisbremse: The German housing market 101

P1020178Mietpreisbremse—putting the brakes on

In this second article on the German housing market, we’re going to examine the recent Mietpreisbremse (rental control/cap, literally “rental brake”) legislation and see how it ties in with the Mietspiegel from part one. If you are an investor, landlord or tenant in one of Germany’s major cities, you are probably going to feel the impact of this new law sooner, rather than later. As mentioned in part one, roughly 80% of the population in the biggest cities lives in rented accommodation, so there are plenty of tenants (and landlords) out there. Read on to learn about the Mietpreisbremse.

 

Overheated housing markets

The main drivers of this year’s rental control legislation have been hikes in rents and asking rents in Germany’s major cities, averaging roughly 10% a year since 2008, despite the Mietspiegel and other laws restricting increases to 15% or 20% over a three-year-period. As asking rents are not included in the country’s rent indexes, landlords have been free to impose any new rents the market will bear and politicians have been under pressure to find a way to relieve tenants for a while now. The idea of passing a law to cap rental increases was anchored in the December 2013 coalition agreement between Germany’s two governing parties, the Christian Democratic Union and the Social Democrats. The new law came into force on June 1 of this year.

 

What does the Mietpreisbremse do?

The federal government has basically created a framework in which individual states can designate specific areas or districts as having “overheated” or “tense” housing markets. In the case of Berlin, the Senate has issued a blanket designation for the whole of the city. Once an area has been officially classified in this way, landlords are only allowed to relet apartments at rents that are no more than 10% higher than the local comparative rent. In most cases, the local comparative rent will be the rent specified in the Mietspiegel rent index, if there is one. Which is where the problems begin…

 

The brakes don’t (won’t or can’t) work

As we know from the recent legal challenge in Berlin, if you are going to use an official Mietspiegel as the basis for determining local comparative rents (the “ortsübliche Vergleichsmiete), you’d better be sure of the methodology and data used to compile the index. Otherwise, you are just asking for trouble (and a wave of lawsuits). The fact that so many cities across Germany do not have reliable “qualified” rent indices makes it nigh on impossible to determine the local comparative rents, upon which the maximum 10% increases are to be based. In order for a new tenant to know whether their landlord is increasing the rent for the apartment they are moving in to, the tenant needs to know what rent the previous tenant was being charged. Landlords aren’t required to disclose this information up front, but, if a tenant submits a written request, the landlord will have to supply them with the figures. Many experts expect courts across the country to be very busy dealing with challenges and settling disputes between tenants and landlords in the years to come.

 

Five year limit and other key points

The Mietpreisbremse doesn’t apply forever and it doesn’t apply to every type of apartment. There is a five-year limit to the “overheated” or “tense” designation, which is a sensible restriction given the fact that the housing market in a specific city or district can change considerably during that time. It also sets a defined “probationary” period for the new law. After five years it should be clear whether the legislation has had the desired effect, or whether unanticipated side-effects have made it unworkable. It’s also important to bear in mind that there are a number of key exceptions specified by the new law, mainly to encourage developers and owners to continue constructing new apartment buildings and improve the energy-efficiency of existing properties:

  • Newly built apartments are excluded – any apartment built after 01.01.2014, or let for the first time after that date, is not covered.
  • Apartment buildings that have undergone extensive refurbishment and modernisation are also exempted.
  • No landlord has to ask for a lower rent than was previously paid – if, for whatever reason, the previous tenant was paying a rent that was higher than the local comparative rent, the landlord can ask a new tenant to pay the same rent (although the landlord can’t relet at an even higher rent).

Sounds unnecessarily complicated? Bound to cause confusion and trigger a flood of lawsuits? Let us know what you think and then read our post on the third M – Milieuschutz.

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