Capital Language Solutions | The Mietpreisbremse is well and truly broken

The Mietpreisbremse is well and truly broken

Rent_Strike,_New_York_Times,_1919The Mietpreisbremse is coming under increasingly heavy fire. Originally designed to put a brake on rampant rental increases, restricting rents to a maximum of 10% above local benchmarks, the legislation was introduced last summer and immediately met with a mixture of protest and disbelief (from those within in the residential real estate industry), doubt (from those who predicted that this would be a toothless tiger) and warm acceptance (from those who viewed this as a key driver of more affordable housing). Almost a year has passed since Berlin became the first city to enact the legislation, and the first extensive analyses of the rental price brake’s true impact (or lack thereof) are being published.

The Süddeutsche Zeitung, Wirtschafts Woche, and even the tabloid Bild, have all recently run articles under headlines such as “Why the Mietpreisbremse isn’t working,” or “Why the brake is broken.” Let’s compare the reality with what the Mietpreisbremse was intended to achieve, and examine some of the ideas that have been put forward to deliver what the Mietpreisbremse has (so far) been unable to.

  • According to Empirica, rents in Berlin have risen by an average of 4.8% and rents in Düsseldorf have increased by 4.1% since the Mietpreisbremse was introduced.
  • According to the Institute for Statistics at Ludwig-Maximilians-Universität, the rents being charged for 55% of Munich’s rental apartments violate the law.
  • According to the research institute Regiokontext, rental prices in Germany’s capital are 31% higher than they would be if landlords respected the letter of the law.
  • The department for statistics at the LMU Munich have reported that approximately half (!) of all rents in Munich are too high.

Why the Mietpreisbremse brake is broken

So why, despite the initial claims made by the politicians responsible for the Mietpreisbremse, is the rental price brake so ineffective?

  • Landlords clearly have no fear of any legal consequences
  • Housing shortages mean that tenants are reluctant to take legal action
  • Tenants do not have easy access to the information they need to determine if their rent is too high or not

But if the Mietpreisbremse really is as much use as a chocolate fireguard, what options do legislators and the real estate industry have if they really hope to increase the amount of “affordable” housing available in Germany’s biggest cities?

Incentives for investors

The simple fact is: When there is not enough housing, more needs to be built. Which is why the construction of new housing needs to be promoted, subsidised and incentivised. There are a range of options, including tax breaks for private and institutional investors and investor developers. There is still the prospect that such tax incentives will soon be introduced, despite the fact that the SPD junior coalition partner has so far blocked attempts to finalise the necessary legislation.

More development land

Municipalities have the power to determine who gets the land they own, and at what price. They can run open competitions and award development land to those developers with the best overall concept, rather than simply giving their approval to the highest bidder. The higher the price of development land, the higher the costs of the properties ultimately developed on the land. As the famous saying goes: “Nobody’s making new land.” Still, where possible, municipalities could certainly ensure that they zone as much land as possible for housing. We’ve already seen the first large-scale projects converting vacant office buildings for residential use. Surely this is an option in many of Germany’s biggest cities?

Building upwards

Alongside rethinking the way we use the land and buildings we already have, a number of housing experts have already floated the benefits of adding storeys and exploiting attic space in existing buildings. Could we soon see the end of Berlin’s Traufhöhe (the traditional limit to the height of buildings in central residential districts)?

Less regulation

As we’ve reported here before, construction costs are driven ever higher each time Germany’s government tightens its energy-consumption regulations (EnEV). Against the backdrop of a housing crisis, maybe serious thought needs to be given to redrawing the balance (at least temporarily) between environmental standards and the provision of affordable, and quickly built, housing.

Lower expectations

The trend has long been for more living space per head of capita. And this is despite the fact that modern technologies have enabled unrivalled levels of comfort and luxury in ever-smaller spaces. Flatscreen TVs, innovative kitchen appliances and advanced materials mean that we actually need less space than previous generations if we were just able to adjust our mindsets and lower our expectations. As fewer and fewer households own cars (at least in Berlin), and car sharing and app-based services have made it easier than ever before to access a car as and when you need one, this could potentially lead to less urban space being required for parking. This newly available land might also serve to supplement the development land available for housing development. According to the initiative Clevere Städte, the costs of developing bicycle storage facilities are seven times lower than the costs of a car parking space – savings that will feed through to lower rents and property prices.
There are sure to be other strategies and measures that, despite having just a minor individual impact, can be combined to achieve a staggering amount in the drive to increase housing provision and put a brake on rental increases. Use the comments section to share your ideas. We’d love to hear from you!

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