There is a great deal of interest in Germany’s housing markets from overseas‘ investors and there are a large number of non-German speakers living in the country, particularly in major cities such as Berlin, Munich, Frankfurt and Hamburg. Germans have a long-standing preference for living in rented apartments rather than buying property—although this might change slightly thanks to low interest rates and steadily increasing rents. In Berlin, for example, 86% of the population live in a rented home. The figures for Munich and Hamburg are not so different, at 79% and 76% respectively.
Voters are tenants and tenants are voters
When you have a group that makes up such a large section of the population, it’s no surprise that politicians will want to introduce legislation and steer government policy in a direction that appeals to the interests of these voters and potential voters. Housing costs (rent, utility bills, etc.) account for a larger (and growing) proportion of household expenditure, an issue that has become important in local, regional and federal politics. So, if you’ve been wondering why there has been a recent fuss surrounding the Mietspiegel, Mietpreisbremse and Milieuschutz, read on as we give you the lowdown in three separate blog posts.
What is the Mietspiegel…
The Mietspiegel is essentially an index of the rents actually paid by tenants, broken down into size, location, age and standard categories. If an apartment is in a building that was constructed before 1918 (Altbau), is between 40 and 60 square meters and is in a normal residential area, the basic rent is between €4.81-8.55 m²/month and the average for this category is €6.48 m²/month. The Mietspiegel doesn’t include “asking rents”, only “actual net rents”, i.e. it ignores additional costs for heating, warm water and furnishings, indexing what is called the Netto-Kaltmiete (Net “cold” rent).
Depending on extra features, fixtures and fittings, premiums are than added to this “base rent”. For our Altbau example, wooden flooring adds €0.56 m²/month, separate shower and bathtub adds €0.63 m²/month and a modern kitchen adds another €1.37 m²/month. There are also features that can have a negative effect, leading to a lower index rent. For example, if there is no washbasin or no heating in the bathroom, a discount is applied.
… why is the Mietspiegel important…
The Mietspiegel is more than just a guideline for tenants and landlords, it is one of the most important tools for adjusting (i.e. increasing) rents and also helps investors to identify where the greatest potentials for rent increases exist. Not every German city has a rent index, but the ones that do tend to publish them every second year. Rents typically rise in the 12 months following publication as landlords use the Mietspiegel as the basis for subsequent increases. Everyone has a basis for comparison and landlords can refer to the index to justify upping the rents they charge.
… and what’s the problem with the Mietspiegel?
There are a number of issues:
- the data is compiled from a survey of tenants and landlords, but the published figures are not the pure data, they are the result of discussions (and compromises) between tenant and landlord associations and politicians.
- the figures are not always supported by a scientific and consistent methodology. Berlin’s 2013 index was recently declared “unqualified” by a judge because of the way the lowest and highest rents were dealt with.
- across Germany the indexes are being repurposed as a result of the new Mietpreisbremse legislation (more on that in part 2): from serving as a guide to local rents, to the basis for rent controls.
- as the indexes are only published every two years, they lag behind true market developments.
- the indexes only track and establish limits for rent increases during the course of existing tenancies – they have no bearing on the level of asking rents a landlord can charge a new tenant. As long as the landlord finds a new tenant willing to pay the new rent, the landlord is not limited by the Mietspiegel.
We’d love to hear what you think—either as a tenant or landlord—of Germany’s Mietspiegel system. Does it make your life easier or more difficult? How could the system be improved?
In part two, we’ll be looking at the recent Mietpreisbremse rental control legislation.
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