Berlin freezes rents in landmark plan to tackle cost spiral

Bloomberg October 21 | Updated on October 21, 2019 Published on October 21, 2019

Move to ease higher rent burden on tenants

Berlin’s governing parties struck a deal to freeze rents in the German capital for five years, marking one of the most radical plans to tackle spiraling housing costs in a major city.

Mayor Michael Mueller announced the agreement between the Social Democrats, Greens and the Left party late on Friday after a marathon meeting that began on Thursday. It paves the way for the legislature to approve the measures next week before bringing them into force in the first quarter of 2020.

“We’re entering new territory,” Mueller said. “Others talk about it, but were actually doing it.”

The initiative put forward by the Left party’s Katrin Lompscher, head of urban development and housing in the city’s Senate, is intended to ease the burden on tenants after a property boom caused rents to double over the past decade. The political outcry has spooked investors as a separate campaign attempts to force Berlin’s largest residential landlords to sell properties to the government, a move they say amounts to expropriation.

Biggest losers

One of the biggest losers has been Deutsche Wohnen SE, Berlin’s largest apartment owner. Its shares have lost about 17 per cent of their value since the rent-freeze plan was announced at the beginning of June. Vonovia SE shares fell when the plan was set out, but have since recovered.

Berlin is not alone in contending with skyrocketing rental prices and a shortage of affordable housing. Spains Socialist government pushed through a cap on rent increases earlier this year, and New Yorkers won historic rental protections from the Democrat-controlled state legislature.

Berlin will allow landlords to impose an annual inflation-related rent increase of 1.3 per cent from 2022. The legislation, expected to be rubber-stamped by the Senate on Tuesday, also permits small increases to cover renovation work.

The negotiations proceeded amid concern some of the proposals might not be constitutional. Mueller said he’s confident the measures won’t fall foul of the law.

Other German cities recoiled at the development. Hamburgs mayor, Peter Tschentscher, told the Sunday edition of the Frankfurter Allgemeine Zeitung that the only way to avoid further rent increases is to build enough properties to keep pace with demand.

Enforced sales and rent freezes will only deter investors from investing in new homes, he said.

Published on October 21, 2019
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