For more than a decade in Berlin there has been a gradual increase in rent, but this year this will not be the case. The entry into force of the Mietdeckel has made it possible to freeze the rent of around 1.5 million flats from June 2019.
If the approval of the Mietdeckel has not had all the media effect expected. The stop to the rent increase brings with it some causes that, which of the contrary, have been widely discussed, such as: less investment in the construction of new houses and/or renovations, less supply of rented accommodation, a legally unclear situation that leads landlords to find legal loopholes.
There are decisions still pending
Few decisions have so far been taken in favour of the Mietdeckel, for example: the rejection by the Federal Constitutional Court at the end of October of an urgent appeal against the next phase of this law which provides for a reduction in rent.
In the meantime, a fundamental decision concerning the rent ceiling is pending and will only be taken by the Court in the first half of 2021. The outcome of these proceedings is therefore completely uncertain and if not, it would be bad for all Berlin citizens living in rents.
On 23 November, the most radical phase of what is formally called the Roofing Rents Law in the Housing Sector (MietenWoG Bln) will enter into force in Berlin. From then on, excessive rents are to be reduced and not at the request of the tenants, but directly by the owners. Approximately 340,000 Berlin tenants can expect a letter in which they will be informed that under the new law the monthly rent will be lowered. In any case, the direct intervention of the State in existing tenancy contracts is a very strong change of perspective – and will be the cornerstone of the Constitutional Court’s decision.
Rents above the maximum ceiling must be lowered
The basis for determining which rents are considered too high is the rent table, which defines the maximum values: between 3.92€ per square meter in old buildings without bathroom/collective heating System up to 9.80€ in flats built between 2003 and 2013, plus a supplement of 1€ per square meter if the flat is equipped with modern facilities such as a fully equipped kitchen or a high quality floor, plus supplements or discounts depending on the location. The rents may be 20% higher than the value determined at that time by the table, every extra penny must be removed.
For about 28,000 flats of the state housing associations (landeseigenen Wohnungsbaugesellschaften) the rent reduction has been arranged, with an average monthly rent reduction of € 31.60. Assuming this figure for all flats subject to the Mietdeckel, the total monthly savings for tenants amount to more than €10.5 million.
Deutsche Wohnen, the largest private owner in the city with over 110,000 flats, has also announced that it will comply with the legal obligation. The group expects to reduce rents in about one third of its flats.
Urban development senator Sebastian Scheel predicts that around 20% landlords will not take any actions in favour of the Mietdeckel, trying to find a loophole in the law. It will then be the tenant himself who will have to determine whether the monthly rent is too high (e.g. using the rent calculator provided by the Berlin Tenants’ Association) and contact the Senatsverwaltung für Stadtentwicklung (Senate Department of Urban Development) if the rent is to be lowered. The Senate will prosecute all infringements.
Freezing, ceiling and rent reduction
The Mietdeckel basically provides for the freezing of the monthly rental price, a ceiling and the lowering of the rent. While rent freezing works in most cases (although many landlords are frantically looking for legal loopholes), the situation seems not so good when it comes to setting a ceiling.
Even though a ceiling of between €3.92 and €9.80 per square meter has been set with surcharges for modernization work on the property, landlords have already found a way around the law. For example, in about 80% of the flats currently offered on the real estate portals there is a clause called “shadow rent” in addition to the normal rent according to the law; the shadow rent has to be paid as soon as the coverage of the Mietdeckel will be ceased. Most landlords (even those who do not use sites or real estate agencies) reserve the right to demand payment of this shadow rent as soon as the coverage of the Mietdeckel is ceased; however, the admissibility of the claim remains questionable.
Metropolises all over the world keep an eye on Berlin
Recent market surveys have shown that the Mietdeckel has led to a turnaround in rents. In 2020, in fact, there was a general drop of 5.7% in rent compared to last year, especially in the cheapest flats market segment where rent has fallen by around 12%; prices of luxury flats are still almost the same. A comparison with the development of rents in new buildings not subjected to the rent ceiling, gives an indication that the law has an effect in this case. For all newly built houses, in fact, in the current year the price of the monthly rent increased by 4.3% to a minimum of €12.25 per square meter.
Meanwhile, metropolises around the world are looking to the success of Berlin’s Mietdeckel. A rent ceiling has just been adopted in Barcelona, and rents in London and the Canadian province of Ontario will soon be frozen according to the scheme adopted in Berlin.
The supply of rented houses is decreasing
The introduction of the rent ceiling has brought with it problems that should not be underestimated, such as: the drastic drop in the supply of flats to be re-let (and therefore not new) compared to before, not to mention all the possible legal loopholes that landlords try to find to circumvent the law.
In Berlin there is a growing supply of new flats to rent, but only 9% of them cost less than 10€ per square meter. The association of BBU real estate companies in Berlin-Brandenburg, which includes many cooperatives and state-owned real estate companies, does not see any significant change in the rental process due to the rent ceiling. However: The goal of increasing the supply of flats that even low-income workers can afford has not been achieved for the time being. This is partly due to the fact that private owners, in particular, do not re-let flats that become vacant. Many landlords prefer to leave the flat vacant rather than rent it again at a much lower price than before and wait for the Constitutional Court to give a final ruling.
Houses for sale to escape the Mietdeckel?
A recent market analysis has shown that the sale of houses has fallen by 35% compared to last year and the problem is not so much to blame on the Mietdeckel alone, as the crisis generated by the global pandemic has certainly made a decisive contribution.
The market analysis also showed, however, that many flats were directly put up for sale and probably no longer re-let due to the Mietdeckel. It is no coincidence that in recent months more and more tenants have applied to convert from a rented flat to a purchased one; in short, it would seem that home owners are rushing to sell them in order to collect as much money as possible as quickly as possible. Their plan could, however, be thwarted by a conversion ban (already approved by the federal cabinet), which is intended to authorize the federal states to ban this practice for five years.
The real estate sector is scared about the future
Andreas Böhm, president of the DPF cooperative, said that the housing projects already started will be completed despite the introduction of the Mietdeckel, but he speaks of “moderation on the part of most housing cooperatives” with regard to future investments. He cites as a reason the loss of confidence in cost-covering user charges, i.e. the fear that the rent ceiling could also be extended to buildings built after 2014. Even if there are no plans to do so, a clarification by the Senate could be useful in this case. Politicians are also faced with the task of how they can support the building construction sector.
This also applies to the topic of energy-efficient renovation. Given that the maximum permissible surcharge is 1€ per square meter, at the moment landlords have decided not to invest in this type of renovation, despite the fact that it is a vitally important issue in terms of climate policy. A solution to this double requirement could be a €48 million Senate subsidy program to be launched in the coming months. There is still much to be done to keep the city of Berlin accessible to all; however, contrary to the prevailing criticism, the rent ceiling is a decisive step in this direction.