Berlin and its abusive regulation to curb prices in the rental market

From United We can pay attention to the regulation that Berlin has promoted in its rental market. For them, that is the model to follow in different capitals such as Madrid and Barcelona that have seen in recent years how rents have risen sharply.

In the electoral program of the formation of the extreme left, we opted for a high intervention in the rental market. Its main proposal is maximum prices … Intervene the rental market to prevent abusive rises through price control and ensure a stable and safe rental for tenants and small landowners.

Many have been the cities that have adopted a strict regulation with the aim of curbing the rent boom. However, Berlin takes the cake with one of the most restrictive regulations we have seen and we will analyze below.

The measures applied in Berlin on rental housing

First, on October 22, we saw how the Berlin Senate passed a bill to implement new rent control legislation for residential leases in Berlin with the vote of the left-wing ruling coalition parties and that it would be promulgated in the first quarter of 2020 to enter into force immediately.

With this, we seek to respond to the problem of rental housing that has sparked numerous protests since 85% of the population lives on rent and this law of maximum rental prices affects 1,439,969 apartments throughout Berlin.

This bill includes different measures that are aimed at controlling the increase in rental prices of real estate located in Berlin and that have been ready for occupancy before January 1, 2014 .

On the one hand, we have to suspend rent increases for a period of 5 years from the entry into force of this legislation. This means that, under no circumstances, the entire lease of the house should not exceed the rental agreed on June 18, 2019 or the last contract.

With this freeze, from the year 2022 and subject to the new applicable general rent ceilings, an annual rent increase will be accepted for an amount corresponding to monetary inflation (as specified by government authorities, but with a maximum of 1.3 %).

On the other hand, rent ceilings are introduced for the new leases, not only those mentioned, but the rental ceilings that already apply to all lease agreements entered into as of June 18, 2019 must be added . The general rental amounts range from 3.92-9.80 euros / m2, depending on the year of construction and the existence of a bathroom and central heating.

We also have the rent reduction under lease agreements entered into before June 18, 2019. A reduction in the rent for excessive rentals is expected to exceed an amount corresponding to 120% of the specific rental cap for rentals in force on the 18th of September June 2019, which is determined on the basis of the general rent cap and is adjusted based on the location of the residential unit.

Rentals have doubled in the last ten years

As we see it is a very complete regulation. But first, we must contextualize what is happening in the rental market in Berlin. Monthly rentals in Berlin have more than doubled in the last 10 years : from 5.60 euros per square meter in 2008 to 11.40 euros in 2018.

Although general rents remain lower than in other major German cities like Munich or Frankfurt, it is an increase of 103%, more than anywhere else in the country . Rental prices vary widely by neighborhood, but statistics show that a one-bedroom apartment in some of the city’s most desirable neighborhoods can average more than 1,000 euros per month.

As if that were not enough, rents and real estate prices have skyrocketed in the German capital. In 2017, the figures of the real estate consultancy Knight Frank showed that the city had the fastest growing real estate prices in the world .

The reasons underlying this strong boom in recent years are in the shortage of supply, the slow pace of new construction and also of construction costs and significantly higher land prices are playing a key role in the development of rental and purchase prices.

Undesirable consequences: The offer is not encouraged

It is a basic principle of economy, the implementation of maximum prices means generating a strong imbalance between supply and demand, causing shortages , high queues and the appearance of the black market. If the regulated price is below the equilibrium price, the incentive to buy at a political price and resell it (in the case of a house would mean to rent) at the equilibrium price, can be an incentive to assume any criminal risk.

Since the law was proposed, building permits have declined significantly, with a 40% decrease in September 2019 compared to the same month last year. Therefore, the offer is not encouraged.

The law will apply retroactively as of June 18, 2019, which means that any recent rent increase could be declared void . This political price on housing is leading to high demand for apartments. Can you imagine 1,700 people to visit an apartment? In Berlin it is happening. In this case for an apartment at the price is 550 euros (expenses included).

To name some unwanted effects, rental controls often cause owners to sell their apartments instead of renting them , so they can get the real market price of the property, raze their buildings and build other properties that are not subject to rent control.

As a result, ** the city’s housing offer is reduced *** and they may not invest in the maintenance of their properties if they do not believe they can recover losses through rent.

More generally, other rental control problems may arise, including the reduction of the offer as the owners leave the sector and the tenants remain in a property (sometimes inadequate) for a longer time and choose not to move and face rents Taller.

These unwanted consequences of rental controls lead to development impediment, social bias and legal problems. Landlords may choose to be more selective, and therefore, exercising more abusive discrimination in the requirements of tenants.