Review 2021 and preview 2022

2020 and 2021 have been a real estate rollercoaster ride that has left some passengers feeling unwell. For the lefts, the New Year's wishes were different from what the courts decided. A review and outlook. 

by Peter Guthmann Published on:

April 2021: End of the rent cap

The Federal Constitutional Court declares the Red-Red-Green project of a rent cap null and void. What lawyers and some politicians had predicted has come to pass. According to the judges, Berlin had exceeded its legislative competence with the rent cap. The Basic Law defines the areas of competence of the Federation and the federal states. What is comprehensively and conclusively ruled by the federal government cannot be overridden by the states. Among other laws, this also applies to rental legislation. There is no leeway for own regulations, interpretations and enactments of own rent legislation. The number of rental offers in Berlin has fallen sharply in the wake of the rent cap. During the rent cap period, many owners decided in favour of selling a flat instead of re-letting it. To this day, the rental housing market has not fully recovered and many flats have been lost for rental. As a reminder, the rent cap came into effect on 23/02/2020 and froze rents by law on the cut-off date of 18 June 2019 for a period of five years. Existing rents that exceeded the rent levels formulated by the Senate by more than 20 per cent were prohibited. New leases were only permitted at the table value, plus or minus certain values for location, furnishings and modernisation. 

Over a long-term time series, we have analysed by calendar week how the rent cap in particular has affected the supply situation. The collapse in new listings when the rent cap came into force and the fact that there has been no complete recovery to date are visible. It can also be seen that the previously calmer development of asking rents has picked up again after the end of the rent cap. 

May 2021: Index rent "Mietspiegel"

Actually, the Berlin rent index, which is published every two years, was to be suspended for the duration of the rent cap. However, with the end of the project, a rent index suddenly became necessary again. The problem was that the rents that had previously been capped by law were not usable for the rent index because it is only allowed to include data from housing that is not legally capped in terms of price. This time, too, the solution is believed to be found in the German Civil Code, where, in the opinion of the Senator for Building, the possibility is given to update the rent table according to the index. As a basis for the new index-linked rent table, the Senate applied the consumer price index and set the Berlin average rent at 6.97 EUR/m². A rent index is something else, but out of necessity, the rent index or "rent cap light", as it is also called, serves for the time being to set legally secure rents.

June 2021: Building Land Mobilisation Act

In the middle of the election year 2021, the grand coalition in the federal government amends the Building Code with the new section 250. With the "Building Land Mobilisation Act", a set of regulations came into force that facilitates access to undeveloped and developed land for the federal states and municipalities through pre-emptive rights. At the same time, there is a ban on conversion in areas with tight housing markets, temporarily until 2025. What is already practised in Berlin in milieu protection areas at neighbourhood level can in future be applied more extensively in areas with tight housing markets. Anyone who wants to divide an apartment block into condominiums in these areas must now obtain permission to do so. Only a short time later, the Senate declared the whole of Berlin to be an area with a tight housing market.

November 2021: End of the Berlin preemption practice

A ruling by the Federal Administrative Court in Leipzig puts a stop to Berlin's preemption practice, thus burying the second major housing policy project of the red-red-green state government in Berlin after the rent cap ruling. A buyer had sued the district of Friedrichshain-Kreuzberg, which had exercised pre-emption with the argument that the original buyer would in the future be a risk of displacement for the residential population. The judges in turn found that a right of first refusal was out of the question "if the property is built on and used in accordance with the objectives or purposes of the urban development measures and a building structure erected on it does not show any grievances or defects within the meaning of section 177 (...)". Let's keep it simple: It means that the right of first refusal is no longer applicable in the vast majority of cases.

What is coming in 2022?

First, a look at the distribution of ministries in Berlin. The SPD-led departments are Urban Development and Housing, Interior, Economy and Education. The Greens are responsible for finance, health and science, environment, transport and climate protection. The Left's departments are Culture and Europe, Integration, Labour and Social Affairs and Justice.

How sustainable the deregulatory rulings from Karlsruhe and Leipzig will ultimately be will only become clear in the course of the next legislative period. For Berlin, however, it is becoming apparent that the new Berlin Senate under the designated governing mayor, Franziska Giffey, will not follow the line of the Left-led Department of Urban Development in housing policy, but will focus on new construction after the failures of the rent cap and the pre-purchase practice.

On the other hand, it would be wrong to assume that regulation has come to an end. Rather, after the strict left-wing era, risky experiments will be replaced by strategic and long-term alliances and initiatives in the Federal Council.

It is still unclear which projects will make it onto the agenda in Berlin and the federal government in the next four years.However, one or two surprises must be expected, not least because the two SPD state secretaries in the building and housing ministries, Sören Bartol and Cansel Kiziltepe, have a strong left-wing orientation. Both were supporters of rent caps and pre-purchase practices and both want to make the issues politically relevant at the federal level. 

Possible projects at federal level

  • Profit taxation: the tax exemption after 10 years holding period for private individuals could be abolished
  • It is very likely that share deals will be restructured and made economically unattractive
  • A nationwide rent cap is unlikely in the first two years, but a so-called rent moratorium is not
  • A cap on the permissible rent increase from 15 to 11 per cent in 3 years is regarded as set
  • It is possible that municipalities will be required to draw up a rent index on a uniform basis
  • A further tightening of the rent control is considered likely.

It is clear that the coming legislative period will not only be characterised by greater efforts in new construction, but also by regulatory efforts. So it is quite possible that the projects that failed at the Berlin level will be revived under the responsibility of the federal government. It will be interesting to see what a possible balance of interests between finance (FDP), justice (FDP), interior ministry (SPD) and housing and construction (SPD) will look like.