Just five months into his tenure, Berlin's Governing Mayor Michael Müller set the course for housing policy over the coming years. In a city where the majority of residents are tenants, housing ranks high on the political agenda, particularly with state elections scheduled for autumn 2016.
Müller's toolkit
As former Senator for Urban Development, Müller observed the levers of Berlin's housing market at close range for years. The government now combines established and new instruments. Older measures include pre-emption rights for tenants after condominium conversions and an extended special termination protection period for owner-occupancy claims, raised from 7 to 10 years and now covering all of Berlin.
New additions are mainly federal regulations that Berlin implements rigorously:
- The rent cap limits rents on re-letting to 10% above the local reference rent.
- The modernisation surcharge is further restricted.
- The ban on misuse of residential space prohibits converting apartments into holiday lets.
- A planned approval requirement would make splitting apartment buildings into individual condominiums subject to permission in protected neighbourhoods such as Neukölln.
On top of this, Berlin raised the property transfer tax to 6% in 2014.
Consequences for owners and investors
The rent cap limits yield expectations on re-lettings. The holiday let ban ends short-term rental as a business model. The planned approval requirement makes splitting tenement buildings uncertain in many locations. Together, these measures change the basis for calculating returns on Berlin property investments.
A contradiction
On one hand, politicians promote home ownership as a pillar of private retirement provision. On the other, they make it harder for private investors to acquire and manage property. What is more, Berlin itself sold off publicly owned housing stock in recent years, giving up its most direct tool for controlling rents. The long-term effects of this policy on the overall market development remain to be seen.
We will cover each of these instruments and their practical consequences in an upcoming mini-series.
Disclaimer
This article is for general information only and does not constitute tax or legal advice. The content does not replace individual consultation with a tax advisor or attorney. No liability is assumed for accuracy or completeness.
