Annual report 2016/17: Council of Economic Experts calls for an end to the rent cap

Germany's Council of Economic Experts (Sachverstaendigenrat) calls for the abolition of the rent cap (Mietpreisbremse) in its current annual report. It is counterproductive to "weaken market forces on the basis of supposed market failure," the report states. Berlin has applied the rent cap since June 2015.

Core criticism: Less supply, not more

According to the report, the rent cap reduces the supply of rental housing and discourages construction investment, particularly in the affordable housing segment. Tax depreciation allowances cannot compensate for an already weak investment appetite. This is especially relevant for Berlin: the population continues to grow, average household sizes are shrinking, and demand for new apartments remains high. On top of that, high land and construction costs along with tightened energy efficiency standards push prices further.

For property owners in boroughs like Neukoelln or Friedrichshain-Kreuzberg, the rent cap limits rental income on new leases. Its removal would change the profitability calculations for investment properties.

Proposal: Housing benefits instead of rent caps

Rather than subsidizing properties, the Council advocates direct support for low-income households, for example through adjusted housing benefits (Wohngeld). This approach targets those who actually need help and avoids windfall effects where higher-income households also benefit from capped rents. The Council also argues that a nationwide regulation is poorly suited to very different regional markets.

What this means for Berlin

The report has no immediate legal consequences. But it intensifies the debate over the rent cap's effectiveness. How federal and state governments respond remains to be seen. Berlin's market development will be influenced by this discussion as well.

The full report is available here.