Rent control from 2015 in Berlin: what applied to landlords and investors

In 2014, the German government reached a compromise on rent control legislation (Mietpreisbremse). The regulation was set to take effect in the first half of 2015 and aimed to curb rent increases in strained housing markets. For landlords in Berlin, it was clear the capital would be classified as an area with heightened housing demand.

What the regulation required

When re-letting an apartment, the new rent could not exceed the local reference rent by more than ten percent. The basis for this was Berlin's official rent index (Mietspiegel). This ended the previous practice under which landlords could set rents freely when signing a new lease. The regulation was initially limited to five years.

The general market development in Berlin had been showing an upward trend in rents for years. For property owners, the new rule meant that rent increases upon tenant turnover were now legally capped.

Berlin as a certain candidate

The individual federal states still had to designate their strained housing market areas. Lukas Siebenkotten, federal director of the German Tenants' Association (DMB), estimated that around five million apartments nationwide would be affected. "Major cities, metropolitan areas and university towns in particular will fall under this," Siebenkotten said. In boroughs with particularly high demand, such as parts of Neukoelln or Friedrichshain-Kreuzberg, the rent cap was expected to noticeably change re-letting dynamics.

Exemptions for new builds and renovations

One detail was decisive for investors: the rent control did not apply to the first letting of new development apartments. The government wanted to preserve incentives for new construction. Comprehensive renovations costing at least one-third of the equivalent new-build value were also exempt for the first subsequent letting.

The DMB viewed this exemption critically. Siebenkotten calculated that of the roughly 90,000 new rental apartments built annually, only about 30,000 would be in areas with heightened housing demand. Since the cap did not apply to first lettings, the compromise only concerned subsequent re-lettings of these new builds. According to his estimate, that amounted to "fewer than 2,000 to 3,000 apartments per year."

Changed calculations for owners

For owners of resale apartments in Berlin, the rent control changed their yield calculations. Those who had previously been able to charge well above the rent index upon re-letting had to rethink. At the same time, new construction moved into sharper focus as an investment strategy, since it remained exempt from the regulation.