Rent control from 2015: what the draft law means for Berlin's rental market

The Federal Ministry of Justice has presented the draft law on rent control, known in Germany as the Mietpreisbremse. Starting in 2015, rents charged on re-letting of existing apartments in tight housing markets are to be capped at no more than ten percent above the local reference rent. The regulation is limited to five years and applies only in designated areas.

The key provisions

The permissible rent level is based on the local rent index (Mietspiegel). When re-letting, landlords will have to verify exactly what rent they are allowed to charge. For anyone calculating returns on investment apartments, this changes the baseline.

Exceptions: new construction and modernization

The draft exempts newly built apartments from the rent cap. Also exempt are apartments that are re-let for the first time after a comprehensive modernization. A modernization is considered comprehensive when its costs reach approximately one third of what a comparable new build would require. Investors in new development projects are therefore not affected by the regulation.

Berlin as a designated market

Berlin is expected to be one of the first markets where the rent cap takes effect. The price developments of recent years in boroughs like Mitte, Prenzlauer Berg, Friedrichshain-Kreuzberg and parts of Neukoelln are the main reason for its classification as a tight housing market.

Industry criticism

The housing industry fears that rent control will deter private investors from building new apartments. Combined with rising land and construction costs and lengthy approval processes, the regulation could further reduce supply rather than increase it. Tenants' associations also question its effectiveness: years of selling off publicly owned housing stock created the shortage in the first place, and a rent cap does not address the root cause.