Berlin’s revolutionary rent cap has been ruled unconstitutional by Germany’s highest court. The measure, which froze the price of rent in Berlin at its level in June 2019 and was set to be in place for five years from 2020, has been dismissed only one year into its duration.
The Federal Constitutional Court in Karlsruhe last week judged that the rent cap broke a law made by the federal government 120 years ago. This law limits the rights of a state government in rent legislation. The rent cap is deemed to have illegally undermined the federal government as it was implemented by the regional state government of Berlin, a coalition between the centre-left SPD, the Greens and Die Linke (The Left).
This is the latest intricate encounter with the German federal system in the development of an issue which has already proved to be controversial. Rent caps are nothing new - currently in place in France, Finland and the Republic of Ireland - but Berlin’s is unique. As well as freezing rent of 90% of Berlin’s apartments (1.5m), the measure caps the price of new rental contracts and dictates that existing rental contracts still above their June 2019 level have to be reduced, as of November 2020. It should be noted that between 36 and 59% of people in Germany live in rented homes, highlighting the importance of rent control in the country.
The rent cap was introduced to tackle increasingly high rent in Berlin, which rose by approximately a third between 2013 and 2019. This rise in the price of property was the result of large hedge funds and private equity firms pumping investment into property development in Berlin. The rent cap aimed to offset this, protecting the affordability of Berlin’s housing market whilst, according to its supporters, retaining an international social mix of tenants.
According to German online real estate company ImmoScout24, the rent cap has successfully reduced the average rent in Berlin for the year by 7.8%. However, the survey also found that the number of new flats on the market had fallen by as much as 30%.
Opposed to the rent cap, property investors and landlords argue that it is inappropriate for the government to control private markets. Politicians from the pro-business Freie Demokratische Partei (FDP) and conservative Christian Democratic Union/Christian Social Union (CDU/CSU) backed landlords in bringing the legal case forward for this reason.
Chancellor Angela Merkel of the CDU has also expressed her opposition to the rent cap, stating “we must also provide an environment for people to want to build”. However, the Berlin state government argues that the rent cap actually encourages new construction as buildings built after 2014 are exempt from the regulations.
Since its introduction, landlords in Berlin have enforced their own measure to counter the rent cap, by introducing a Schattenmiete (shadow rent clause) into contracts. This informs tenants that they would have to pay the extra rent landlords would have charged if the court overturns the rent cap, which now potentially leaves many ordinary tenants in an unprecedented legal dilemma. Since the court’s decision, Berlin’s minister for urban development and housing, Sebastian Scheel of Die Linke (The Left), has promised that the state government will step in to help tenants who are affected.
The recent court ruling has also already led to criticism from renters’ associations, concerns about sudden rent hikes as well as protests on the streets of Berlin. The dismissal of the rent cap will undoubtedly fuel further complex and long-standing legal and political battles over housing and renting in Berlin and across Germany.
Protests against the dismissal of the rent cap in Berlin. Photo: Ruairi Casey via Twitter.