Berlin’s rental cap has 'more than halved the size of market'

By analysing adverts in newspapers and online, the German Economic Institute (DIW) found that rents in Berlin dropped by roughly 11 percent after the rental cap was introduced on February 23rd last year.

While that meant that the Berlin city government's stated aim of bringing rents back under control had been achieved, the analysis also laid bare the downside of the cap. The number of apartments on the letting market dropped by 57 percent.

"The supply shortage that comes with the rent cap is alarming," co-author Konstantin Kholodilin said. "It makes it much harder for people who need to move, for example because they are new to Berlin, or are expanding their family, to find a place to live."

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Berlin has been hit by an escalating housing crisis over the past decade, as the city's population has grown by between 20,000 and 60,000 a year.

With young people in particular moving to the fashionable capital in droves, the stock of empty apartments has sunk from under 3 percent of the total in 2010 to less than one percent now, a fact that has driven up rents.

At the same time, the number of flats being offered through social housing has slipped down steadily to less than 5 percent of the total.

The skyrocketing rents moved Berlin's left-wing government to introduce the country's only rental cap, which came into force last February for new lets, and for all houses built pre-2014 in November. Over 94 percent of the total housing stock in Berlin is impacted by the rent cap.

But the city's liberal and conservative opposition was furious about the law, saying that it would damage the savings of small time landlords, while eroding the incentive of private investors to build in the city.

Several legal complaints against the law are waiting to be considered by the Federal Constitutional Court.

Rising rents in commuter belt

The DIW report also found that the prices in Berlin’s commuter belt have shot up over the past year, as people looking for apartments in the capital have had to widen their search.

In Potsdam, which is well connected to Berlin by train, rental prices have increased by 12 percent in the same period.

"The rent cap only superficially achieves its goal and has some unpleasant side effects," said Sofie Waltl, a researcher from the Vienna School of Economics, which collaborated on the project. "The shortage of supply in Berlin leads to rising rents in the well-connected surrounding areas, to which it is no longer possible to switch cheaply." 

The study also found that landlords are using various tricks to get around the rental cap, with just a quarter of rental offers actually conforming to the new law.

The authors urged the capital city’s government to instead invest its efforts in increasing the overall housing stock in the city.

"Private developers should be seen as allies in the fight for affordable housing rather than deterred by rigorous measures," said Kholodilin

The study found that the current rate of building, by which some 17,000 new apartments are put onto the market every year, barely covers new arrivals in the city, let along those currently trying to find living space.

Pointing out that number of planning approvals has stagnated since 2015, the authors concluded that the city needs to reduce red tape for building construction while increasing personnel in its building authorities so that applications can be assessed more efficiently.