Breaking Down Soaring Rents in Major German Cities: The Untamed Beast of Rent Control
- Approx. reading time: 1 min
Rent prices significantly escalate in significant urban areas, despite the implemented rent cap. - Big city rents escalate amid slowdown in prices
City dwelling in Germany's big leagues has turned into a pocket-draining affair, despite rent control measures. The Ministry of Housing's recent analysis reveals a whopping 48% jump in average offer rents across the 14 largest urban areas since 2015, with Berlin bearing the heaviest weight—new rents skyrocketing more than double.
File these figures under the Federal Institute for Building, Urban Affairs and Spatial Research (BBSR)—they're based on online rental advertisements for apartments ranging from 40 to 100 square meters, excluding ads involving waiting lists, advertisements, or direct real estate agent mediation. The ministry, however, cautioned that these numbers might be distorted.
Berlin, Leipzig, and Bremen: Rent Increase Champions
Munich reigns supreme as the most expensive city to take up residence, charging almost €22 per square meter, followed by Berlin with nearly €18 and Frankfurt am Main at approximately €16 per square meter. Berlin takes the lead with an exorbitant increase of 107%, Leipzig with a steady 67.7% climb, and Bremen not far behind at 57%. At the other end of the spectrum, Dresden registers the smallest increase, at a "modest" 28.4%.
Left Party MP Caren Lay criticized the government-led rental explosion, calling it a "financial nail in the coffin" for city-dwelling tenants, making affordable housing mere fantasy and exacerbating social inequality. She dismissed rent control as woefully inadequate, packed with loopholes that do little to safeguard renters against rising costs. Lay rebuked the current government for aiming to simply extend the regulation, rather than substantially tightening it.
Rent control capswage increases in regions grappling with a tight housing market. In such areas, new contract rents may not exceed the local average rent by more than 10% in principle. Exceptions include furniture allowances and new apartment buildings rented out for the first time after 2014 or comprehensively modernized apartments. Tenants are left to tackle any violation of these regulations on their own, with no public price control.
- key terms: Rent Control, Berlin, Housing Market, Federal Government
- additional insights:
- Berlin's housing predicament stems from the disproportionate ratio between high demand and insufficient supply, inflated by urbanization, smaller household sizes, and immigration
- Construction output dwindles, with building permits plummeting by 13.4% annually since 2020
- Governments' efforts to increase housing supply and alleviate price pressures through extensions of rent control, housing construction boosts, and streamlined building approval processes are anticipated to offset rental costs, but face ongoing challenges due to persisting underbuilding and high demand.
- The employment policy of the Ministry of Housing could be addressed to tackle the issue of soaring rents in major German cities, as it is currently inadequate in safeguarding renters against rising costs.
- In the realm of personal finance and wealth-management, investors may consider exploring opportunities in the housing-market of cities like Berlin, Leipzig, and Bremen due to their high rental growth rates, but should be aware of the challenges posed by strict rent control measures.
- The finance sector could play a role in addressing the housing crisis, potentially by providing funding for large-scale real-estate investing geared towards increasing the supply of affordable housing in regions where the housing market is tight.
