Berlin’s plan to rein in the city’s rental market was approved by lawmakers, capping revenue for property owners and potentially driving investors away from the German capital. Shares in major landlords slumped.
Berlin’s legislature backed measures including a five-year rent freeze Thursday, more than six months after they were proposed by the left-leaning administration. The changes will likely come into force by the end of February, though opposition parties have signaled their intention to challenge them in court.
The initiative put forward by the Left party’s Katrin Lompscher, head of urban development and housing, is intended to ease the burden on tenants after a property boom caused rents to double over the past decade. The political intervention has spooked investors as a separate campaign attempts to force Berlin’s government to expropriate properties from large landlords including Deutsche Wohnen SE.
“We don’t want Berlin to become a copy of overpriced cities like London and Paris, where many people can no longer afford an apartment,” Lompscher said during the debate that preceded the ballot. Out of 150 votes cast, 85 lawmakers voted in favor and 64 against, with one abstention.
Deutsche Wohnen shares fell as much as 2.1% and were down 0.6% at 1:30 p.m., extending its decline over the past 12 months to about 13%. Vonovia SE, Germany’s largest landlord and owner of about 40,000 apartments in the capital, declined as much as 1%, and Berlin-based property owner Adler Real Estate AG dropped as much as 2.4%.
The Christian Democratic Union -- Chancellor Angela Merkel’s party, which is in opposition in Berlin -- plans to challenge the measures in Germany’s constitutional court “as soon as possible,” according to a spokesman. That can only happen once the new legislation takes effect.
BERLIN’S HOUSING SHIFT
- Rents to be frozen for five years on all properties completed through 2013
- Rents to be capped with rates depending on the age of the property
- Annual inflation adjustment of as much as 1.3% per year to be allowed from 2020, as long as new rental charge doesn’t exceed cap
- Nine months after the law is enacted, landlords must automatically reduce excessively high rents so that they exceed the cap by no more than 20%.
- Limited increases allowed for investment in upgrading properties
- Penalties of up to 500,000 euros can be levied on landlords that fail to comply
The adoption of the measures “sends a fatal signal to investors,” Ulrich Lange, a deputy leader of Merkel’s bloc in the national parliament, said in an emailed statement.
“What’s more, there’s a high possibility that the law will be declared unconstitutional,” Lange added. “That will create rental chaos. It cannot be emphasized enough that the only solution that will ease the pressure on Berlin’s rental market remains: build.”
‘El Dorado’
Michael Voigtlaender, an economist at the Cologne-based IW Institute, has also criticized Berlin’s focus on rent controls rather than encouraging investors and developers to build more affordable homes to keep pace with the city’s rapidly growing population.
The government’s actions are a catastrophe that “threatens to cause considerable damage to both the housing market and Berlin as a whole,” the IW said in a recent report for the CDU. The value of some properties in the city could fall by more than 40% as a result of the rent restrictions, the institute estimates.
Lompscher has dismissed such concerns. In an interview this month, she called Berlin an “El Dorado” for real-estate companies. Her department has worked closely with other German cities, and she expects Berlin’s intervention in the property market to “have consequences” within the country and internationally.
Not everyone agrees, though. Vonovia this month described the rent reforms as “Berlin specific.” The company doesn’t expect the measures to be replicated by other German states “except in the unlikely event that the Federal Constitutional Court were to rule largely in favor of the legislation,” Vonovia said in a Jan. 23 note to investor.
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