Berlin is to impose a five-year rent freeze

Local authorities in Berlin have announced that they are going to roll out a five-year rent freeze as an attempt to combat housing costs, which could have a huge impact on property investors in the city.

The decision came after the German government received a large amount of political backlash from the city’s residents, who were becoming increasingly frustrated with Berlin’s hiking rents. Renters currently make up around 85% of Berlin’s population and tenants within the city were finding that their living costs were becoming more and more unaffordable.

The freeze is set to come into effect as of January 2020 and will be backdated to 18th June of this year to prevent landlords from rushing to raise the rents in the run-up to the legislation coming into effect.

Back in the early 1990s, Berlin was once a haven for young people looking for affordable places to live. Now, nearly 30 years down the line, the picture of the German capital’s rental market looks a lot different – according to the German online housing portal immowelt.de, the average rent in the city has more than doubled since 2008 and now, rents in Berlin could almost rival more expensive European capitals like Paris or London.

With Berlin’s status as a fashionable city, investors caught on quickly to the potential of the city’s rental market and many critics believe that the rental cap will deter a number of potential landlords from investing into the city. This concern isn’t unfounded either – Berlin’s biggest landlord, Deutsche Wohnen (DW), has seen its shares drop by a fifth since the new legislation was announced. If this wasn’t bad enough for property investors, pressure groups are also calling for a referendum regarding whether landlords with large portfolios (3,000 units or more) should have their properties expropriated, and polls suggest that this could be easily passed.

So how likely are we going to see similar measures in the UK? London is already notorious for being unaffordable – according to the latest Homelet Rental Index, the average rent in Greater London now stands at an eye-watering £1,605 per calendar month and tenants in London are paying around 31.5% of their income on rent.

The Mayor of London, Sadiq Khan has already announced that he is going to push for rent control in the capital in January of this year.

However, it’s been pointed out that such action will not help the housing crisis in the capital and it could have unintended consequences.

According to Professor Yolande Barnes, chair of the Bartlett Real Estate Institute at University College London, echoed the concerns of critics of the Berlin rental freeze by saying that the rent control will only deter landlords from renting out their property. As a result of this, the city will see the short supply of London’s rental accommodation fall even further.

She also believed that rent control could lead to the gentrification of the city, using San Francisco as an example, where a 2017 study at Stanford University found that rent control led to many private landlords converting their buildings to expensive condominiums.

A rental cap could certainly benefit the Berlin rental market where many properties are owned by large corporations. However, the same couldn’t be said for London or the rest of the UK – many UK landlords work independently and rely on the rent they receive to pay off their mortgage and such measures will only deter these landlords from putting their properties on the market. Big cities in the UK are already short of rental accommodation and this could exacerbate the issue.