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Sunday, April 18, 2021

Berlin “rent cap” just a mirage

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Flying Dutchman
Flying Dutchman
For detailed biographical information, please check the very first article of this blog. Thanks!

Since December 8th, 2016 Berlin is governed by a coalition government of Social Democrats (SPD), Communists (Die Linke) und the Greens (Bündnis 90/Die Grünen).

30 years after what was left of Germany reunified on October 3rd, 1990, there are roughly 1.5 million privately financed apartments in the capital, home to about 3.7 million people.

One year ago, on February 23rd, 2020, the so-called “rent cap” (Act Limiting Housing Rents) came into force for apartments that were ready for occupancy before January 1st, 2014.

Then, on November 23rd of last year, the forced reduction in existing rents took effect for those that were more than 20% above the 2013 level. The maximum fluctuates between four and ten euros per square meter, depending on the year of construction.

As a result, rents for apartments affected by the cap and announced in advertisements and real estate portals have stagnated at a level around ten euros per square meter.

On the other hand, rents for housing built in 2014 or later have gone up significantly. The market has split, favoring higher income groups. Apart from the reconstruction period after World War II, it has never been harder to find an apartment in the metropolis than today.

The supply in general has fallen by 41.5% within a year, but for those built up to 2013 the decline was as up to 60%. At the same time, the supply of condominiums completed before 2014 increased by 23%. Other proprietors prefer to leave their apartments vacant.

The cap also limits the modernization allocation to one euro per square meter for energy-saving and handicapped-friendly measures. Almost 80% of landlords are now planning to cut spending on refurbishment because they have no other choice. Hence, the regional building industry became another victim of this intervention from above.

There’s a conflict between the availability of housing, its efficient use and maintenance as well as the profitableness of home ownership, especially if rents are capped indiscriminately.

If migration is not limited, the only option left is to stimulate construction by limiting those tax and regulation induced increases which affect the burden, including building land issues.

In Berlin, no real market relaxation will be noticeable in the medium term. The rent cap only combats symptoms and ultimately spreads the harmful illusion that it solving a growing problem.

The law has clearly failed to achieve its most important goal. In the long run, such a policy will lead to housing conditions like in the now defunct German Democratic Republic (GDR). Conversion bans and expropriations are no longer taboo. Long live Communism, which was never really laid to rest!

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