German high court overturns Berlin cap on rental prices

GERMANY’S highest court ruled Thursday that a cap on rent prices implemented last year by Berlin’s left-wing state government is unconstitutional and void, fueling an explosive political issue in an election year.

The cap was introduced in February 2020 by the state’s governing coalition with the goal of preserving affordable housing in Berlin, which has seen rents rise significantly since it again became capital of a united Germany in 1991.

The Social Democratic, Greens and Left parties make up the coalition.

The regulation meant that rents for some 90% of Berlin apartments were frozen at June 2019 rates for five years, and that new rents could not be above that level, while existing rents needed to be reduced to conform.

The policy has caused havoc in Berlin’s housing market. Many landlords have included so-called “shadow-rent” clauses in new contracts – higher monthly rents that would take effect retroactively if the cap were overturned.

Some tenants now face considerable back payments.

Though the cap only applied to Berlin, a city-state with a population of some 3.6 million, Deutsche Bank said in a research note that the court’s decision could have a wide-ranging effect.

“Across German cities, rent growth decelerated with the extensive media coverage of the Berlin rent cap,” Deutsche Bank economist Jochen Moebert said.

“Rental growth could pick up again in several cities and regions, as many initiatives which copied the Berlin rent cap will lose momentum.”

Berlin’s opposition Free Democratic Party and Christian Democratic Union had appealed to challenge the rent cap.

In its ruling, the Federal Constitutional Court in Karlsruhe said the regulation was unconstitutional because housing policy is a federal issue and states only may intervene if the federal government does not exercise that power.

“Since the federal legislature has laws... regulating rental prices, there is no room for the states to legislate,” the court said in its ruling.

Germany’s top housing official, Interior Minister Horst Seehofer, welcomed the decision, saying the rent cap had caused “uncertainty on the housing market, put a brake on investments and didn’t create a single new home.”

The Left party, which has its roots in the former East German communist party and oversees housing in the capital, said the court decision would be a disappointment for some 1.5 million Berlin households that were covered by the cap.

“They have the (Christian Democratic) Union and the FDP to thank,” said the party’s housing policy expert, Caren Lay.

She called for nationwide legislation to be passed at the federal level, which the court said would be required for a rent cap to be constitutional.

Elections for a new national parliament and the Berlin state assembly are scheduled for Sept 26, and Thursday’s ruling is likely to make affordable housing a major campaign issue.

The head of one major housing company said it didn’t plan to demand back payments from tenants who paid lower rents due to the now-nixed cap.

Vonovia chief executive Rolf Buch told German news publication Der Spiegel that the court ruling would further fuel disputes between tenants and landlords.

He called for politicians, landlords and tenant rights advocates to find a common solution to the lack of affordable housing.

Activists last year collected enough signatures to force onto the state assembly’s agenda a proposal to expropriate the properties of large corporate landlords, with the goal of eventually holding a referendum on the issue in the German capital. — AP

“Rental growth could pick up again in several cities and regions, as many initiatives which copied the Berlin rent cap will lose momentum.” Jochen Moebert