Berlin housing crisis sparks rent cap proposal

German chancellor Angela Merkel has promised an additional €5 billion to fund affordable apartments to combat the country’s growing housing crisis.

Her announcement came as Berlin’s city government considers legislation next week for a five-year rent cap. On Friday, meanwhile, a citizens’ initiative cleared the first hurdle for a referendum that could force large property investors in the German capital to sell their holdings to the government.

Dr Merkel’s federal government has no direct responsibility for housing but she promised new subsidies to state and local authorities who ensure that “really every euro is spent in this area” of affordable housing.

At a gathering of German tenants’ associations in Cologne, the centre-right leader argued it was the role of the state to “create a climate” for home-building rather than intervene in the market such as with Berlin’s rent cap.

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This proposal has spooked stock markets, where many institutional property investors are listed, but delighted locals in Berlin, where new rents have spiked 117 per cent since 2007.

Berlin’s city state government will discuss next week the proposal pushed by the city’s urban development senator Katrin Lompscher of the Left Party, successor to East Germany’s communist party. Leaks suggest the proposal, if implemented, could freeze rents of up to 1.6 million apartments in the German capital.

But Ms Lompscher’s push to cap rents could, paradoxically, lead to another spike, with one landlord lobby group urging its members on its website: “Whatever you do, increase rents before June 17th.”

Ms Lompscher criticised that as an “appalling signal” but has suggested the cap will be flexible, varying on age, condition and fit-out of the building.

In addition she tells Saturday’s Der Spiegel that landlords will be allowed recalibrate rents based on local rent tables, but “from a time when the market wasn’t out of control”.

Legal threat

Property owner lobby groups remain unconvinced, though, and have vowed legal action against proposed legislation one group said “screams of unconstitutionality”.

Germany’s tenant organisations have welcomed the idea of a five-year rent cap, but are cautious after a previous proposal – a rent brake – proved ineffective due to legal loopholes.

Berlin’s rents – and housing crisis – have grown in parallel with the arrival of investors, most visibly a decade ago during the banking euro crisis. They saw in the German capital’s property market a relatively undervalued safe haven for their capital.

Private investors from Ireland to Israel along with US hedge funds piled into the market, alongside older Germans and their pension funds.

The search for profit in real estate, after decades of low demand and rents, has sparked a culture shock among Berliners.

Now a citizens’ protest movement has targeted institutional investors such as Deutsche Wohnen, which has 110,000 apartments in the capital on which it earned nearly €1.7 billion in 2017.

Its shares slumped nearly 9 per cent at news of the proposed rent cap and referendum push.

Referendum push

On Friday, Berlin campaigners handed more than 70,000 signatures it had collected since April – they needed only 20,000 to force a referendum to force Berlin’s city government to legislate for expropriations.

Though just the first stage in a lengthy process, campaigners are confident their move is in line with Germany’s post-war constitutional provision for expropriations “for the public good”.

Squeezed between talk of rent caps and expropriation, investors accused Berlin’s state government of adopting populist measures to distract from their political failure on housing for long-term Berliners – and 60,000 new arrivals each year.

Complicating the debate: many institutional investors, including Deutsche Wohnen, bought their housing stock from Berlin’s city-state government 15 years ago, during a sell-off to fill holes in the city state’s budget.

Disagreement surrounds the cost and implications of the expropriation referendum, with some placing the cost of buying out institutional investors at up to €36.6 billion.

Investor and landlord lobby groups argue that expropriation will create no new apartments while that, and the rent cap, will kill off investor interest in Berlin.

On Friday, in the next twist in Germany’s housing crisis debate, a senior Social Democratic Party (SPD) politician suggested a country-wide version of Berlin’s rent cap proposal – and promised to push for it at Dr Merkel’s cabinet table.