Court rules Berlin rent cap ‘void in its entirety’

Germany’s constitutional court has dismissed as “void in its entirety” a rent cap imposed by Berlin’s state government.

In February 2020 Berlin's ruling Senate, lead by the Social Democratic Party (SPD), enacted a law freezing rents for the city's 1.5 million tenants.

The law, a response to a spike in the cost of housing in the capital, was challenged by property owners and members of the centre-right Christian Democratic Union (CDU) on technical grounds and as a breach of constitutional rights on property ownership.

Thursday's ruling did not address the constitutional property question but instead dismissed the Berlin rental cap on a technicality, as an intrusion on competences of the federal government.

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“The Länder [states] are only authorised to enact their own legislation so long as and to the extent that the federal level has not exercised its legislative powers conclusively,” the judges found, noting that chancellor Angela Merkel’s administration had introduced its own “rent brake” legislation in 2015.

Loopholes in that federal law prompted Berlin’s Senate to move ahead with a more far-reaching state version in February of last year, freezing rents and imposing upper rental limits on existing and new tenancy agreements based on housing tables.

Based on these tables, an estimated 330,000 Berliners have been allowed pay a reduced rent since last November at the latest, with some even entitled to money back on rents above statutory limits.

Setback

With the rent cap now void, and their original rents once again valid, all Berliners affected are now obliged to repay the outstanding rent.

The ruling is a huge setback for Berlin's centre-left coalition of SPD, Greens and Left Party. They made the capital's housing question a core political platform, arguing the rental cap would provide a breather for tenants until new social housing came on stream.

Thursday's ruling is likely to push Germany's growing housing crisis higher up the agenda in September's federal election. Berlin's SPD leader Franziska Giffey said the ruling illustrated the need "to improve tenant protection at federal level". Local SPD officials who lobbied for the rent cap insisted they would continue their campaign as "apartments are not a product like any other, they are people's homes".

Berlin's opposition CDU leader Burkard Dregger attacked the ruling Senate for "agreeing, against their better judgment, an unconstitutional law and for making an ineffective promise for lower rents".

In a rare moment of agreement, property owners and tenants’ associations say the cap has triggered a sharp reduction in the number of rental properties on the market – with many landlords holding back until after the rental cap ruling.

Market research shows that rents in Berlin, a tenant’s paradise for most of the post-wall era, have jumped 44 per cent in the past five years alone. Compared with a decade ago, rents in several popular areas have spiked 99 per cent.

Driving the surge are new arrivals and hordes of private and institutional investors looking for a safe harbour for their money. Rising land prices mean that only higher-end apartment blocks make economic sense for builders, squeezing the affordable end of the market.