Germany set to propose three-year rent freeze

Germany’s ruling Social Democratic party is set to propose a three-year rent break across the country, as tenants struggle to cope with the soaring cost of housing in Europe’s largest economy.

“We need to create breathing room – we need a rent freeze for the next three years,” senior SDP lawmaker Verena Hubertz told Bild am Sonntag, adding that chancellor Olaf Scholz would outline measures on Monday to tackle the country’s cost of living crisis.

The SDP forms the most powerful group in Germany’s three-party coalition government.

Rents have this year risen at record rates across Germany – a country where the cost of housing has traditionally been stable enough for families to live in rented accommodation throughout their lives. Among Germany’s 41 million households, slightly less than 60 per cent live in rented accommodation, according to the German Federal Statistical Office.

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Germans are also facing higher prices for other goods. Overall consumer price inflation was 6.2 per cent in the year to July, against a euro zone average of 5.3 per cent.

Existing rules aimed at regulating the property market cap rent increases at 20 per cent over three years – or 15 per cent in areas that have been designated as having particularly tight housing markets. Germany’s coalition government has already agreed to lower this cap to 11 per cent – something that the SPD has now signalled is not enough.

The party’s plans, according to a proposal seen by the news agency Deutsche Presse-Agentur, is to allow rents to rise by a maximum of 6 per cent in cities where demand is very high, while a blanket freeze would apply across the rest of the country.

Berlin and Leipzig are among cities where rents have risen steeply. A survey by property portal Immowelt found that rents in midsized cities had also increased sharply. In Dormagen in North Rhine-Westphalia, average rents rose 18 per cent in the past year.

The plans also propose stricter punishments of landlords who skirt rules and charge tenants illegally high rents.

Germany’s housing market was already suffering from supply shortages before the war in Ukraine. Since then, inflation for food and energy has soared, while the arrival of nearly 1mn Ukrainian refugees has placed more pressure on the stock of existing housing.

Aside from rising rents, concern has also grown over a looming shortage of housing, especially cheaper flats. With rising interest rates, building housing has become more expensive and a recent German study found a shortage of 700,000 flats in 2023.

A rift has already appeared between the SPD and its coalition partner, the liberal Free Democratic party. The FDP has in the past stated that rising rents are mainly to be attributed to the lack of housing – a problem that it wants to solve with liberalising housing markets, rather than introducing more regulation.

Copyright The Financial Times Limited 2023