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Berlin Freezes Rents in Landmark Plan to Tackle Cost Spiral

Bloomberg logoBloomberg 10/21/2019 Andrew Blackman
a bridge over a river in a city: The Kottbusser Tor can be seen at dusk.© Photographer: picture alliance/picture alliance The Kottbusser Tor can be seen at dusk.

(Bloomberg) -- Berlin’s governing parties struck a deal to freeze rents for five years, marking one of the most radical plans to tackle spiraling housing costs in a major city and hitting the shares of major apartment owners.

The German capital’s aggressive efforts to clamp down on rent increases have sparked interest in cities from Amsterdam to New York. While renters’ groups in Munich are pushing for a six-year freeze, other German cities have yet to follow Berlin’s lead amid concerns that the action could complicate the development of new homes.

The deal between Berlin’s ruling Social Democrats, Greens and the Left party paves the way for the city legislature to approve the measures before bringing them into force in the first quarter of 2020. The final agreement was hashed out during a two-day meeting late last week after months of talks.

“We’re entering new territory,” Mayor Michael Mueller said. “Others talk about it, but we’re actually doing it.”

The initiative put forward by the Left party’s Katrin Lompscher, head of urban development and housing, is intended to ease the burden on tenants after a property boom caused rents to double over the past decade. The political intervention has spooked investors as a separate campaign attempts to force Berlin’s government to expropriate properties from large landlords.

One of the biggest losers has been Deutsche Wohnen SE, Berlin’s largest apartment owner. The company has lost about a fifth of its market value since the rent-freeze plan was announced in June. The shares dropped as much as 4.6% on Monday and were down 2.5% at 11:30 a.m. in Frankfurt. Vonovia SE, Germany’s largest property company, fell as much as 1.9%.

The planned legislation will “make the problem of a lack of apartments in Berlin worse,” Vonovia spokeswoman Nina Henckel said in an emailed statement.

Berlin isn’t alone in contending with skyrocketing rental prices and a shortage of affordable housing. Spain’s Socialist government pushed through a cap on rent increases earlier this year, while landlords in Portugal aren’t allowed to raise rents on some tenants with low incomes and New Yorkers won historic rental protections from the Democrat-controlled state legislature.

Pressure Zones

In Ireland, the government created so-called rent pressure zones in 2016 in an effort to damp down surging rents. The initiative, which caps rent increases to 4% per year, was initially limited mostly to Dublin, but has since expanded to other parts of the country. Critics say the policy has had little impact on the market because loopholes allow landlords to exceed the 4% ceiling.

Berlin will only allow landlords to impose an annual inflation-linked rent increase of 1.3% from 2022 and will enable tenants paying excessively high rents to claim a reduction under certain conditions. The legislation, expected to be approved this week by the city legislature, also permits small increases to cover renovation work.

The negotiations, described by Lompscher as “highly controversial” earlier this month, proceeded amid concern some of the proposals might not be constitutional. Mueller said he’s confident the measures could withstand legal challenges.

His sentiment was echoed by a group representing the construction industry in Berlin and Brandenburg . “The answer isn’t a rent cap, but rather a strong focus on building,” FG-Bau said in an open letter.Other German cities recoiled at the development. Hamburg’s mayor, Peter Tschentscher, said the only way to avoid further rent increases is to build enough properties to keep pace with demand. Enforced sales and rent freezes will only deter investors from investing in new homes, he was quoted as saying in Sunday’s edition of the Frankfurter Allgemeine Zeitung.

(Adds comment from industry group in final paragraph, updates shares)

To contact the reporter on this story: Andrew Blackman in Berlin at ablackman@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Chris Reiter, Iain Rogers

For more articles like this, please visit us at bloomberg.com

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