MargJohnsonVA/Envato
With the collapse of Germany’s coalition government, the country’s rent brake—a cornerstone of its housing policy—teeters on the edge of extinction. The Mietpreisbremse, a rent control mechanism introduced in 2015, now faces an uncertain future. The fall of the SPD-Greens-FDP coalition in early November has derailed plans to extend the regulation until 2028, leaving the framework set to expire in 2025. Renters and landlords alike are left navigating a precarious regulatory limbo.
Helmut Dedy, managing director of the German Association of Cities, calls the rent brake “an essential buffer” for tenants in tight housing markets. But without a federal mandate, the pressure is on states to implement emergency measures. In Berlin, for example, the regulation expires in May 2025, while Hamburg and North Rhine-Westphalia face deadlines in June. Section 556d of the Civil Code may allow for temporary extensions, but these stopgap measures risk creating a fragmented policy landscape.
For tenants, the stakes are high. Lukas Siebenkotten of the German Tenants’ Association has warned of rents in sought-after cities surging to €17 per square meter or more. “This would be a devastating blow for households already stretched thin,” he said.
Landlords and real estate professionals, however, view the potential end of the rent brake more optimistically. Kai Warnecke, president of Haus & Grund, describes it as “a necessary correction to a rigid housing market,” arguing that the brake has stifled investment in both new construction and property maintenance.
The outlook for investors
For investors, the rent brake’s uncertain future raises more questions than answers. Without clarity on regulations, capital deployment in Germany’s residential sector could stall. The broader implications for international investors are stark: should the brake expire, we may see a short-term boost in yields for existing stock, but at the risk of reduced tenant stability and long-term market volatility.
Meanwhile, alternative segments like furnished rentals, modular construction, and new-build properties exempt from rent controls could see an uptick in interest. As real estate economist Christian Oberst cautions, “Regulatory ambiguity undermines confidence. Investors may opt for safer bets, such as commercial real estate or modular housing developments, until the dust settles.”
International investors will need to tread carefully. Comparable rent control systems, such as those in California and Spain, have shown similar trends: a brief pause in rent hikes followed by reduced market liquidity and weakened incentives for new development.
France, too, offers a cautionary tale. Its “Encadrement des Loyers” system, introduced in Paris and extended to other cities, limits rent increases based on market averages but has faced enforcement issues. Many landlords circumvent the rules, and tenant advocacy groups have criticized the system for not addressing the root causes of the housing shortage—insufficient supply and rising construction costs. These parallels should serve as both a warning and an opportunity for savvy investors looking at Germany.
Housing shortage risks becoming economic bottleneck
Germany’s rent control debate isn’t just about tenants and landlords—it’s a litmus test for the country’s broader economic competitiveness. Rising rents and insufficient supply have made it harder to attract top talent to urban centers like Berlin and Munich. With more than 400,000 new housing units promised annually but only 295,000 delivered last year, the housing shortage risks becoming a structural economic bottleneck, about which we have been reporting exhaustively in REFIRE.
The stalled amendment to the Federal Building Code, which aims to streamline construction regulations and promote new housing, is now more critical than ever. Experts like Veronika Grimm of the German Council of Economic Experts emphasize that harmonized building standards and modular construction could reduce costs and unlock development potential, but only if political will aligns with market needs.
Does the rent brake work?
The Mietpreisbremse’s effectiveness remains contentious. Research by Konstantin Kholodilin of the German Institute for Economic Researchshows that rent caps slow rent increases in regulated areas, but with unintended side effects. Tenants rarely move, worsening housing shortages. Meanwhile, landlords exploit loopholes such as index-linked rents and furnished leases, further eroding the brake’s impact.
Critics also highlight the brake’s inequities. “Wealthier tenants, who can navigate the system’s loopholes, often benefit the most,” says Kholodilin. “Meanwhile, vulnerable groups are left behind.”
The February 2025 elections will likely turn the Mietpreisbremse into a political flashpoint. The SPD and Greens remain committed to an extension, while the CDU has pledged to scrap it entirely. In the meantime, a patchwork of state-level interventions could temporarily maintain rent caps, but at the cost of investor confidence and market cohesion.
For tenants, landlords, and investors alike, the uncertainty shines even further light on the fragility of Germany’s housing market. While tenants worry about skyrocketing rents, investors eye opportunities in unregulated segments like modular housing or commercial-to-residential conversions.
In REFIRE's view, investors should brace for policy turbulence but remain agile. Opportunities may lie in sectors outside the Mietpreisbremse’s scope, such as new-build developments and modular construction, which are likely to benefit from rising demand. As political clarity emerges post-election, those who position themselves early could secure high-yield assets in a restructured market.
Germany’s housing debate isn’t just a local issue—it’s a microcosm of global real estate trends. Whether the rent brake survives or not, the need for more housing supply remains undeniable. Savvy investors should look beyond the headlines, focusing on long-term strategies that align with the country’s ever-growing housing needs.
