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The German coalition government recently extended the Mietpreisbremse (rent control law) until the end of 2028, with additional tightening of criteria for its application. Federal Justice Minister Marco Buschmann spearheaded the extension, ensuring that federal states continue to have the authority to impose rent controls in “tight housing markets.” This marks a significant shift for a law initially intended as a temporary measure when it was introduced in 2015, now extended with more rigorous requirements aimed at making the law constitutionally sound.
So, what’s new in this extension of the existing law? While the essence of the Mietpreisbremse—capping rent increases at 10% above local comparative rents—remains, Buschmann’s proposal introduces stricter measures. Federal states must now justify why a given area requires rent control, providing details of other housing relief measures planned or in progress. This is designed to fend off potential constitutional challenges while addressing criticisms about the law's effectiveness. Additionally, tenant protection groups are pushing for an extension of the rent control exemption for new buildings, arguing that the 2014 cutoff should be moved to 2024, given the rising challenges tenants face.
The Mietpreisbremse’s extension is likely to raise concerns among real estate investors, particularly those focused on residential assets. Haus & Grund, a national association representing property owners, has criticized the law as “counterproductive,” arguing that it exacerbates market conditions by stifling new investment in housing. Investors may be deterred from developing new projects in areas subject to the rent brake, fearing limited rental income and profitability, particularly with construction costs continuing to rise.
The GdW, Germany’s umbrella organization for the housing industry, echoes these concerns. President Axel Gedaschko stated that further tightening of tenancy laws “must no longer be an issue,” noting that higher prices, combined with legislative pressure, could reduce the capacity for affordable housing projects and other critical developments like energy-efficient renovations.
REFIRE thinks it's likely that some real estate investors may still see opportunities, especially in new builds or extensively modernized properties, both of which remain exempt from rent control. This could drive a shift in capital allocation towards commercial property conversions or other investment categories that fall outside the rent brake’s scope.
Market reaction and political responses
The reaction from the political spectrum has been mixed. The Greens welcomed the extension but emphasized that it’s only a first step. Christina-Johanne Schröder, a spokesperson for the Green Party, stressed the need for more security for tenants, particularly through a reduction in the rent cap for existing rental contracts, which currently allows rent increases of 15% over three years in areas with tight housing markets. She advocates for a reduction to 11% to provide additional protection to tenants.
On the other hand, the opposition CDU sharply criticized the measure. Jan-Marco Luczak, the CDU’s housing policy spokesperson, called the rent brake an “investment brake” and argued that the solution lies in building more housing, not imposing more regulations. He warned that continued reliance on rent control would reduce new housing supply, deepening the crisis rather than resolving it.
Loopholes and legal challenges
One of the major criticisms of the Mietpreisbremse is its loopholes. Furnished apartments are often exempt, allowing landlords to bypass the rent control by charging premiums for furniture. According to studies like the Mietenmonitor report, around 25% of rental advertisements in cities like Düsseldorf violate the Mietpreisbremse, largely because landlords can impose surcharges that exceed the allowed rent increases. The DIW (German Institute for Economic Research) has pointed out that while the Mietpreisbremse has slowed rent growth in some areas, its overall impact has been modest, especially in the face of continued housing shortages.
Further, a study conducted by the Berlin Tenants’ Association revealed that 98% of landlords ignored the legal rent brake in some cases, exploiting these exemptions. Tenant groups are calling for stricter enforcement and a removal of the exemptions that allow landlords to evade the law’s intent.
As discussed in a previous REFIRE 235 article in August this year, the Mietpreisbremse is supposed to provide stability for tenants by offering more predictable rental costs, especially in high-demand cities like Berlin, Munich, and Frankfurt. By capping rental prices, tenants have been protected from runaway rent increases that have plagued many urban markets.
However, the downside is that these measures could deter new investment. Critics, such as Michael Voigtländer from the Cologne Institute for Economic Research, argue that by artificially suppressing rents, the government may dissuade developers from building new housing, especially affordable units. Bottermann Khorrami, a Berlin-based law firm that has analysed the Mietpreisbremse, emphasizes that while tenant protection is important, the law fails to address the core issue of insufficient housing supply. As long as the supply-demand imbalance remains, any price controls are likely to fall short of their intended effects.
How will investors react?
Looking ahead, the extension of the Mietpreisbremse will likely prompt investors to refocus on sectors that remain exempt from the regulations, such as new construction, commercial conversions, and furnished rentals. However, there’s a clear need for government incentives to stimulate new housing developments. As Iris Schöberl of the ZIA (German Property Federation) remarked, the focus should now shift towards promoting new construction through initiatives like the KfW program for climate-friendly housing and simplified building codes.
Without a significant increase in housing supply, the Mietpreisbremse alone will not be enough to stabilise the housing market. Investors should monitor policy developments closely, as any shifts in regulatory frameworks or new tax incentives could greatly influence market dynamics.
In conclusion, while the Mietpreisbremse provides much-needed relief to tenants in Germany’s most competitive housing markets, it also raises concerns about its long-term impact on investment and housing supply. The law’s success will ultimately depend on the government’s ability to balance tenant protection with measures that encourage new construction, offering a more sustainable solution to Germany’s housing shortage.
