Residential rents soar as tenants and landlords face mounting pressures

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Rents in Germany are still soaring, leaving tenants stretched financially and landlords facing mounting regulatory and cost pressures. Recent interviews with Handelsblatt and WirtschaftsWoche by Lars von Lackum, CEO of LEG Immobilien, and Rolf Buch, CEO of Vonovia, reveal stark insights into the escalating rental market and the policy challenges gripping the nation’s housing sector.

Vonovia, the country’s largest landlord, recently announced a 15% rent increase in Berlin, citing rising costs and the limited supply of affordable housing. Rolf Buch was direct: "To maintain the portfolio and meet climate targets, rents must align with the actual costs of operation and modernisation." Energy-efficiency mandates from the EU are a major driver, with Buch estimating that upgrading buildings to comply can cost €20–30 per square metre—costs that ultimately fall on tenants.

Lars von Lackum mirrored Buch’s concerns, pointing out that LEG’s average rent increases of 3.4% this year are necessary to offset rising operational expenses. Speaking to business daily Handelsblatt, he criticised delays in construction permits and low completion rates, which he said worsen the housing shortage. "Anyone who understands free markets knows that scarce goods become more expensive. Rents will continue to rise," von Lackum explained.

Adding to the financial strain, rising interest rates have exacerbated landlords’ cost burdens. Refinancing debt has become more expensive, while inflation continues to push up material and labour costs for building renovations. These economic headwinds have further locked landlords into a cycle of passing costs on to tenants through rent hikes.

A grim reality for tenants

The effect on tenants is stark. Von Lackum recounted the plight of a landlady torn over allocating her single available apartment: Should it go to a welfare recipient, a couple on minimum wage, or two Ukrainian refugees? Such moral dilemmas reflect the acute housing scarcity driving competition to extremes.

In Berlin, tenants have been hit hardest, with Vonovia reporting significant rent hikes well above the national average. Across Germany, almost half of renters in major cities now spend over 30% of their income on housing—a level often deemed unaffordable.

Buch also flagged the rise of furnished apartments, where some landlords exploit regulatory loopholes to charge exorbitant rents, sometimes exceeding €30 per square metre. While Vonovia avoids this practice, Buch warned of the distortions created by policies like the Mietpreisbremse (rent brake). "Rent controls protect tenants who don’t need it and stifle the supply of much-needed affordable housing," he said. (See article on the Mietpreisbremse in this issue of REFIRE).

Policy tensions and industry proposals

Landlords are united in their frustration with the current regulatory landscape. The proposed extension of the rent brake until 2029 and planned EU energy directives have piled pressure on an already strained sector. Von Lackum described the situation as a "labyrinth" for small landlords, who increasingly struggle to comply with ever-tightening rules.

To make matters worse, inflationary pressures and rising interest rates are slowing investment in the housing market. As Buch noted, the cost of borrowing for new construction or energy upgrades has risen significantly, deterring developers and landlords alike.

Signs of stabilisation, but little relief ahead

Despite the grim picture, signs of stabilisation are emerging. Vonovia has resumed property sales after devaluing its portfolio by 17% over two years. Buch highlighted renewed buyer interest, with some transactions closing above book value—a sign that investor confidence may be returning. LEG has also successfully sold over 2,900 units at or above valuation, enabling it to reduce its leverage.

For tenants, however, relief seems distant. "Rents will reflect scarcity. That’s the reality of the market," Buch concluded. With construction at a crawl and migration adding demand, policymakers must urgently strike a balance between encouraging investment and protecting tenants from being priced out.