Real Estate

How is that supposed to work? Questions and answers

In Berlin, rents are to be temporarily capped by the state. This means that the capital is entering new territory politically and, above all, legally. How is that supposed to work? Questions and answers.

Has been planning for months Berlin a revolution on the Housing market. However, the coalition of the SPD, the Left and the Greens has been stubborn for a long time in the details of the rental cover, which is unique in Germany.

Now there is a compromise that the Senate has decided on. And for landlord Like tenants, it becomes clearer what to expect.

What does rent cover mean?

Berlin wants to freeze the rents for 1.5 million non-price-sensitive apartments for five years at the level of June 18, 2019. At that time, the Senate had decided on the first cornerstones of the project. The aim is to stop the spiral that has been turning for years, namely to call up higher rents for new rentals and to saddle them regularly in the portfolio. Tenants would get a “respite”, says Berlin’s head of government Michael Müller (SPD). The law is expected to enter into force in January and covers all apartments that were built before 2014.

Does the state also set upper limits for rents?

Yes. They are determined according to criteria such as the year of construction and equipment of the apartment. The basis is the 2013 rent index – in that year the housing market in Berlin was still considered healthy. To take account of price developments, an increase of 13.5 percent since then should be taken into account. In addition, and the basic rent per square meter does not exceed EUR 9.80.

Who benefits from the new law?

First of all, the upper limits such as the rental cover apply to new rentals and must not be exceeded. An apartment may not be more expensive than the previous tenant when a new tenant moves in, and in many cases may even become cheaper if the old rental price was above the upper limit.

Can existing tenants lower their rent?

This should not be possible on a broad front, but if landlords demand “usury rents” that exceed the defined upper limits by more than 20 percent. Residents should then be able to apply to the authorities for a reduction to this value. In other words: existing rents may not exceed the upper limits by more than 20 percent.

It gets complicated because surcharges or discounts based on the location should still be possible. This takes time to prepare and up to 250 new administrative staff. Therefore, the reduction regulation should only come into force nine months after the rental cap, i.e. probably in the fourth quarter of 2020.

What does the housing industry say about the rental cover?

It runs like the CDU, FDP and AfD Sturm against the plans. “The Berlin state government is returning to the socialist one Housing policy“complains the president of the real estate association IVD, Jürgen Michael Schick. Investments in modernization and the urgently needed housing construction would be paralyzed. The largest Berlin landlord German living sees that Rent index as a “frontal attack”. No wonder: In the course of the rent debate in Berlin, the group temporarily lost a third of its value on the stock market this year.

How does red-red-green in Berlin react to the criticism?

The Berlin coalition is countering this with the construct of a “breathing rent cover”. From 2022, landlords should be able to add 1.3 percent annually to the rent as inflation compensation. In addition, modernization measures for more accessibility or climate protection can be allocated to the rent without a permit up to one euro per square meter. There should be funding for higher costs.

Why a rental cover at all?

In Berlin, asking rents have recently increased faster than elsewhere. According to the Federal Ministry of Building, they doubled in ten years to an average of 11.09 euros per square meter cold in 2018. And the trend continues: For 2019, the Immowelt portal comes to 11.60 euros. Even ordinary earners have hardly any chances of an affordable place to stay in many districts. To stop this development, government intervention in the market is “good and correct,” said Prime Minister Müller.

However, the rent level in Berlin is still lower than in other big cities like Munich or Hamburg. According to the rent index, which also includes existing contracts, Berliners pay 6.72 euros per square meter of average rent.

Where does the sharp rise in rents come from?

In view of low interest rates and the attractiveness of Berlin, the capital has developed into a way of playing for international investors and pension funds. In anticipation of high profit margins, they bought themselves here as in other metropolises at “moon prices”, as Federal President Frank-Walter Steinmeier criticized some time ago. Now they want to get that back in the rent. At the same time, living space is becoming scarce because new construction is lagging behind in demand. One reason: high property prices and increasingly complex requirements make construction more expensive. The result: insufficiently inexpensive living space is created.

What is the Berlin strategy against?

It is “build, buy, cover”. The Senate therefore relies on a combination of new construction, the buyback of previously privatized housing stocks and the rent cover. A citizens’ initiative has yet another idea and has made a referendum on the expropriation of large real estate groups. Leftists and Greens think that’s good. The governing mayor Müller strictly rejects such an approach.

Is the rental cover legally feasible?

Opinions in politics and various legal opinions diverge. It is considered certain that the interference with property rights will occupy courts up to the Federal Constitutional Court. The real estate industry wants to fight back. The question is also whether the country can regulate rents at all. The Senate says “yes” because, since the federalism reform in 2006, the federal government has been responsible for rent policy, but the federal states have been responsible for housing.

It remains to be seen how long a legal tug of war will help tenants. If courts collect the rent cover, they could possibly be faced with additional rent claims.

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