A nationwide rent cap based on the Berlin model would mean 60 per cent fewer lettings

A study conducted by the German Economic Institute (IW) on behalf of the Friedrich Naumann Foundation for Freedom examined the potential impact on the housing market of a nationwide rent cap based on the Berlin model. The rent cap, a regulatory instrument that was adopted in Berlin in 2020 before being declared unconstitutional by the Federal Constitutional Court in April 2021, differs significantly from the rental price brake, which was introduced in 2015 and is used across Germany to curb rent increases for new lettings. Currently, 477 municipalities across Germany have implemented rental price brake policies, pegging market rents to legally defined local comparative rents, which landlords are not allowed to exceed by more than ten per cent. The Berlin rent cap had a significant impact on the city’s rental market, especially as the rent cap was in some cases much lower than standard market rates. Despite the fact that rents fell by an average of eleven per cent under the Berlin rent cap, the supply of housing also fell by around half. Simply put, the rent cap motivated landlords to sell their rental apartments or convert them into condominiums rather than renting them out. The impact of the rent cap was felt most by families in need of housing, while long-term tenants with higher incomes benefitted. The IW study reveals that a rent cap based on the Berlin model would more than halve the supply of housing in areas across Germany where rental price brakes are already in place. Instead of 280,000 new listings, the supply would plummet by over 60 per cent to approximately 108,000 units within a year.