Ifo blames rent cap and expropriation plan for Berlin flat shortage

A new study by the Ifo Institute in Munich claims that Berlin’s already-scrapped rent cap and uncertainty over a referendum to expropriate 240.000 flats mean fewer flats are available in the capital. The Berlin Tenants’ Association argues the findings prove no causal relationship.

Ifo publishes study on Berlin housing

The Ifo Institute for Economic Research in Munich has published a study claiming that three years after the Berlin rent cap was scrapped, “the ratio of purchase prices to rents in [the capital] is around 10 to 15 percent below the level that trends in other major cities would suggest”.

Berlin’s SPD-Greens-Left coalition introduced the rent cap in early 2020. The law consisted of three measures: a rent freeze until 2025, a rent index to regulate the maximum rent landlords could charge, and rent reductions for tenants paying above the maximum.

Then, in 2021, the Federal Constitutional Court in Baden-Württemberg overturned the Berlin-wide law, ruling that it violated the German constitution (Basic Law or Grundgesetz).  

Ifo researcher Mathias Dolls claimed the defunct rent cap “meant investors and housing companies in Berlin have carried out significantly fewer new-build and renovation projects”. Dolls also blames the “ongoing expropriation debate”. 

Dolls’ latter statement refers to the Deutsche Wohnen & Co Enteignen campaign to nationalise 240.000 flats owned by large private property companies. Back in 2021, the campaign went to a referendum, and 59,1 percent of Berlin voters supported the proposal.

The subsequent CDU-SPD local coalition did not implement the policy, but appointed an expert commission to assess whether it was constitutionally sound. In June 2023, the commission concluded the policy would not mean financial ruin for the government and was constitutional.

The same CDU-SPD coalition has taken no further steps to implement the policy. In another recent development, the federal government passed a new law forbidding state governments from nationalising private rental companies.

“Uncertainty in the Berlin housing market rises significantly as soon as politicians discuss rent caps or expropriation,” co-author of the Ifo study Carla Krolage added.

Regulations are designed to help tenants, not investors

The Berlin Tenants’ Association (Berliner Mieterverein) pointed out that the rent cap and expropriation plan were never intended to make Berlin attractive to property investors, but to prevent property companies from profiting from the affordable housing shortage.

“It is striking that one study after another [warns] of the consequences of rent regulation and socialisation - namely a lack of investment, a weakening of the economy and the exodus of private investors,” Mieterverein spokesperson Franziska Schulte told IamExpat.

“Such conclusions must be tested against sound empirical evidence. No causal link can be inferred from the 10 to 15 percent figures cited,” Schulte continued. “After all, private developers are certainly building in Berlin. The crucial question is rather what is being built and for whom.”

Schulte pointed out that even if more investors were looking to build in Berlin, landlords of new builds in the city often charge bank-breaking rents. This is partly because tenants living in buildings rented for the first time after October 1, 2014, are not protected by Germany’s nationwide rent brake.

“[T]he crucial question should not be how attractive Berlin is to property investors, but rather: how much affordable housing is actually being created for the people who live in Berlin?”