German constitutional court cuts Berlin rent cap
Berlin’s rent cap has been struck down by Germany’s Constitutional Court today, as it ruled the pandemic-imposed law as invalid.
The ruling comes as a huge blow for supporters of rent limits across Europe, as it pushed landlords to cut rents in the capital for over 300,000 tenants during the pandemic.
The controversial cap, imposed in late November and which came into force at the end of February, would have frozen rent prices for five years.
The court ruled that Berlin does not have the authority to ratify the law, as it should be a federal government decision.
“There is no room for the legislative power of the federal states due to the power of federal law to block it,” said the court.
The law has been widely criticised by the real estate industry, which claimed it deterred real estate investors from eyeing urban areas.
Landlords have reportedly taken to sliding “shadow rent” into contracts, increasing the price that tenants would have to pay in case the court found the cap unconstitutional. Renters associations have called these shadow rents unlawful, according to Deutsche Welle.
Shares in property firms with assets in Berlin, including Deutsche Wohnen and Vonovia, lifted after the ruling.
London rent cap
“A high price is simply a signal of scarcity. You can override such a signal, just like you can switch off a beeping smoke detector. But the underlying problem, which triggered the signal in the first place, is still there, and it will now simply manifest itself in other ways,” head of political economy at the Institute of Economic Affair, Dr Kristian Niemietz, said on whether London should pass a similar law.
“We can only build our way out of this crisis. There are no shortcuts.”
However, a “carefully designed rent controls could be key to creating a fairer, more affordable private rental sector,” senior economist at the New Economist Foundation, Sarah Arnold, argued.
“Private renters are among the worst hit by this pandemic, with 840,000 behind on payments nationally as many tenants saw their incomes fall. The long-term impact of the pandemic on the housing market is far from clear but having affordable rents in London should remain a priority.”