In response to growing public pressure, the Berlin city government has enacted plans for a rent freeze to last for the next five years.
In the last decade, rental prices have skyrocketed in Berlin by 129 per cent, as both German and overseas property investors invest in the city. Considering that 85 per cent of Berliners rent their homes, this has had a serious impact.
In a bid to halt this runaway gentrification, Berlin’s city government has decided on a rent freeze for five years, starting 2020. Under the plan, 1.5 million apartments will be protected from rent increases.
The plan was developed in part due to the objectively sharp rent increases, but also due to significant public backlash. Berliners have been so distressed by rent increases that activists had been collecting signatures for a referendum to force the city to seize apartments from large landlords who owned more than 3,000 buildings.
While the rent freeze should only affect large corporate landlords, overseas property investors need to make sure that their purchases the Berlin buy to let property market are not affected.
The rent freeze was enacted by Berlin’s coalition government, composed of the Social Democratic Party (SDP), the Green Party, and the far-left Die Linke, with the SDP calling for similar freezes across the country. Rental prices in other German cities have been exploding as well, such as in Munich, where prices increased by 141 per cent over the last decade.
The rent freeze plan would allow small, fixed rent increases in case landlords decide to renovate their apartments, but large improvements would require city approval first. If landlords ignore this rule, they could face fines up to €500,000. Although the plan would go into effect on 2020, it would apply retroactively to June 18th, which would prevent landlords from rushing to raise prices before the freeze goes into effect.
Overall, rent controls seem to work well in the short-run, but in the long-run, they can actually increase gentrification. Only time will tell how well the rent freeze works in Berlin. If it fares for the better on behalf of residents, then the move could serve as a model for other European cities.