On a Wednesday earlier this month, news leaked that a much-anticipated supreme court ruling on Berlin’s ‘Mietendeckel’, a package of strict rent controls introduced last year by the city’s left-wing government, was imminent.
The following morning confirmed renters’ worst fears. The verdict in Karlsruhe was that Berlin does not possess the legal competence to regulate rents, which fell instead under federal government powers. Europe’s most radical rental legislation was immediately rendered null and void.
Landlords and property lobbyists, as well as Angela Merkel’s Christian Democratic Union and the neoliberal Free Democratic Party, whose MPs had brought the court challenge, openly rejoiced at the demise of their opponents’ ‘ideological experiment’. Shares in Deutsche Wohnen, the city’s biggest private landlord, jumped excitedly to their highest value in over a decade.
Tenants felt it as a hammer blow. A survey conducted by the city’s renters union found that 70 percent of respondents had their rents reduced by an average of €211 per month, a lifeline to many struggling on low wages or facing pandemic-induced unemployment. Not only would higher rents now be reinstated, but the full difference would be demanded in back-payments. By some estimates, the total bill awaiting tenants could be over €500 million.
Within hours, or in some cases minutes, many received notices from their landlords that full payment would be expected right away. ‘They also wrote that I should leave the apartment as soon as possible because they don’t want tenants like me anyway,’ one resident told Zeit.
Germany is a characteristically unforgiving place for those who now find themselves buried in arrears. They are obliged to pay within two weeks, after which an eviction notice can be filed if more than two months’ rent is outstanding. Although politicians and landlords warned tenants to set their savings aside in case the law was overturned, a poll by a German bank suggested almost half had not or could not.
One major landlord, Vonovia, has waived the payments and others have pledged not to evict, but tens of thousands of renters could find themselves at their landlord’s mercy.
‘[The landlord’s association] is lying in wait and now recommends using the opportunity to part with old tenants and free up space for higher returns,’ Gaby Gottwald, a Berlin state parliament member for the socialist Die Linke party, told Neues Deutschland.
In response, Berlin’s government has scrambled together a €10 million fund to provide interest-free loans to those on low incomes struggling to make repayments.
Renting in Berlin
Since 1991, Berlin has sold off over 200,000 public homes. Even modernist masterpieces like Bruno Taut’s Hufeisensiedlung (Horseshoe Estate) did not escape the chopping block.
Following a banking crisis in the early 2000s that left the capital bankrupt, international vulture firms bought tens of thousands of homes in an ensuing fire sale. Most now are portfolio items of the dozen or so corporate landlords that dominate the private market, like Deutsche Wohnen, Swedish giant Akelius, and pan-European Vonovia.
The 2010s proved a riot for these blow-in rentiers, the largest banking 20 percent annual returns between 2012 and 2018, according to research published by the Rosa Luxemburg Foundation. Rents almost doubled over the decade, creating a number of overlapping social crises, as rates of eviction, displacement, and gentrification exploded.
Conceived in 2018, the rent cap was first proposed by a lawyer and civil servant as a means to use state powers to address the spiralling crisis, which national legislation did almost nothing to prevent.
Throughout that year popular demands for corrective intervention into the city’s rental market continued to grow, culminating in the establishment of a campaign to expropriate major landlords outright, ‘Deutsche Wohnen & Co. enteignen’ (Expropriate Deutsche Wohnen & Co.).
Sensing the way the wind was blowing, the soft-left SPD began evangelising the more cautious rent cap. Their partners in Berlin’s ‘red-red-green’ government, Die Linke and the Green Party, soon swung in behind it, the latter adding a proposal to lower existing rents.
The new law froze rents at 2019 levels on all buildings constructed before 2014, and fixed all new rents to strict limits determined by location, facilities, and the age of the building. In November, all existing contracts more than 20 percent above this limit were immediately reduced as well, cutting rents for hundreds of thousands of households overnight. Fines of €500,000 per breach gave even the richest landlords no alternative.
However, the Mietendeckel was always envisaged as a temporary measure to alleviate pressure on tenants until the construction of new homes caught up with demand. The SPD was reluctant to support it beyond an initial five-year period.
Though a nationwide ‘rent brake’ was applied in 2015 to slow rent growth across Germany, its cables were cut from the outset. Many tenancies were exempted, and if tenants wished to challenge rents set above limits, they had to take their landlord to court individually – a costly and protracted process that incentivised non-compliance.
With little reason to act otherwise, a number of landlords effectively established their business on systematised law-breaking, setting rents they knew to be illegally high, knowing tenants had little power to stop them. Rents across the country continued to rise unabated.
The arrival of the Mietendeckel was intended to send a message, too, addressed to the international investors who had piled into Berlin to mine a singularly profitable seam of undervalued housing: the gold rush was over.
The Mietendeckel was expected to cost landlords €2.5 billion over five years, and their resistance proved swift. Many withdrew apartments from the market, preferring to leave them vacant until the ruling, or with the intention of converting to private condos and selling them off. With tenants staying put and landlords conducting a mini-capital strike, the number of apartments available under the new price regime plummeted.
Applying so-called ‘shadow rents’ became standard practice. House hunters could expect to find two rents on adverts, one limited by law and another higher rate that would be demanded if the cap was overturned, along with back payment. The legality of these clauses remains to be determined.
Other get-arounds ranged from traditional methods—like demanding cash top-ups on top of listed rents—to the inventive, such as a new startup that provided mandatory ‘servicing’ of furnished apartments, kicking back a share of the fee to the owner.
Developers, landlords and their representative bodies told newspapers that necessary construction, maintenance, and upgrades would no longer be financially viable as long as the law limited rents. On Tuesday, the Association of Berlin-Brandenburg Housing Companies admitted these investments will not be returning anytime soon.
The law found no shortage of critics, locally and internationally. Bloomberg News proclaimed the scheme a ‘disaster’, making creative use of the y-axis in graphs to equate an enormous drop in rents among regulated apartments to much smaller rise in the comparably modest-sized new build sector.
Its columnist agreed with lobbyists and landlords that the regulations hamstrung new construction. The number of building permits issued did drop by nine percent in 2020, but the figures are hard to disentangle from the pandemic, and are comparable with the surrounding state of Brandenburg (down 10 percent) and far better than Hamburg (down 27 percent).
Additionally, 60,000 more apartments have been approved but not yet built, and while completions remain well behind demand, the latest figures from 2019 are the highest in 20 years.
There were certainly flaws. Exempting buildings constructed from 2014 was seen as a necessary compromise so as not to discourage further private-sector development, but those searching for a new home faced an unenviable choice between the stupendously high rents of new luxury apartments, or a life living short-term sublet to short-term sublet. It also had the unintended effect of distorting the market in the surrounding state of Brandenburg, particularly in the satellite city of Potsdam, where rents rose by 12 percent.
The court’s judgement said that a number of laws passed at federal level sufficiently regulated the rental market, and so any amendments must likewise be agreed at a national level.
While the ruling means Berlin will be unable to limit rents until action is taken at national level, it does not prevent the Mitendeckel returning in future. ‘There is still no decision on the substance of the rent cap,’ said Berlin’s housing senator Sebastian Scheel of Die Linke on Tuesday. ‘The path is still the right one – apparently we weren’t the right ones to take it.’
At least until September’s elections, the political landscape in the Bundestag is less propitious for any meaningful change to the ordoliberal status quo. Nothing could be more anathema to the CDU, AfD, or FDP than regulating rents, the Christian Democrats’ largest donor being the property industry.
Yet public opinion has supported regulation. A poll last week found that 54 percent of Germans back federal legislation to cap rents.
The SPD, Greens, and Die Linke have all proposed limiting rents nationally or granting states the power to do so themselves, in addition to closing loopholes to existing legislation.
If the ‘experiment’ has failed in Berlin, its brief existence will nonetheless guarantee that rent legislation is a major topic of debate ahead of the federal elections, which hold a real possibility of delivering a coalition government led by the centre-left.
In the capital, eyes have turned towards the ‘Expropriate Deutsche Wohnen & Co.’ campaign, which is presently gathering signatures in order to hold a referendum alongside the elections to demand the government take almost a quarter million homes into state ownership.
Though seemingly a more radical step than the rent cap, the proposition has much sounder legal footing. Legal consensus holds that German’s 1949 constitution explicitly allows for the ‘socialisation’ of private assets for the public good, at a price deemed fair by the state.
The campaign has won the support of the Berlin’s Greens and Die Linke, as well as labour and renters’ unions, and its distinctive yellow and purple posters have become omnipresent across the capital.
The SPD has so far ruled out expropriation, citing the Senate’s estimated cost of up to €36 billion. But compensation below market-value is legally possible, and the SPD may be tempted to make an example of one of the city’s more egregious landlords in response to the crumbling of their cornerstone housing policy just five months before state elections.
Just a few hours after the pronouncement from Karlsruhe, around 20,000 protesters marched from Neukolln to Kreuzberg, two traditionally working-class and immigrant neighbourhoods transformed in recent years by gentrification. Along the way, residents cheered from windows and balconies, or held signs calling for expropriation.
For now, Berliners are licking their wounds and digging into their pockets. But even if the cap has gone, there are no signs the popular demands for radical action have diminished.