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Berlin’s radical rent freeze to tackle housing affordability

Many states of Australia have recently experienced rental reform, but nowhere is the gaping chasm between landlord and tenant interests more obvious than in Germany’s Berlin.

In the city once divided by the wall, the government is set to deliver new legislation that is fiercely polarising tenants and landlords.

From this month, Berlin’s property market will be subject to a rent freeze that will last for the next five years.

Affecting an estimated 1.5 million apartments, rents will be capped at as little as US$4.30 per square meter for older apartments, and as much as US$10.90 for newer apartments. That’s despite figures indicating the current average price in central Berlin remains a relatively affordable US$12 per square metre. 

Properties built after 2014 and those which are state-controlled will be immune, but for many landlords the move will actually result in a rent reduction of up to 40 per cent.

Those who don’t comply could be hit with fines as high as €500,000 (US$553,000) for each violation. In addition, landlords will be required to show new tenants previous rental contracts to prove they aren’t increasing prices.

Then from 2022, landlords will be permitted to raise rents 1.3 per cent annually, or in line with inflation. 

Berlin’s tough new rent rules have been designed to halt a recent spike in rents while also stimulating housing construction.

In a city where more than 80 per cent of the population are renters, the government implementing the change is hoping the move will give them time to construct more than 60,000 new apartments in the city, many of which will be lower-priced.

Over the past decade, rents in Berlin have more than doubled while property values have also risen sharply as residents flock to a city experiencing a shortage of housing.

The New York Times explains in 2017, Berlin ranked internationally as the only major city where property values had increased more than 20 per cent from a year earlier, with rents keeping pace.

Meanwhile, the city’s housing crisis is attributed to a number of factors.

Bloomberg Business Week notes that after the wall fell in 1990, Berlin racked up billions of dollars of debt. In an attempt to regain some capital, the government sold off more than 200,000 publicly owned apartments.

But still until 2009, they report Berlin was “unimaginably cheap”.

“That all began to change as Berlin became the premier startup hub in continental Europe,” Bloomberg reports. “Then big companies moved in, including Amazon, Daimler, Sanofi, and Sony, as did foreign investors.”

These days the problem is further exacerbated by trends like short-term holiday letting, but for many Berliners ‘greedy landlords’ are considered the real culprits.

And for some, the new legislation doesn’t go far enough. In addition to the rent freeze, tenant groups are calling on the government to expel large corporate landlords from the city and expropriate their property.

The move would see the government buy back more than 250,000 apartments (almost one eighth of Berlin’s housing stock) and turn it into public housing.

The strategy might sound far-fetched but Bloomberg reports it has received widespread support from anywhere from 29 per cent to 54 per cent of Berliners, according to various polls.

But in the interim, tenants will have to settle for the rent freeze which has many investors reeling and has wiped millions of dollars off the share prices of the city’s publicly listed real estate companies.

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