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19/2/20: Early effects of the 2020 Berlin rent controls changes

Summary:
New research from Germany's ifo Institute and Immowelt looked at the effects of the new rent caps (rent controls) in Berlin. The findings are consistent with what we observe in other major cities with rent controls:"In Berlin, the rent for almost all apartments advertised on real estate portal immowelt.de (96.7 percent) is above the rent cap." "In 83.5 percent of cases, the rent exceeds the cap by over 20 percent." "Rent on apartments covered by the law has risen considerably more slowly since the cap was announced". But, "rent on apartments outside the scope of the cap is still rising strongly" (note: these are new construction units). As the new rent controls come into effect later this year, the ifo study predicts that "a large number of these apartments to be withdrawn from the

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New research from Germany's ifo Institute and Immowelt looked at the effects of the new rent caps (rent controls) in Berlin. The findings are consistent with what we observe in other major cities with rent controls:

  • "In Berlin, the rent for almost all apartments advertised on real estate portal immowelt.de (96.7 percent) is above the rent cap."
  • "In 83.5 percent of cases, the rent exceeds the cap by over 20 percent."
  • "Rent on apartments covered by the law has risen considerably more slowly since the cap was announced".
  • But, "rent on apartments outside the scope of the cap is still rising strongly" (note: these are new construction units).
  • As the new rent controls come into effect later this year, the ifo study predicts that "a large number of these apartments to be withdrawn from the rental market when they become vacant and sold as condominiums".
  • Reduced supply of rental properties means that "people looking for accommodation in Berlin will be affected"
  • Rent caps introduce a bifurcated rental market: "Since July 2019, the rent prices for regulated apartments have increased more slowly than in the 13 other German cities... [but] ...rent for unregulated apartments (new buildings built since 2014) rose faster..."

"As a result [of the rent controls introduction], the divide in the Berlin real estate market is widening: new buildings, which are often found in preferred locations, are becoming increasingly expensive while prices for existing housing are developing less strongly. This  weakens the incentives to develop these buildings. ... Such a development cannot be good for an urban society and contradicts the very purpose of the law."

Ifo's preferred solution to reduce economic inefficiency of rent controls: "Instead of interfering with the ownership rights of mostly private landlords and hindering investment in housing, policy should focus on creating subsidized housing where needed.”

Full paper: “Economic Effects of the Berlin Rent Cap” (in German) by Mathias Dolls, Clemens Fuest, Carla Krolage, Florian Neumeier, and Daniel Stoehlker, in ifo Schnelldienst 3/2020: https://www.ifo.de/en/publikationen/2020/aufsatz-zeitschrift/oekonomische-effekte-des-berliner-mietendeckels

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