Housing woes

Reaching a Rent Control Compromise

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  • Why it matters

    Why it matters

    Germany’s housing shortage is leading to rising rents, especially for the middle classes. The government hopes its compromise package will encourage building while protecting tenants from huge rent increases.

  • Facts

    Facts

    • The new rules will cap rent rises in areas with housing shortages at 10 percent above average local prices.
    • The rules are a temporary five-year measure to stimulate building.
    • The law could take effect as soon as spring 2015.
  • Audio

    Audio

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Germany’s ruling right-left coalition has agreed a set of tenant-friendly rent controls, but has exempted new buildings from the new rules to encourage the construction of more housing.

In the future, the price of newly rented apartments in “residential areas where demand exceeds supply” may not be more than 10 percent above the typical rent for the area. In addition, real estate agents must be paid by the party that hired them, rather than by new tenants.

“Rents must remain affordable for persons of average income,” said Heiko Mass, the justice minister who is a member of the Social Democrats.

But the planned controls will not apply to new apartment buildings or to those that have been substantially renovated.

“If we want to prevent an enormous rise in rental prices over the long term, then we need to build new apartments,” said Mr. Maas. “We want to promote and preserve what is currently a high readiness to invest on the part of the housing industry.”

The housing industry voiced its approval for the agreement. “It is an important signal for housing companies that the restriction on rental prices does not apply to newly constructed buildings and is limited to five years,” said Axel Gedaschko, president of the German Housing and Real Estate Association. “Reason has prevailed in response to a populist regulation which, in its original form, would have been fatal in the fight against the shortage of apartments.”

Real estate prices on the rise_02

 

Thomas Oppermann, parliamentary leader for the Social Democrats, called the plan a “good compromise” that will continue to encourage investment in new apartments. Volker Kauder, parliamentary leader for Chancellor Merkel’s Christian Democrats, praised what he called a “balanced package.”

But a German Real Estate Agent Association criticized provisions in the proposed legislation that apply to agent commissions. The group says it is unconstitutional to specify that real estate agents be paid by the party issuing the commission, which in most cases is the landlord.

The cabinet will examine the proposed legislation on October 1 and parliament will later vote on it. Officials at the justice ministry are currently working on a final version.

Mr. Maas hopes the new rent control law will come into force by spring 2015. He is adamant about protecting middle-income tenants. “Rent increases of more than 30 or 40 percent in some densely populated areas are simply unacceptable,” he said.

By 2020, Germany’s 16 states are supposed to identify areas that have severe housing shortages. Once those areas are determined, rent increases will be limited to a maximum of five years.

“Rents must remain affordable for persons of average income.”

Heiko Mass, Justice Minister

Jan-Marco Luczak, a CDU lawmaker, noted that the states are being placed under firm obligations. When rent controls take affect, he said, the states must come up with concrete plans to deal with apartment shortages in those areas. “They are required to explain and justify their actions,” he said.

The CDU and its Bavarian sister part, the Christian Social Union or CSU, were not able to push through their demand that limits on rent increases be specified only in regions where a rent index already exists. Trying to solve this issue – which is of critical importance to the SPD – has taken up a great deal of time since legislation was first drafted six months ago.

The coalition partners now hope to make up for lost time in the legislative process. Then Mr. Maas wants to address another controversial provision – that landlords can add modernization expenses to rents only for limited periods of time.

 

Silke Kersting is a Handelsblatt editor and covers companies and markets from the Berlin office. Reiner Reichel is a Handelsblatt editor covering real estate. Contact: kersting@handelsblatt.com and reichel@handelsblatt.com

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