The German capital is set to freeze rents for five years
Shares in German landlord Deutsche Wohnen (DW) have fallen by almost a fifth in two weeks following news that Berlin's senate has approved a draft bill for a rent freeze, or Mietendeckel, which means landlords will be blocked from putting up rent on residential properties for five years.
"If we don't want to end up like London, where even lawyers and doctors have to live with flatmates because they can't afford their own apartment, then we have to do something about it," Olaf Scholz, Germany's finance minister and vice chancellor, told newspaper Frankfurter Allgemeine Zeitung.
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Germany is a country of renters. However, monthly rents in Berlin, where 85% of people rent, have gone up by 103% since 2008. This is largely because the population has increased more rapidly than the housing supply, which is restricted by planning laws. Rents in the capital tend to be lower than in other German cities, such as Frankfurt or Munich, but the increase is higher than anywhere else.
The trouble with the rent freeze is that it is likely to deter potential landlords and make the supply squeeze worse, especially if building regulations aren't eased. The measure must still be approved by the Berlin regional parliament, but could be made law by early next year, and backdated to 18 June.
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Berlin has "an unusually high number of big property players when compared with other European capitals such as London, where even the biggest landlord, Grainger, owns only around 1,500 units", notes Philip Oltermann in The Guardian. DW has questioned the legality of the proposal, although three legal surveys (commissioned by the Berlin senate) support it.
London-listed Phoenix Spree Deutschland, whose shares have also slid by a fifth, last week reassured investors that it had adapted to previous rent controls and suggested the freeze may be unconstitutional.
It's also worth considering that with rents frozen, property development is likely to fall, which could push up capital values. However, given that Germany's Social Democrats have raised the idea of a national rent freeze, according to Reuters, if you hold German property funds, we think now is the time to sell out.
Sarah is MoneyWeek's investment editor. She graduated from the University of Southampton with a BA in English and History, before going on to complete a graduate diploma in law at the College of Law in Guildford. She joined MoneyWeek in 2014 and writes on funds, personal finance, pensions and property.
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