Germany’s highest court has ruled that a rent cap imposed by the Berlin state government is illegal, dealing a huge blow to those who have campaigned to keep the city affordable.
The constitutional court in Karlsruhe overturned the law on Thursday, saying lawmakers in the state had no right to instigate the law, one of the most controversial and debated pieces of legislation in recent years.
The rent cap came into force in February last year, freezing rents for 1.5m (90%) of Berlin’s flats at their June 2019 level for five years. New rents could not go beyond that level and, from November 2020, existing rents that were still above it had to be reduced.
The model was hailed internationally as a triumph by those striving to retain a social mix in cities, particularly in Berlin, where affordability has been one of its key attractions but where rents have been soaring for years, fuelled in large part by hedge funds and private equity firms buying up swathes of the city’s property over several decades. One estimate is that rents rose by almost a third between 2013 and 2019.
But landlords and property investment lobbyists argued it was inappropriate and illegal for the state to meddle with the private market. The legal case was brought by landlords backed by politicians from the conservative Christian Democratic Union/Christian Social Union alliance and the pro-business Free Democratic party, who claimed it was unconstitutional on the grounds a state government has no right to interfere in housing policy, which is the responsibility of the federal government.
The Karlsruhe court said that as the federal government had already forged a law 120 years ago regulating rental rights, a state government was not allowed to introduce its own legislationthat effectively undermined the federal law.
Critics of the law have argued the rent cap is skewing the market and ultimately having a detrimental effect on renters, since it has effectively discouraged building companies from constructing new homes in Berlin, fuelling demand for existing stock. Landlords have also increasingly introduced a Schattenmiete, or shadow rent clause, into rental contracts, which tenants were informed they would have to pay in case the court overturned the rent cap.
While renters’ rights associations have called the clauses unlawful, landlords have said they have the right to claim back higher rents they say they are owed since the rent cap came into force.
Property law experts said they expected to see a large number of legal rows over the issue.
Sebastian Scheel, Berlin’s senator responsible for urban development, spoke of his disappointment at the decision. He said it was now the responsibility of the federal government either to introduce an effective rent control law to ensure towns and cities retained affordable housing, or to pass the competence on to Germany’s 16 states.