Is the Rental Brake Also a Housing Construction Brake?

Abstract

This study investigates the causal effect of Germany’s second-generation rent control policy — the Mietpreisbremse (rental brake) — on residential housing construction. Using administrative data covering nearly 11,000 German municipalities from 2010 to 2024, we employ staggered difference-in-differences estimators to address methodological biases of conventional two-way fixed effects models in settings with staggered treatment adoption. Our analysis examines multiple outcomes: total housing completions, completions of dwellings in multi-family houses (a proxy for rental housing supply), completions per capita, and net completions per housing stock. Results show that the rental brake has a statistically significant negative impact on housing construction, with stronger effects for multi-family dwellings. These findings remain robust to excluding major metropolitan areas, smaller municipalities, and municipalities with high homeownership rates, and persist even when the analysis is restricted to neighboring municipalities. This study contributes to the international literature on rent regulation by providing causal evidence from Germany’s staggered policy rollout, suggesting that even second-generation rent controls — which explicitly exempt new construction — can dampen housing supply. This likely occurs through increased regulatory uncertainty, higher risk premia demanded by investors, and reduced rental revenues available to finance residential investment.