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100 Years of Housing Policy: From Rent Freeze to Rental Brake

Press Release of April 9, 2014

Housing rents in Germany have been rising for several years. Especially in major cities such as Berlin, Hamburg, and Munich, the increases have recently been higher than the German average growth rate of rents that makes up roughly two percent. The German government would like to respond to this development by introducing caps on rents for new rentals. But are rent really necessary? The growth rates of nominal rents went down markedly since the 1990s, from more than four percent at that time to about one percent on average over the past 15 years. In real terms, i.e., taking general inflation into account, rents have been even falling over certain periods. The problem of high rent hikes seems to be more common in large and university cities. One reason for this is the general trend towards reurbanization leading to significant population growth of the cities. This is coupled with a lack of elasticity of the housing stock in the short run. In particular, there is a shortage of small and inexpensive apartments. Housing policy should concentrate especially on this segment. Reduction of the real estate transfer tax or increased zoning of underused land within built-up areas for development might be an option, for example. Improved price statistics at the local level could also contribute to better market transparency. Instruments such as the Mietpreisbremse (literally a brake on rental prices), on the other hand, would make investment in rental housing less attractive and would exacerbate the housing shortage.