The so-called Mietpreisbremse rental freeze has been agreed by both coalition partners in the German government – the conservative CDU and the social democratic SPD.
The news means the legislation could come into effect as early as this summer.
However, critics have pointed out that many details in the proposal have yet to be negotiated and suggested that an altogether different law could be passed in the end.
The rental freeze stipulates that, in certain “sought-after” residential areas, rents can be increased by no more than 10% above the “customary” local rents.
But there is currently no unified method of calculating this, nor is there a legal framework for how to compile rental indices.
According to the most recent legal draft, which has yet to pass through Parliament, it will be up to the provinces to decide in which regions the rental freeze will apply.
The measure will then come into effect for a five-year-period, after which the rental situation in the region will be reassessed.
The government also agreed to exempt new construction and recently fully refurbished buildings from the rental freeze.
Klaus Niewöhner-Pape, managing director at Industria Wohnen, told IPE the rental freeze would “not extensively help ease the situation of tenants and people looking for flats in crowded areas”.
In such areas, many new buildings would have to be erected to “sustainably and effectively” satisfy demand, and those will be exempt from the rental freeze, he explained.
For his company, he said the new legislation would have little effect, as transactions were mainly happening in the segment of new buildings.
Niewöhner-Pape said direct subsidiaries for people with lower income would be “the more efficient and, in effect, also the fairer method” to help those people to settle in sought-after areas.
Like many commentators have done in the wake of the coalition agreement, he pointed to the ambiguity of the term “locally customary rents”.
For Rainer Zitelmann, head of a real estate PR and consultancy business, this could lead to serious problems, depending on which parameters are used to calculate the index.
In his German Real Estate News alert, he warned that, “if the rates of leases signed 10 years ago will factor in the calculation of local reference rents in the future, it is logical that the local reference rent, which is the key benchmark for the rent freeze, will decline”.
He added that many of the various comparative indices in place in certain regions were already failing to depict reality.