German states will be able to impose rental caps on residential markets by the middle of next year.

The German government announced this week that it had approved the proposed ‘Mietpreisbresme’, which would freeze rents at 10% above average prices for a given area.

States can identify regions in which they want to apply the cap to rental renewals over a five-year period – after which it can be renewed.

Before the new law can be applied, every state will have to implement it in its regional legal framework.

The detailed benchmarks to be used to identify regions “in distress” are still being discussed.

Rental caps will not be applicable to new buildings, nor to first-time rentals following “extensive refurbishments” (requiring capital expenditure of approximately one-third the price of a new apartment).

Rents already more than 10% above the regional average will have to be frozen at their current level until other prices have caught up.

The German consumer minister Heiko Maas said the exemption of new and refurbished apartments was necessary so as not to put off residential investors.

However, he stressed, apartments “are no product, they are peoples’ homes”.

He said increases in rents between 30% and 40% were “not unusual” in certain cities.

The legal draft will now have to go through the Bundesrat, the assembly of states.