The German Federation of Independent Real Estate and Housing Companies (BFW), together with the research institute empirica, has presented a study on the effects of rent regulations. The analysis illuminates the effects of rent control and other interventions on the housing market, as well as on willingness to invest. BFW President Dirk Salewski stated in Berlin that rent control and discussions about nationalisation represented mere symptom management and were an indication of inadequate housing policy. He emphasised that too little had been built in recent years and increased requirements had raised construction costs. Salewski called for recognition of the need for more affordable housing, which would primarily be created through an increased supply. While market interventions might find political approval, refurbishment, maintenance, and the climate protection of buildings would be neglected.
Dr. Reiner Braun from empirica compared the effect of rent control to a fuel rebate: instead of remedying the shortage, demand increases while supply decreases. He pointed out that rent control primarily benefits high-income earners. For a functioning market, both a larger supply produced at lower cost and more fluctuation and the avoidance of lock-in effects are necessary. This could lead to falling asking rents for existing properties. Michael Kranz, Chairman of the Board of the BFW Regional Association Berlin/Brandenburg, added that the debate about nationalisation was already causing damage even before legal implementation. A BFW survey showed that 37 per cent of the companies surveyed had postponed investments, which prevented the construction of 3,480 homes. Banks and investors were already reacting with restraint and increased risk premiums. To create affordable housing, restoring confidence and enabling investments are crucial.
Key findings of the empirica study
- —Housing shortages cannot be regulated away: More housing is created exclusively through more investment and new construction. High rents result from housing scarcity and expensive building rights. Rent regulations merely combat symptoms, not causes; they do not create additional housing and can solidify the scarcity in the long term.
- —Rent regulation exacerbates housing shortages: Housing construction, modernisation, and maintenance of existing properties require economic viability. Limited rents reduce profitability, which can lead to a decline in quality, fewer refurbishments, and a withdrawal from the rental housing market. Although new builds are exempt from rent control, increasing regulation unsettles investors and slows down new construction and modernisation activities.
- —Inequality through the blanket principle: Rent regulations apply across the board to certain areas and buildings but do not consider the varying economic situations of households. Consequently, all income groups benefit equally, without targeted social steering. In tight markets, applicants with high creditworthiness are often preferred, which makes access for lower-income households more difficult or even displaces them.
- —Focus on gross rent rather than net rent: Affordable living requires not only a larger housing supply but also measures to dampen energy and operating costs. Regulating only the net rent is insufficient if state-influenced taxes, fees, and energy requirements simultaneously make the management of residential property more expensive.
Market mechanisms and rent indices
The study further highlights that rent regulations reduce the mobility of the housing market. A functioning market thrives on dynamism. If prices are heavily regulated and existing tenancy agreements are privileged, tenants' willingness to move decreases. This leads to the so-called lock-in effect, where tenants retain affordable flats longer than would correspond to their current housing needs. This inhibits the necessary fluctuation in the housing market.
Another aspect concerns the rent indices themselves. These are now almost exclusively based on already regulated rents, which are influenced by capping limits and rent control. As a result, they become self-referential and no longer reflect market-driven scarcity, but rather an artificially set, politically defined rent level. This systematically distorts reality and makes a realistic assessment of the market more difficult.
