Rent cap shrank supply

The supply of rental properties in the Berlin has shrunk by up to 60 percent due to the city’s rent cap and has been holding at that level since the cap was lifted, finds a new ifo Institute study. “As soon as the rent cap was announced, the supply of rental apartments in Berlin plummeted. In areas outside the scope of the rent cap, there was an above-average increase in supply, but the lifting of the cap has reversed this trend,” says Mathias Dolls, Deputy Director of the ifo Center for Macroeconomics and Surveys.

Lifting the rent cap has led to a considerable increase in rent for apartments that it regulated. The cap meant that rent prices in Berlin rose an average of 11 percentage points less per quarter than in other major cities in Germany. “We’re seeing a catch-up effect, but rents have not yet reached the level they would have been at had the rent cap not been introduced at all,” says Florian Neumeier, Head of the ifo Research Group Taxation and Fiscal Policy.

During the period in which the Berlin rent cap was in force, rents for apartments not regulated by the cap rose by an average of 5 percentage points more than in other major German cities. Even following the lifting of the cap, rents in Berlin were still rising more steeply than in other major cities. “The introduction of the rent cap split the Berlin real estate market in two. Since the cap was lifted, rent levels in the regulated and unregulated segments are reconverging, albeit slowly,” says Carla Krolage, Head of Business Relations and Data Strategy at the ifo Institute.

On April 15, 2021, Germany’s Federal Constitutional Court declared the Berlin rent cap unconstitutional. The cap applied to apartments that were first ready for occupancy prior to the year 2014 (regulated sector). Apartments in new buildings – first ready for occupancy on or after January 1, 2014 – were not subject to the rent cap (unregulated sector).

The study is based on data from the real estate portal immowelt.de. For their evaluation, the authors compared the developments in Berlin with those in other major German cities with populations of 500,000 or higher. The data relates to rental and purchase offers, not actual contract signings. In addition, the advertisements examined at immowelt.de were not necessarily representative of the real estate market as a whole.

Original publication

Arlia, Daniela; Dolls, Mathias; Fuest, Clemens; Gstrein, David; Krolage, Carla; Neumeier, Florian (2022): Entwicklungen am Berliner Immobilienmarkt ein Jahr nach dem Mietendeckel, in: ifo Schnelldienst, 75, Nr. 04, S. 50-55. 

Further information and contact

Press release - ifo Institute - Leibniz Institute for Economic Research at the University of Munich