BERLIN – Thousands of Berliners took to the streets, many banging pots and pans, to protest a ruling Thursday by Germany's highest court that a cap on rent prices implemented last year by Berlin's state government is unconstitutional and void.
The cap was introduced in February 2020 by the state's left-leaning government with the goal of preserving affordable housing in Berlin, where tenants had for years enjoyed low rents compared to many other capital cities.
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The Social Democratic, Green and Left parties that make up the city's governing coalition introduced a rule that froze rents for some 90% of Berlin apartments at June 2019 rates for five years. In many cases, existing rents needed to be reduced to conform to the new threshold.
The policy caused havoc in Berlin's housing market, with some landlords setting “shadow-rent” clauses in new contracts — higher monthly rents that would take effect retroactively if the cap were overturned. Some tenants now face considerable back payments.
“(It's a) deeply concerning judgement,” said Balakrishnan Rajagopal, an independent expert on the right to affordable housing appointed by the United Nations Human Rights Council. “The pandemic is not a good time for the court to strike down this Berlin effort.”
The pro-business Free Democratic Party and Chancellor Angela Merkel's Christian Democratic Union, which are not part of the Berlin state government, had appealed to challenge the rent cap. In its ruling, the Federal Constitutional Court in Karlsruhe said the regulation was unconstitutional because housing policy is a federal issue and states only may intervene if the federal government does not exercise that power.
Germany's federal government introduced a limit on rental price increases in 2015 which applied nationwide.
“Since the federal legislature has laws... regulating rental prices, there is no room for the the states to legislate,” the court said in its ruling.
Germany's top housing official, Interior Minister Horst Seehofer, welcomed the decision, saying the Berlin rent cap had caused “uncertainty on the housing market, put a brake on investments and didn't create a single new home.”
The Left party, which has its roots in the former East German communist party and oversees housing in the capital, said the court decision would be a disappointment for some 1.5 million Berlin households that were covered by the cap.
“They have the (Christian Democratic) Union and the FDP to thank,” said the party's housing policy expert, Caren Lay.
She called for a new push for legislation to be passed at the federal level, which the court said would be required for a rent cap to be constitutional.
Elections for a new national parliament and the Berlin state assembly are scheduled for Sept. 26, and Thursday's ruling is likely to make affordable housing a major campaign issue.
The head of one large housing company said it didn't plan to demand back payments from tenants who paid lower rents due to the now-nixed cap.
Vonovia chief executive Rolf Buch told German news publication Der Spiegel that the court ruling would further fuel disputes between tenants and landlords. He called for politicians, landlords and tenant rights advocates to find a common solution to the lack of affordable housing.
Some activists want to go further than capping rents. Last year, campaigners collected enough signatures to force onto the state assembly's agenda a proposal to expropriate the properties of large corporate landlords, with the goal of eventually holding a referendum on the issue in the German capital.
Though the cap only applied to Berlin, a city-state with a population of some 3.6 million, Deutsche Bank said in a research note that the court’s decision could have a wide-ranging effect.
“Across German cities, rent growth decelerated with the extensive media coverage of the Berlin rent cap,” Deutsche Bank economist Jochen Moebert said. “Rental growth could pick up again in several cities and regions, as many initiatives which copied the Berlin rent cap will lose momentum.”