Ramifications of Germany's ‘grand coalition’ rent freeze

20 December, 2013 | Posted By: DrRainer Zitelmann

A survey recently conducted by the Vitus housing company shows that the rent freeze planned by the new Grand Coalition of Angela Merkel’s Christian Democrats (CDU) and the Social Democrats (capping the rent increase on new leases at 10% of the local reference rent) would affect primarily the metropolis and campus towns of Germany. Landlords in most mid-size cities, by contrast, will be much less affected, said the Vitus survey which compared the average rates listed in the rent tables of all 63 German cities with populations of more than 100,000 with quoted asking rents.
In the mid-size cities, the average rent exceeds the rent table by 14%, whereas the rent table is topped by an average of 36% in the “Big Seven” cities. Nearly half of the 56 mid-size cities studied showed a gap of 10% between asking rents and rent table at the most, meaning that investing here would have no negative ramifications for investors at all.
“Here, property asset holders will remain able to raise rents in response to demand, and in order to offset rising management costs without violating the planned rent freeze,” Ben Lehrecke of Vitus was quoted as saying. He added that none of the Big Seven cities showed a gap of less than 10%. The gap between asking rents and rent table was widest in Heidelberg (77%), Hamburg (66%), and Frankfurt am Main (51%).
According to a survey done by Dr. ZitelmannPB, real estate companies expect the rent freeze to cause a dip in investments in conurbations. Less than 20% of the 238 real estate companies polled believe that the rent freeze will by and large have few negative ramifications.
“The real estate industry is not convinced that these are suitable measures to create attractive and affordable housing in Germany’s metro areas. This, however, is the stated goal of the contemplated measures,” said Zitelmann.
Some 41% of the respondents expect residential real estate investors to step up their commitments in Class B cities unaffected by the new regime or to shift their attention to fair locations with a high cash-flow. Also, around 65% of those polled believe that owners of existing dwellings will raise their rents more frequently and more consistently because the introduction of the rent freeze will narrow the margin for rent increases on new leases.
Listed below are the specific ramifications that real estate companies associate with the plans for a so-called “rent freeze:”
- Lower refurbishment effort between lettings: 76.8%;
- More frequent rent hikes: 65.4%;
- Reticence in property purchases: 52.7%;
- Increasing significance of housing privatisation: 51.1%;
- Decline in housing construction in conurbations: 50.2%;
- Investment focus shifting to Class B cities: 40.9%;
- Few negative changes: 18.1%.