The German Institute for Economic Research has found that Berlin’s rent cap (Mietendeckel) law has succeeded in driving rents down. However, it has also caused the rental market to shrink by more than 50 percent.

Chaos in Berlin’s rental market

Researchers at the German Institute for Economic Research (DIW) have determined the consequences of Berlin’s controversial rent cap law, by analysing advertisements for lettings both online and in newspapers. The DIW found that, since the cap was implemented at the end of February 2020, rents in the German capital have dropped by around 11 percent. However, the number of available apartments for rent has also fallen, by 57 percent.

Konstantin Kholodilin, who co-authored the DIW study, warned that Berlin’s shrinking rental market poses a significant problem. “The supply shortage that comes with the rent cap is alarming,” he said. “It makes it much harder for people who need to move, for example, because they are new to Berlin, or are expanding their family, to find a place to live.”

Accordingly, the DIW also found that the cost of apartments located within Berlin’s commuter belt - nearby areas that have good public transport links into the city - have risen as people are forced to look further afield for a place to live. As such, rents in the nearby Potsdam have increased by 12 percent. “The shortage of supply in Berlin leads to rising rents in the well-connected surrounding areas, to which it is no longer possible to switch cheaply,” said Sofie Waltl, a researcher from the Vienna School of Economics, which collaborated on the study.

Calls to invest in the housing market

The authors of the study have called on Berlin’s government to invest in the city’s housing market. “Private developers should be seen as allies in the fight for affordable housing rather than deterred by rigorous measures,” said Kholodilin.

Currently, 17.000 new apartments are introduced onto Berlin’s rental market every year, which barely covers the number of new arrivals into the city, without even taking into account those trying to find accommodation. The authors have also called for reduced red tape around construction and for Berlin’s housing authorities to hire more employees so applications could be dealt with more efficiently.

The study also found that, despite the rent cap, only a quarter of rental offers actually conform to the rent cap law.