News | City / Municipality / Region - Wohnen Berlin’s Rent Cap: What Did the Constitutional Court Decide?

Andrej Holm on the Federal Constitutional Court’s ruling

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Andrej Holm,

Foto: IMAGO / IPON

With today’s decision by the Second Senate of Germany’s Federal Constitutional Court, the judges in Karlsruhe have declared that the rent cap law in Berlin is inadmissible. In particular, they denied the state’s competence to regulate rents and thus rejected the attempt to at least temporarily halt rent hikes in Berlin.

The lawsuit was filed by 284 members of the German parliament from the CDU/CSU and FDP parliamentary groups. The judges in Karlsruhe above all had to decide whether Berlin possessed the constitutional authority to pass a rent cap. The ruling issued on 15 April 2021 is not, however, a decision on whether rent caps are permissible in principle.

Andrej Holm is a social scientist at the Humboldt University in Berlin, where his research focuses on gentrification and housing policy. He is also actively involved in the fight for the right to housing and numerous urban policy initiatives. Translation by Loren Balhorn.

The judges came to the unanimous conclusion that rent price fixing in the sense of the rent cap is not within the regulatory competence of a federal state and is already “conclusively regulated” at the federal level. Yet the Berlin state government had preceded from exactly this assumption when deciding on the rent cap, because Germany’s 2006 federalism reform assigned the so-called “housing competence title” to the responsibility of the states.

The judges in Karlsruhe followed a complicated line of argument in their ruling: although housing had been assigned to the competence of the federal states, according to the judges it was without the federal states lack competence to regulate “unattached apartments”. It is true that rent regulation for these privately rented flats would have been part of the housing sector in the past, but at the time of the federalism reform they no longer were. The judges did not explain since when, through which laws, and above all why the regulation of unattached housing no longer belongs to the housing sector.

Regardless of the difficult-to-understand reasoning, it is clear that the Federal Constitutional Court has declared the rent cap in Berlin invalid.

What Consequences Will This Have for Berlin’s Tenants?

For many tenants, the ruling from Karlsruhe is dramatic news, because the decision turns back the housing policy clock to regular rent hikes, excessively high rents on new contract, and a growing threat of displacement.

The rent freeze stipulated in the rent cap has been lifted, and rent increases can now be demanded again even on already valid contracts. However, the restrictions mandated by the German Civil Code (BGB), which tie rent increases to the average local rent and limits it to a maximum of 15 percent in three years (at least in Berlin), still apply.

That said, new rental agreements no longer have to be based on the levels mandated by the rent cap table, but can be freely agreed. The only restriction here is now the so-called Mietpreisbremse (“rent brake”), which caps new rents at 10 percent above the local average rent. Yet the Mietpreisbremse was often circumvented in the past, and new rents were sometimes twice as high as the temporarily applicable rent cap.

With the decision in Karlsruhe, all reductions of excessively high rents were also abolished, meaning that landlords are now entitled to demand retroactive backpayments. Since some of the sums involved are considerable, there is fear of massive rent arrears as well as legal action on the part of landlords to terminate current contracts.

What Does This Mean for the Future?

On the one hand, short-term protection is needed for tenants who are confronted with demands to pay arrears. An emergency fund to take on the backpayment claims for households with average and low incomes, for example, could be a plausible option. Without such support, many tenants in Berlin are threatened with eviction and falling into a debt spiral.

Secondly, the Red-Red-Green coalition in Berlin should enshrine the rent cap in law in the area where it has complete authority: the state-owned housing companies. The Berlin Senate can now show that the joint resolution in favour of the rent cap (“MietenWoG”) was meant seriously: the upcoming amendment to the Housing Supply Act (“WoVG”) offers the short-term opportunity to integrate the previous MietenWoG into the WoVG, so that at least the state-owned housing companies with their 330,000 flats will also have to comply with the rent cap in the future.

Thirdly, a federal law for a rent freeze should now be demanded. The Federal Constitutional Court’s ruling places the responsibility for regulating rents with the federal government—meaning that action must be taken there now. The Berlin state government should also campaign for a nationwide rent freeze law. There is already the “Rent Stop!” campaign (sponsored by the trade unions, the German renters’ association, and many other initiatives) calling for such a law.

Finally, today’s ruling makes the demands of the initiative “Expropriate Deutsche Wohnen & Co.” even more urgent. The decision in Karlsruhe shows once again how difficult it is to enforce affordable rents via legal means. We know this from almost all big cities: the interests of private profit and affordable rents are mutually exclusive. If legal measures are not allowed to take effect, the only logical way to stop the rent madness is to expand non-profit housing stock. For many tenants, “expropriation for the purpose of socialization” will now be the next obvious solution. The campaign “Expropriate Deutsche Wohnen and Co.” will be happy to see more support.

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