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Berlin Rent Cap overturned, but housing movement has bigger plans

The Rent Cap in Berlin has been overturned by the Federal Constitutional Court. But the policy was created by centre-left politicians to undermine a renter led movement to expropriate the cities’ largest landlords. How did this policy come to be? What did it attempt to do? And what does its defeat mean for renters and radical housing struggle in Berlin?

How the Rent Cap came to be

The Berlin Mietendeckel, or rent cap, was conceived in 2018 by the ruling coalition partners of the Berlin senate, the Social Democrats, Left Party, and the Greens, as a compromise to placate a growing, radical housing rights movement. At the time, a grassroots movement was forming to expropriate the city’s largest mega landlords. That movement, called Deutsche Wohnen & Co. Enteignen [DWE], had started the process of collecting signatures for a city-wide people’s referendum, which if passed would force the state senate to seize the apartments of residential property management firms with over 3000 units and transfer them to the state to be rented as social housing. The policy proposed would break up the mega-landlords’ grip on the market, making the city less attractive to international developers such as Vonovia and Akelius, and by doing so slow the rapidly increasing rents in Berlin which have risen over 40% in 10 years.

DWE quickly collected the required number of signatures to begin a referendum campaign. This worried the city government; DWE threatened their policy strategies intended to make Berlin an appealing city for international capital. The government, in particular mayor Michael Müller, has shown during his tenure that he is interested  in changing Berlin’s image, hoping to shed the famous ‘poor but sexy’ moniker given by former mayor Klaus Wowereit, by transforming the city in to a hub for tech investment, startups, and rising property values. The expropriation movement scared the mayor, and many others in government, leading them to devise a strategy which attempted to placate more economically liberal citizens who are concerned with rising housing costs, but who may see expropriation as too radical.

Despite the more moderate goals of the policy, it has been a political firebrand within the ruling coalition. The mayor’s office, who initially supported the rent cap as a way to appease radical housing campaigners, repeatedly attempted to torpedo the policy. It seemed to many, especially the Left Party, that he wanted to have the image of compromise, but without following through. This led the Left Party to threaten to withdraw from the coalition, unless the mayor stopped attempting to undermine the rent cap policy. Despite his personal opposition, the Social Democrats decided they could not afford to risk alienating left voters in Berlin and decided to give support to the rent cap.

Terms of the rent cap

The rent cap law that was passed by the Berlin Senate and came into effect on 23 Feb 2020 froze the price of privately rented apartments for 5 years at the cost they were rented for on June 18th, 2019. For most new contracts starting after the law came into effect, there are regulations on the maximum allowed increase for that property based on a number of factors such as the age of the building or amenities available such as elevators, central heating, or the relative energy efficiency of the apartment. 

It impacted 90% of rental apartments in Berlin, impacting roughly 1.5 million people. Units were exempt from the rent cap if they were: built renovated into a habitable state after 2013, used as social housing or modernised with public funds (as these units’ prices are already controlled), or which operated as care facilities.

Overturning the rent cap

The rent cap, though a compromise from the left towards an even more radical movement, was furiously opposed by the right wing parties, most strongly the Christian Democratic Union [CDU] and the Free Democratic Party [FDP]. MPs from these parties filed a lawsuit in the Federal Constitutional Court challenging the rent cap on constitutional grounds. The lawsuit took over 1 year to be heard by the court, and during that time lobbyists representing landlords and international finance ran campaigns to try to sway public opinion. The propaganda campaign would not impact the outcome of the supreme court ruling, but it did aim to shape the public discourse in Berlin and weaken support for DWE’s movement to expropriate their property. 

In April, the Supreme Court handed down their verdict. They ruled that the rent cap is unconstitutional on the grounds that there is already federal law regulating rental rights, meaning that the state of Berlin is not authorised to pass new laws which they say effectively undermined the existing one. Immediately after the ruling, Deutsche Wohnen’s stock reached its highest price in a decade. 

A consequence of the ruling was that people with existing rental contracts were required to pay their landlord the amount that they had saved since the cap came into effect. However, due to the financial strain of the pandemic, many people were not able to put this money away. The average reduction for renters was €211 per month, and during the period the cap was in effect, many had accrued bills of over €2000. This is a heavy burden for many Berliners, where average salaries are lower than the rest of Germany. The plans for repayment of this difference is decided at the landlords discretion, and since the eviction ban put in place during the COVID-19 pandemic has phased out, and many, particularly minorities, have suffered job loss during the pandemic, this cost can put many at risk of eviction. The total cost for renters has been estimated at 500 million euros, a massive transfer of wealth from the working class to landowning capitalists, leading many activists to call the ruling a declaration of class war.

Some landlords, such as ‘Deutsche Wohnen’, dealt with the issue of making sure this difference would be paid by creating a system called ‘shadow rents‘. Under this system, they charged tenants the legal maximum as regulated by the rent cap, and the difference that they would have saved as an extra charge. Contracts with this arrangement stated that landlords would return the money the tenants paid in shadow rent when their contract ends, or if the rent cap law is extended after its five year period. The landlords exploited a loophole with no legal precedent to make sure that tenants still had to cover the risks of the ill fated law brought forward by the ruling coalition. And though tenants were not obliged to sign contracts with shadow rents, many had few other options, as the housing shortage in Berlin is so severe. Reiner Wild, the head of the Alternative Renters’ Union in Berlin said, ‘With its rental agreement Deutsche Wohnen is shamelessly exploiting the housing shortage on the Berlin market. If there were sufficient supply, tenants wouldn’t sign such agreements.’

One of the propaganda positions made by the landlord lobby was that the rent cap would have the opposite impact as intended by the law, because landlords would choose rather not to rent properties and wait instead until a more favourable policy environment existed for them. Landlords followed through on this blatant threat to renters in Berlin, and the number of properties on the market fell, exacerbating the housing shortage. This was not an inevitability, but rather showed that for such a rent cap policy to work, there also need to be policies that ban vacancy for the purpose of speculative investment.

Deutsche Wohnen & Co Enteignen continue the fight

Since the rent cap has been overturned, the Left, Greens, and Social Democratic parties have stated that they would work to pass a national rent cap, or put in place a law that gives states the ability to pass legislation to regulate rents on their own. However this may be seen as an empty promise – yet another appeal to the centre left in order to win votes for the upcoming election where it’s increasingly likely that the Greens will form a coalition with the explicitly pro-landlord Christian Democrats.

But Berliners’ faith in top down housing policy was already weak, since ruling governments for decades have shown their willingness to kowtow to international capital, and have proven to be poor stewards of social housing. And in recent years, the people’s referendum system has been seen as an important instrument for implementing popular policies that the Berlin Senate, particularly the Social Democrats who often lead the coalition, are not willing to support. Since the rent cap has been overturned the support for expropriation has grown stronger; 20,000 people marched through the city after the rent cap was overturned behind the banner of ‘Expropriate Deutsche Wohnen’.

Berliners are tired of the effects of a housing market that exists as investment opportunities for landlords. Over the past year, there have been high profile evictions in the city of some of the city’s last remaining ‘freiräume’, or ‘free spaces’, collectively run housing cooperatives and community spaces. The evictions of Syndikat and Liebig34 sparked protests and discussions about the future of the city where spaces are not able to exist which don’t generate profit for landlords off of rising rents. In the case of Liebig34, 70% of Berliners interviewed were opposed to the eviction. In an environment where Swedish and British property investment companies purchase apartments in Berlin by the thousands, community housing rights groups such as ‘Vacancy, I’m fed up‘, ‘Stop the Rent Insanity‘, and ‘Glo-Reiche Neighbourhood‘ do important grasswork organising to raise awareness of the harm of the super landlords, and they all channel support back to the DWE movement.

Before the ruling, the movement was supported by a broad coalition of community groups and tenants rights organisations. But since the law was overturned, the Left and Green parties in Berlin have put their support behind the movement, realising that the people are building something they would do well to get behind. The Social Democrats have ruled out supporting the expropriation movement, but there is tension within the party as their youth wing, who often support more radical and socialist policies than the increasingly neoliberal party, have decided to give their support to the movement. 

The strategy of the rent cap has backfired, and the government has undermined their original aim of placating Berliners who think there would be a more moderate solution than expropriation. People have seen the rent cap law as the flimsy distraction that it was, and many in Berlin have a new motivation to support the strongest movement in the city fighting against housing as an investment.