Berlin Lab

Teufelskreis: How One Glitch in a Stiff Set of Rules Makes Rocketing Rents Possible

Berlin apartment

With so much talk about rising rents in Berlin, it’s hard to believe that the city actually has some of the strongest rent regulation laws out there. Indeed, many cite these very laws as one of the reasons that Berlin has historically managed, especially in comparison to other European capitals, to remain a relatively affordable city.

So I couldn’t help but wonder how, on a purely systematic level, this inflation is actually playing out within such strict regulations. How is it legally possible?

It turns out that the answer is relatively simple: There is a particular glitch in the system that allows certain rents to rise relatively sharply, relatively suddenly, and this then kick-starts a feedback cycle within the regulations that causes rents to inflate in the city as a whole.

To understand the glitch, of course, one must first understand the system (which took me, personally, a while and several interviews to wrap my head around). So first, I’ll give a quick and very general introduction. I will forewarn you that this is a little dry, but it’s important. So I promise I’ll make it quick if you promise to stick with me:

Basic rent fluctuation in Berlin is regulated according to something called the Mietspiegel. Literally translated, it means “rent mirror,” and is an officially published number that reflects the average property-rental price per square meter of a certain type of property in a specific neighborhood. So, the Mietspiegel differs neighborhood to neighborhood, but it also differs for different types of apartments of different sizes. Depending on a combination of these factors, each apartment falls into a specific category.

Every two years the Mietspiegel is adjusted based on a random sampling of rental prices throughout each specific category.

From there, it gets a bit complicated.

Landlords are allowed to raise a tenant’s rent once every 15 months by up to 20 percent in total within three years. However, that increase cannot take the rent over the Mietspiegel. Thus, the size of the rent hike is capped either by the Mietspiegel or by that 20 percent limit, whichever is lower.

For example, say my rent hasn’t gone up in the last three years and it’s time for a rent hike. I pay €5 per square meter for my apartment, and the Mietspiegel is currently €7. My landlord can only increase my rent to €6 because it cannot be raised by more than 20 percent of €5. The rent hike is thus cut off at 20 percent of the rent itself because it equals a number lower than the Mietspiegel.

Now, say the Mietspiegel is currently sitting at €5.50 instead of €7. In this case, my landlord can only increase my rent to €5.50, because it cannot go over the Mietspiegel. In this case the rent hike is cut off by the Mietspiegel because it is lower than a 20 percent hike would be.

Still with me? Okay. Now comes the glitch:

This rule only applies to rental contracts once they exist. There is no rule governing new rental contracts. That means that when someone leaves their apartment and a new tenant moves in, the landlord can ask however much he wants for that apartment, regardless of the Mietspiegel, as long as the tenant is willing to pay it.

So, say I am paying €5 per square meter for my apartment and I move out. If the landlord can find a tenant willing to pay €8 or €10 per square meter, he is allowed to rent that apartment for €8 or €10 per square meter.

That means that the next time the Mietspiegel is adjusted, that €8 or €10 per square meter is thrown into the mix, thus helping raise the Mietspiegel for the entire neighborhood. Which means that every other landlord in the neighborhood now has a legal right to raise their rents higher as well, which will help raise the next Mietspiegel, which will raise the rents more, and so on and so forth.

It is, as Berliners would say, a Teufelskreis— a vicious circle.

So, for all the effort put into creating such strong laws protecting/regulating existing rental agreements, I can’t help but wonder why there wouldn’t be any laws regulating new agreements as well, considering how strong an influence they have on the former.

Could such laws exist? Could they be used to allow a necessary and natural inflation to occur, but at a more sustainable and/or controlled rate? What would they look like? Any thoughts?

Photo: Matt Biddulph via Flickr. 

  • ber

    Imagine Sixt would raise the price each time a new customer rents one of their cars – they would go bust quickly.

    I’d say using the same laws for new rental contracts would already help. A mandatory checklist landlords need to show potential tenants (Mietspiegel, price history of the appartment) could be possible too.

    I don’t know what instruments local administrations have to check that prices are made according to the current laws and which legal actions landlords face if they break them. Could be another starting point to fix this propblem.

  • http://www.facebook.com/profile.php?id=647559468 Lasse Lawrence

    I agree with ber, it became necessary to control now the raise of rents in between two contracts or tenants.

  • realist

    The more rents are kept low through regulation, the more temptation there will be for people to come to Berlin, increasing pressure on rents to rise. The current system is a good combination of keeping existing rents stable, while not living in a bubble from the outside world.