One of the prestige projects of Angela Merkel’s outgoing coalition government has been thrown into doubt after a Berlin court ruled that a recently introduced rent-control law violates Germany’s constitution.

The so-called Mietpreisbremse or “rental price brake” was introduced two years ago with the aim of barring landlords in property hotspots from increasing rents by more than 10% above a local benchmark. In June 2015 Berlin became the first German state to implement the new regulation.

But just five days before Sunday’s federal elections the capital’s district court has ruled that the law is incompatible with the country’s constitution because it discriminates against some landlords.

Quick guide German elections 2017 Show Hide What's the story? Germany goes to the polls on 24 September in national elections that will return a new parliament and decide whether Angela Merkel remains chancellor for a fourth consecutive term. What are the issues? Immigration and national security have been prominent, in the wake of Merkel’s decision to open Germany's doors to refugees and migrants in 2015. On the economy, Germans are enjoying near-record low unemployment rates, but there are concerns over the country's ailing infrastructure. What do the polls say? Merkel's centre-right Christian Democratic Union is polling at up to 40% with its Bavarian sister the Christian Social Union. The centre-left Social Democratic Party, led by the former European parliament president Martin Schulz, is heading for 23-25%. Four smaller parties should get more than 5%: leftists Die Linke; the free-enterprise, pro-business Free Democrats; the Greens; and the Eurosceptic, nationalist Alternative für Deutschland. Read more

In a press statement, the court said the law gave landlords in some cities an advantage over those in others. The benchmark for rent increases is calculated on local averages, and varies by up to 70% between cities such as Munich and Berlin.

The court in the German capital also bemoaned the fact that the mechanism had no effect on lettings that were already overpriced when the new policy came into effect. Far from offering an advantage to “restrained” landlords, the government’s rent-control initiative rewarded those who had from the start “tapped rental income to its maximum potential”, the court said.



The case was brought by a tenant who tried to claim back rental payments for a one-bedroom apartment in Berlin’s Wedding district, whose landlord had asked her for a monthly fee of €351 even though the previous tenant had paid only €215.

While the district court’s ruling will not immediately disable the brake on rising rents, it increases the likelihood that the law will soon end up in front of Germany’s constitutional court.

The policy had already been criticised from various sides. With the onus on tenants to check the rental increase against the local benchmarks, rents in Germany’s large cities have continued to rise.

According to a report published this week by Berlin’s tenant association, three in four landlords continue to raise rents at a higher rate than the brake allows.

The tenant association’s director, Reiner Wild, who praised the rental price brake when it came into effect in Berlin two years ago, described the latest developments on the housing market as dramatic.

Clemens Fuest, a leading German economist who heads the Ifo Institute for Economic Research, called the rental brake law “one of the biggest economic mistakes” of Merkel’s grand coalition.

Fuest said the law had achieved the opposite of what it set out to do by favouring higher earners over lower ones. “It leads to those on good wages being able to assert themselves far better in the rental market, because if a landlord is restricted by the amount of rent he can demand, he is almost always going to opt for the person who earns more money because it gives him more security.”

As the country prepares to head to the polls, Merkel remains at odds with her junior coalition partners over the future of rent-control measures. The centre-left Social Democrats (SPD), who first conceived the mechanism, have promised to tighten the Mietpreisbremse further if they govern in the next term, while the chancellor wants to focus instead on making it easier to build new housing.

“The SPD’s view is that if the rental price brake doesn’t work, then we need a second rental price brake. We say: if there’s a lack of housing, we should improve the conditions for building new housing,” she said.