The ban on rent increases will last for five years

Soaring rents are already driving people out of the city

For several years, Berlin rents have soared, more than doubling between 2009 and 2019. With more than eight in ten Berliners renting, residents struggled to keep up with rent increases that often outpaced wage boosts.

After demonstrations and data showing Germans were leaving Berlin for cheaper suburbs, the city parliament approved a law freezing rents on almost 1.5 million homes for the next five years. After 2025, the law will limit increases to 1.3% per year, to stay in line with inflation.

The law, which went into effect this month, has its detractors. Opponents cite studies finding that rent controls reduce housing supplies by 15% and push up uncontrolled rents.

Average monthly rental cost of a furnished one-bedroom apartment in select European cities as of Q4 2019 (Euros) Image: Statista

One of Berlin’s biggest landlords - Deutsche Wohnen SE - says it saw 14% wiped off its stock market value when the Berlin rent freeze was announced last fall, prompting the company to say it would put all its Berlin developments on hold. It also described the rent freeze as unconstitutional.

Berlin’s rents have grown quickly but remain more affordable than those in cities such as London, Paris or Rome. Today, the average monthly rent for a one bedroom furnished apartment in Berlin is the equivalent of around $1,200 USD.

A protester accuses landlords of speculation in Berlin rent protest Image: REUTERS/Fabrizio Bensch

Rent control is a complicated issue. The World Economic Forum’s Affordable Housing in Cities Report explains that “rent controls benefit tenants by keeping rent below market rates, but can also discourage the supply of new rental housing” since increased supply also keeps prices down.

As other experts explain, tenants in rent controlled housing might be less likely to change jobs or seek new opportunities for fear they’ll lose their affordable housing. Additionally, landlords might not update a unit until they can earn the market rate for it.

What's the World Economic Forum doing about the future of cities? Cities represent humanity's greatest achievements - and greatest challenges. From inequality to air pollution, poorly designed cities are feeling the strain as 68% of humanity is predicted to live in urban areas by 2050.

The World Economic Forum supports a number of projects designed to make cities cleaner, greener and more inclusive. These include hosting the Global Future Council on Cities and Urbanization, which gathers bright ideas from around the world to inspire city leaders, and running the Future of Urban Development and Services initiative. The latter focuses on how themes such as the circular economy and the Fourth Industrial Revolution can be harnessed to create better cities. To shed light on the housing crisis, the Forum has produced the report Making Affordable Housing a Reality in Cities.