German Court Rules Berlin’s Rent Cap Unconstitutional

Rent costs have been soaring for almost two decades in Berlin. (Wikimedia Commons)

The German Federal Constitutional Court in the city of Karlsruhe ruled Berlin’s rent cap unconstitutional on April 15, thereby removing the price ceiling. Implemented in February 2020, the rent cap aimed to constrain Berlin’s ballooning costs of living.

The rent cap would have frozen 90 percent of Berlin’s rent prices at their 2019 level for five years. Berlin’s state government, controlled by the Social Democratic, Left, and Green parties, had spearheaded the law’s implementation. Nevertheless, courts concluded that since the German federal government had already promulgated a law regulating rent prices nationwide, the state of Berlin could not enact such regulations of its own.

The decision provoked an immediate outcry. Thousands of Berliners poured onto the streets protesting the decision. Leaders Katina Schubert and Klaus Lederer of Berlin’s Left Party, who had originally drafted the rent cap law, also expressed dismay; “For Berlin’s tenants, but also for the federal states as a whole, the decision is a bitter setback.” 

German Chancellor Angela Merkel’s center-right Christian Democratic Union and the pro-business Free Democratic Party led the lawsuit against Berlin, arguing that the federal government’s jurisdiction took precedent over that of the city’s. 

Many free-market advocates had sharply criticized the rent cap. According to Deutsche Bank economist Jochen Moebert, “Across German cities, rent growth decelerated with the extensive media coverage of the Berlin rent cap.” The ruling marked a win for supporters of laissez-faire economic policy in Germany. Nevertheless, the German government still takes a very active role in housing policy.

Like many large cities worldwide, Berlin currently faces a housing crisis. After the Berlin Wall fell in 1989, low rates in former East Berlin attracted many young people, immigrants, and artists. Their influence has given the east a reputation of being “hip.” However, between 2009 and 2019 alone, rent rates more than doubled due to high demand for city living. This has caused rapid gentrification in Berlin, once known for its housing surplus and inexpensive living costs. Since the mid-2000s, an influx in new residents has created far more demand than supply, leading to sharp increases in rent prices. Unfortunately, many long-time east Berliners have had to relocate on account of the untenable price demanded. 

The Federal Constitutional Court’s ruling could have far-reaching implications worldwide. Several cities globally facing similar dilemmas have introduced rent-control measures of their own. Barbara Steenbergen, the EU liaison head of the International Union of Tenants, remains confident that such measures will have success: “This decision is not about whether the rent cap is good or bad, it is purely about jurisdiction.” With that in mind, the repeal of Berlin’s regulation will hopefully stand as a lone exception.