Rent Brake

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Germany has implemented a comprehensive rent control policy known as the Mietpreisbremse, or "rent brake," to address rising housing costs in high-demand areas.
What are the main aims and objectives?

The Rent Brake aims to address several key objectives in the housing market. Primarily, it seeks to protect tenants from excessive rent increases and ensure affordable housing in high-demand urban areas. The policy restricts landlords from setting rents for new leases more than 10% above the local comparative rent (Mietspiegel) in designated areas with tight housing markets. This measure is designed to curb runaway rent hikes, particularly in sought-after cities like Berlin, Munich, and Frankfurt, where demand significantly outpaces supply. By implementing these controls, the German government aims to promote social stability by preventing the displacement of low and middle-income residents from popular urban centers. Additionally, the rent brake serves as a temporary measure to address housing shortages and affordability issues until more comprehensive solutions, such as increased housing construction, can be implemented.

How does the program work?

The rent brake applies to specific areas determined by individual federal states based on supply and demand trends over a maximum five-year period.

Under the Mietpreisbremse, landlords are prohibited from setting rents for new leases more than 10% above the local comparative rent (Mietspiegel) in designated areas with tight housing markets. This local comparative rent is typically determined using the regional rent index, which is based on the previous year's rents. If landlords violate these regulations, tenants are entitled to a rent reduction and can demand a refund of excess rent paid over the last 30 months.

However, the rent brake policy has some limitations and exceptions. It does not apply to new buildings constructed after October 1, 2014, properties extensively modernized in the three years prior to the start of the tenancy, or short-term furnished rentals. Additionally, if the rent has already reached the rent brake limit with the previous tenant, it remains the same for the new tenant.

The German government recently extended the Mietpreisbremse until 2029, demonstrating its commitment to tenant protection.

What is the overall cost?

There are no direct costs associated with the Rent Brake

How was it implemented?

The Rent Brake, was created in response to rapidly rising rents in urban areas and the growing concern over affordable housing. The policy was introduced through a legislative process that began in the early 2010s and culminated in its implementation in 2015.

The idea for stricter rent controls gained traction during the 2013 German Bundestag elections, where the Social Democrats successfully brought the issue of affordable housing to the forefront of political debate. This discussion reflected growing public concern about soaring rents in cities and the need for government intervention to protect tenants.

In March 2015, the German Bundestag passed a law that allowed federal states to impose rent caps in areas with tight housing markets. This legislation, officially titled "Gesetz zur Dämpfung des Mietanstiegs auf angespannten Wohnungsmärkten und zur Stärkung des Bestellerprinzips bei der Wohnungsvermittlung (MietNovG)," laid the groundwork for the Mietpreisbremse.

Following the passage of the law, federal states began implementing the Mietpreisbremse in their jurisdictions. By 2016, 11 out of 16 German federal states had adopted the rent brake in various municipalities. The policy was initially set for a five-year period but was later extended for another five years in March 2020, demonstrating the government's continued commitment to addressing housing affordability issues.

What impact has been measured?
  • In some major cities, the policy has reduced rents on offer by up to 5%. Specifically, Hamburg, Berlin, and Munich saw reductions in asking rents, while Cologne and Düsseldorf showed no significant effects
  • In Berlin, the rent cap (a stricter form of rent control) decreased the rent level on the competitive housing market by an average of 8%
  • The policy has intensified competition for existing rental apartments (constructed before 2014). In Berlin, the number of existing apartments available for rent decreased by almost 60% between September 2019 and 2020
  • Berlin witnessed the most competitive housing market compared to other German cities, with 140 applicants per rental apartment in 2020
What lessons can be learned?

The Rent Brake, has several indirect impacts on entrepreneurs and startups, particularly in high-demand urban areas where these policies are most prevalent.

  1. One of the primary effects is the potential limitation of affordable housing options for young entrepreneurs and startup employees. As the rent brake policy has led to a reduction in the number of rental units available on the market, it has become increasingly challenging for newcomers, especially those in the 18-35 age group, to find suitable accommodation. This can be particularly problematic for startups, which often rely on attracting young, skilled workers to urban centers.
  2. The policy has also created unintended consequences in the real estate market that may affect startups indirectly. For instance, there has been a spillover effect towards neighboring cities and smaller municipalities, with asking rents surging at an accelerated pace after the enactment of the rent brake. This could push startups and their employees to seek housing further from city centers, potentially impacting their ability to network and collaborate within urban startup ecosystems.
  3. Furthermore, the rent brake policy has led to a decrease in property advertisements and a reduction in newly built dwellings. This overall reduction in housing supply could make it more difficult for startups to find suitable office spaces or co-working environments, especially in prime urban locations where many startups prefer to be based.
  4. While the rent brake aims to protect tenants from excessive rent increases, it may inadvertently create challenges for the startup ecosystem. The policy's impact on the overall housing market dynamics could influence where startups choose to establish themselves and how easily they can attract and retain talent. As Germany continues to position itself as a hub for innovation and entrepreneurship, policymakers may need to consider how housing regulations interact with the needs of the startup community to ensure a balanced approach that supports both affordable housing and a thriving entrepreneurial environment.
Notes + Additional Context

About this type of policy tool (excerpt from Nesta's Idea Bank for Policymakers' Cost of Living section):

Expensive cities obviously make self-employment and early-stage entrepreneurship more difficult. While the costs of groceries and rent are largely determined by markets, local-level policymakers may have some discretion in imposing floors and ceilings on certain items, as well as control over the pricing of services like public transport.

Housing, in particular, is a topic of huge interest. Many cities across the world find that sharply increasing rents are a significant urban issue, especially for younger citizens, and are experimenting with policies to curb these rises. Strategies include encouraging new buildings; allocating a proportion of new builds specifically for low and middle-income households; encouraging employers to contribute towards transport costs (thus allowing staff to commute from cheaper areas); rental deposit schemes, in which companies can offer employees interest‐ free loans to pay their deposits; and shared ownership schemes, where the government owns part of the equity. More contentious are rent controls, which have been applied in Berlin to prevent landlords from increasing rents by more than 10 per cent above the local market average, and prohibitions on commercialised home-sharing, which have again been applied in Berlin to limit the use of Airbnb. 

CURATED BY

Siddharth Bannerjee

Researcher, Digital Startups
Nesta
United Kingdom