*The following article should be considered as a guide and opinion piece on the subject, and not as legal advice.
Do the rent cap and rent freeze also apply to furnished temporary accommodation?
The new law rewriting Berlin renting culture - the rent cap!
In recent weeks, the Berlin Senate's plan to introduce rent caps and upper rent limits has led to great uncertainty among landlords who rent for limited periods of time. The rent cap law has been passed, and will now also apply to furnished apartments.
What action should short-term landlords take?
For the time being, nothing. At the moment, it's important you don't make any hasty decisions. Even if the law should come into force, the exact wording is yet to be determined. Until then, it is hoped that reason will prevail, and the importance of the existence of furnished apartments in Berlin will be recognized. In addition, many see the planned law as a violation of the constitution and it could ultimately be overturned by the Federal Constitutional Court. A large number of lawsuits by the landlords concerned are also expected, as this law massively encroaches on property rights.
Is short-term letting actually to blame for the housing shortage in Berlin?
In almost every article about the unfolding Berlin housing market situation, it is repeatedly claimed that holiday and temporary rentals are responsible for the housing shortage in the city. Often, there is no distinction between the renting of holiday apartments to tourists, which is subject to approval and strictly regulated, and furnished temporary renting. However, in principle, the letting of furnished apartments for longer than two months, to those who move to Berlin for work - is not a misappropriation of living space. In addition, it is assumed that all landlords of temporary flats are attempting to infiltrate and disrupt the rent index by buying a few cheap or old pieces of furniture in their flat and labelling it as 'furnished'.
This is not the case. Although there is the exceptional black sheep among landlords, offering the simplest dwellings at exploitative prices, this is not the rule. The vast majority of real furnished apartments are high quality and fully equipped for families and professionals and their day-to-day life. Internet as well as TV reception is also available, and as with permanent tenants, all consumption and additional costs, such as radio license fees are included in the rent.
Can and should a furnished apartment be rented according to a Senate-approved rent index?
Not only does this not work, but would present a huge ripple effect of problems for landlords and tenants. The owner of the apartment would in this case be forced to calculate a cold rent based on the newly-determined rent index, without adequately taking account of the location and condition of the flat, plus 10% of the cost of furnishing and equipment of the apartment - with depreciation over 10 years. It has also been stated that the landlord would be obligated to provide the tenant with proof of the furnishing and equipment in the apartment. However, with well-equipped flats that have the normal features of a furnished space - carpets, curtains, blinds, lamps, pots, dishes, cutlery, towels, bedlinen etc. - this would present masses of paperwork and filing for both parties.
This leads to the question of where to draw the line - would the landlord also be required to assign each receipt and each invoice to a certain piece of furniture or item of equipment? And what happens in the case of special pieces of furniture that will need replacing? Or regular household maintenance? Already if, for example, a technical device or the internet doesn't work, the landlord must take care of it. The same goes for readings, cosmetic repairs, inspections, etc. This means that if temporary letting were to become regulated in such a way that the landlord can only include the rent index and 10% of costs per year, (i.e. approx. 1% of the total sum per month) in the rent price, but still bears all previous obligations and, after the introduction of the ordering principle, must also pay all agency fees, they are better off leaving the apartment empty.
Why do landlords rent for a limited period - and what would be the consequences of the rent cap?
Apartments that are rented in the short-term are often second homes for the owners. Landlords have bought them in order to use themselves from time to time, or in the future - or for their children or other family members, e.g. elderly relatives who may be in need. In order to keep them flexible and have quick access to their apartment in an emergency, they are rented out on a temporary basis.
The planned rent cap would result in these flats being left vacant, thereby exacerbating the problem that it claims to solve. For a landlord to claim the use of their apartment for their own needs would become even more complicated, as it would have to first be approved by the district office. Due to the difficulty for the tenant to find a new apartment, the new law would lessen the owner's grounds even further to reclaim the use of their property. Many speak of expropriation in this context, as well as a worsening of the already considerable number of vacant apartments in Berlin, and could lead to a mounting crisis.
Who are the tenants of furnished temporary flats?
Those pushing forward the cap on temporary renting argue that tenants would be forced to live for years in overpriced furnished flats because it is no longer possible to find empty flats on the open market. Without real investigative research, many journalists have leapt to the defence of alleged "rent victims", while in actual fact acting against their best interests. It is important to consider that furnished flats are inevitably set at a higher price than unfurnished flats for the obvious benefits - the tenant can move in at any time, they doesn't have to worry about anything, or pay for any costly repairs. The rent for temporary accommodation is higher, but in proportion to the cost for the owner.
The fundamental reason for the scarcity of apartments in Berlin is that too few have been built to accommodate the city's growing population. There is not enough social housing, resulting in the dependance of even low-income earners on the free housing market.Temporary tenants are specially skilled workers, very often in the field of IT, that come to Berlin from all over the world, boosting the city's reputation as the start-up capital of Europe. An empty local job market means that companies depend on recruiting highly qualified employees from abroad. Not only do those invited to relocate rarely speak German, but naturally have no Schufa credit score yet, no bank account, no pay slips in Germany for three months and no certificate of exemption from rent debts. This means they have zero chance on the German rental market for the first period they are living in Berlin. Although European law guarantees freedom of movement for EU citizens, EU foreigners in Germany face immovable structural obstacles when looking for accommodation.
This is the group of people who rent on a temporary basis. After a few months, these tenants will have a acquired a Schufa score, and a certificate of exemption from rent debts and can then apply for unfurnished flats, if they so wish. As this group earn above average, those who are seriously looking will always find an apartment. Some prefer to rent for a longer period because they don't know how long they will stay in Germany and need flexibility. Even if tenants move into an apartment higher than their budget at first, they will move into an apartment with a better price-performance ratio after a few months of settling in. Stating that these tenants have to rent for a certain period of time because they cannot find an empty flat is misleading, and leads to further confusion around the real potnetial effect of the Mietbremse.
Why do these tenants need to rent on a short-term basis?
Companies often pay a lot of money for the placement of these professionals. They are particularly interested in ensuring that their new employees do not have to worry about anything when they arrive in Berlin - no time-consuming apartment searches, furniture purchases, or trouble with internet providers and registration of gas and electricity. They need their employees to be able to perform from day one of arrival.
Short-term renting allows newcomers to get started asap, no matter where they come from. With a furnished apartment you can not only live - but you have an address, you can register in Berlin, and you are flexible. After a few months you can look around for your own apartment without stress while working, and without the pressure of being without a home.
What would the consequences of the rent cap for tenants be?
The rent cap is intended to relieve tenants financially. But is this logical for short-term renting, when a higher-income tenant is paying to have a stress-free and flexible living arrangement? This would also have an effect on consulting services provided by agencies. No tenant who is looking for an unfurnished apartment can go to a real estate agent and expect them to find one - and if temporary letting becomes as unattractive as possible for landlords, the same will happen for furnished apartments.What would this then mean for temporary tenants?
On the normal rental market they would have no chance without the right documents, which are only possible to get after having already spent time working in Berlin. In addition to this catch-22, the majoirty of people don't want to rent a permanent apartment immediately, but want to settle in and organize their move step by step. This group of people would alternatively have to switch to hotels or serviced apartments in the future, which would be significantly more expensive than furnished living. As a result, more hotels and serviced apartments would be built in the inner city. This raises new questions, such as; why aren't the gaps between buildings used for housing throughout the city? And why further increase costly and timely bureaucracy in the future to monitor compliance with the rent index, where landlords have to pay for a failed housing policy?
What is the aim of the rent cap?
The rent cap does not create new living space, but benefits affluent tenants in prime locations, whose luxurious apartments were built before 2014. It is also, in part, a way of accepting that the Berlin economy will be weakened,and acknowledging the idea that people are no longer interested in moving to Berlin. It looks to a bleaker future, where nobody will move out or move, and people who want to move to Berlin will no longer have a chance to find an apartment. Berlin to the Berliners - Berlin first. Isn't Berlin still a liberal, open, multicultural city?
Now tourists are also identified as a main problem of the city. More left-wing parties wants to act by reducing the number of tourists in Berlin. It is said that many Berliners feel disturbed by tourists in their neighbourhoods. But it's a familiar argument - the tourist is always to blame for everything, commercialisation, Disneyland and all noise pollution. Has anyone asked how many Berliners feel disturbed by other Berliners? And what next? Will all craft beer pubs and burger shops soon be replaced by Berliner-only institutions? These ideas, although based on democratic social intentions are fast becoming misguided in the other direction.
In the debate about the rent cap, ideology has become more important than pragmatic solutions among Berlin politicians. If in future the unbureaucratic rental of furnished apartments for limited periods of time, which has for decades been a win-win situation for tenants and landlords, is no longer possible, it will become even more difficult for foreigners and residents to move to Berlin. This will have disastrous consequences for Berlin as a business hub. The city will return to being poor once again - but this time, definitely not sexy.
At Crocodilian we will provide detailed advice about the rent cap to all our clients whose apartments are due to become available again soon.