The impact of the new German rent controls – a case analysis for Berlin and Cologne Prof. Dr. Michael Voigtländer Research Unit Financial Markets and Real.

The impact of the new German rent controls – a case analysis for Berlin and CologneProf. Dr. Michael VoigtländerResearch Unit Financial Markets and Real Estate

London, 19 March 2015

Research Unit Financial & Real Estate Markets

contact

Prof. Dr. Michael VoigtländerHead of Research Unit Financial and Real

Estate Markets

++49 221 4981-741 [email protected] www.immobilienoekonomik.deTwitter.com/mvoigtlaender

Research Focus

Housing Policy and Real Estate Economics

Real Estate and Corporate Finance

Monetary Policy and Financial Markets

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 2

Content

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 3

Background

Rental indices in Germany

The New Rent Control

Effect on rents in Berlin and Cologne

Conclusion

Major Cities in the growth modeChange in the demand for living space between 2012 and 2030

6% 7%

14%

2% 3%

7%

4% 3%

-4%-6%-4%-2%0%2%4%6%8%

10%12%14%16%

4

Source: IW Köln, Bertelsmann Stiftung

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London

A Shortage of Construction in Major Cities

Source: IW Köln, Statistisches Bundesamt

5Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London

Content

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 6

Background

Rental Indices in Germany

The New Rent Control

Effect on Rents in Berlin and Cologne

Conclusion

Introduction of a rent control

New rent contracts max. 10 percent above the local reference rent

Applied in „tensed housing markets“, initially for 5 years

Exceptions:

Newly Constructed Buildings

Extensive Modernizations

Source: Fotolia

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 7

Content

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 8

Background

Rental Indices in Germany

The New Rent Control

Effect on Rents in Berlin and Cologne

Conclusion

Rental indices in Germany

Qualified Rental Indices

• Data sources: interviews

• Rental prices of new and existing stock of the last 4 years

• Renewed index all 2 years

• A range for prices according to location, quality and subjective criteria

Normal Rental Indices

• Negotiated between landlords association, tenant association and the city

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 9

Rent indices in Cologne and BerlinBounds of comparability

Many characteristics are measurable and comparable…

• Apartment size

• Year of construction

• Modernization

… but what is a

„good“ location?

Source: Fotolia

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 10

Overview: Advertisements in Berlin (2014)Number of Ads: 65.000

Source: ImmobilienScout24, Cologne Institute for Economic Research

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 11

Hot Spot Analysis for Berlin (2014)

Source: ImmobilienScout24, Cologne Institute for Economic Research

Cold Spot

Hot Spot

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 12

Hot Spot Analysis for Köln (2014)

Source: ImmobilienScout24, Cologne Institute for Economic Research

Cold Spot

Hot Spot

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 13

Content

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 14

Background

Rental Indices in Germany

The New Rent Control

Effect on Rents in Berlin and Cologne

Conclusion

Share of rental bids above the threshold level in Berlin and Colognein percent, based on the relevant market (without modernization and newly constructed buildings )

15

Quellen: ImmobilienScout24, Institut der deutschen Wirtschaft Köln

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London

City Apartment Size good Location average Location ordinary Location

Berlin

until 40 m² 98 87,7 80,1

From 40 m² till 60 m² 68,8 53,7 27

From 60 m² till 90 m² 63,4 54 26,5

Above 90 m² 63 46,5 38,3

Cologne

Around 40 m² 51,4 26,6 92,8

Around 60 m² 25,5 16,9 74,7

Around 80 m² 43,0 19,2 93,7

Around 100 m² 53,4 31,4 86,6

Around 120 m² 49,4 35,8 95,8

Share of affected advertisements by the rent control (Berlin)in percent

Berlin 2014

Fallzahl < 50

Anteile

0 - 19,4

19,5 - 38

38,1 - 55

55,1 - 69,3

69,4 - 86,1

0 4,5 9 13,5 182,25Kilometer

±

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 16

Source: ImmobilienScout24, Cologne Institute for Economic Research

Overall share of advertisements above the rent control in Berlin in percent

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 17

Source: ImmobilienScout24, Cologne Institute for Economic Research

City Share…good

Locationaverage Location

ordinary Location

Berlinin all rental listings 21,9 25,2 10,4

in relevant rental listings 72,4 61,2 41,4

Colognein all rental listings 13,9 9,45 26,1

in relevant rental listings 42,7 23,8 86,8

Content

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 18

Background

Rental Indices in Germany

The New Rent Control

Effect on Rents in Berlin and Cologne

Conclusion

The rent control is a rent freeze

• Especially small and old apartments located in good areas are affected

• Experiences in other countries show severe problems of rental freezes

• Transformation in owner-occupied flats is likely to happen

Source: Fotolia

Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 19