Yesterday, on March 5th 2015, the German Bundestag (Lower House of Parliament) has decided two new laws that will effect the rental and housing market in Germany and especially highly competitive markets like Munich, Hamburg, Berlin or Frankfurt.

The rental increase limit and what will be the consequences for landlords, tenants and real estate agents

The new regulation allows regions with highly competitve housing markets, e.g. the biggest German cities and university cities, to set a limitation on rental price raises. This limit is defined as 10% above the local comparable rent for newly let housing. Known as the “rental price brake”, the law aims to stop excessive rent increases in very popular areas and make living in city centers more affordable to all prospecitve tenants, also those with lower incomes.

Critics say that this regulation will not solve the problem to make it easier for families and tenants with lower incomes to rent housing in popular districts. They speculate that this will lead to a cheaper rent for people who could easily afford higher rents, as those tenants with high incomes are still the first choice for landlords. In this case people with higher incomes would benefit from the increase limit, not the ones intended by the government.

The “orderer principle” for real estate agent services

The second new law, the so called “orderer principle”, changes the rules of who has to pay the fees for real estate agent services. From now on, who assigns the real estate agent, has to pay the commission.

Until now it is common practice in competitve markets like Munich that the landlords instruct the real estate agent and the new tenant has to pay the invoice of 2,38 monthly net rent. The new regulation will exclude this practice and in this case the landlord has to pay the real estate agent and is not allowed to pass on the costs to the tenant.

Right now the consequences on the housing market are not yet foreseeable. It might either be the case that more landlords will start looking for tenants themselves. Or it might be possible that landlords still assign a real estate agent to take care of the time consuming tenant search and they might factor the commission into the rent. Thus again the tenant will bear the costs.

Right move to relax the housing market?

The goal of the big coalition is clear: make living in city centers more affordable and render possible a mix of residents with different income levels in popular areas.

However, most commentaries in the German press consider the measures are failing the main problem: the housing is this expensive, because there is too little of it.

Disclaimer: The information provided in this article is for general information purposes only and should not be considered as legal or tax advice. If you have any further questions on the applicability of this information, please get in touch with our office.