The German housing market is in deep crisis. Building permits are declining, cancellations are increasing, and consequently, fewer and fewer projects are being completed. This shrinking supply meets persistently high or even rising demand. The effects of this imbalance are immediately evident in rent price developments. Recently, significant rent increases have been observed, especially for new leases in Germany’s major cities.
In this challenging environment, calls for stricter rent controls are tempting. Rent regulations can be implemented quickly, do not entail direct costs for public budgets, and are often popular. After all, what could combat rising rents more effectively than banning further rent increases? Why not adopt the Berlin rent cap (which was declared unconstitutional) as a model and introduce a similar system at the national level?
The catastrophic consequences of such an idea are highlighted in a new study by the IW Cologne commissioned by the Friedrich Naumann Foundation for Freedom. The report dispels the remaining myths about the supposed positive effects of rent controls.
Key Findings
- If Germany’s existing rent control regulations were tightened following the Berlin rent cap model, the number of rental apartments listed each quarter would temporarily drop from 70,000 to 27,000—a decline of over 60%.
- Higher-income tenants would benefit the most from stricter rent controls, while families and low-income households would face even greater difficulties finding housing.
- Tightening rent control regulations would also reduce incentives to invest in housing. Considering the necessary investments for achieving a climate-neutral building stock, rent controls would directly contradict climate protection goals.
The researchers at IW Cologne conclude that “rent controls ultimately cannot resolve the housing market’s tensions. Further tightening of rent controls would instead lead to an even greater shortage of supply.”
Real Solutions for Housing Market
Instead of stricter rent controls, genuine solutions are needed to balance supply and demand. According to the researchers, significant untapped potential for creating housing remains in urban areas through densification, adding floors to existing buildings, and converting attics. Additionally, greater attention should be paid to the interaction between urban and rural areas.
For many households, moving to suburban or rural communities offers opportunities for more affordable housing and homeownership. However, this requires robust infrastructure, including high-speed internet, healthcare facilities, and access to all types of schools.
For the Friedrich Naumann Foundation for Freedom, the report demonstrates that further tightening of rent controls would have devastating consequences—not only in Germany but across Europe. Such measures would harm precisely those they claim to help. Rent controls promise simple solutions, but there are simply no easy fixes for the housing market. Instead, what is needed are reduced bureaucracy, more building land, and faster approval processes.
A new report by the Friedrich Naumann Foundation for Freedom (in German) reveals the devastating effects that further tightening of rent control regulations in Germany would have. If rent control were intensified following the model of the Berlin rent cap, the housing supply could temporarily plummet by over 60%.