By Siobhan Donnachie (@Siobhan_e_d)
To most people, receiving a letter from your Landlord stating you are entitled to a significant rent reduction would seem like a cruel and sadistic joke. Last month my housemates and I received a letter from the real estate company managing our apartment saying our rent would be cut by a whopping third, from December 1st 2020. I currently live in Berlin where a landmark rent control or rent ceiling (Mietendeckel) is being passed — which is set to affect 340,000 apartments in the city, around 1 in 6 tenants.
The rent control proposed is radical, not only calling for rent stabilisation through establishing maximum rent ceilings, but also lowering existing rents. If successful, the Mietendeckel could provide a model to be adapted for other cities, particularly in the UK. Rent controls however seem to fill the real estate industry, landlords, investors and neoliberal minded folks with intense fear. When Sadiq Khan focused his mayoral campaign earlier this year on rent controls, the landlord and real-estate lobby were up in arms. Similar reactions sparked up in Manchester after a joint report in 2019 from The RSA (Royal Society of Arts, Manufactures and Commerce) and the housing association One Manchester, stipulated that a soft form of rent control was needed to resolve housing inequality in the city. Yet, rent controls are widely popular, last year 71% of the British public were in favour of the Labour Party’s pledge to establish them.
It is important to note that rent controls are not some new radical policy, the private rented sector in the UK was regulated for most of the 20th century. The regulation of rent for new private tenancies was only abolished in 1989, under the Thatcher government, hell bent on the deregulation and privatisation of housing to create a passive ‘property owning democracy’. The successive deregulatory policies of governments has created our present day situation — an atomised rental market dominated by small scale landlordism.
When considering the Mietendeckel as a potential model for the UK, the difference in the private rental market and the power of tenants has to be reflected upon. In Berlin alone, 84% of residents are privately renting, whereas in Manchester it is around 20% and in London 30%. A higher security of tenure (unlimited expiry or long fixed term tenancies), extensive protection from eviction and protective legislation provides the strong base for tenant organising here in Germany. Less tenant protections in the UK is not the only cause of our obscene insecurity and eviction levels — the intersection of higher ownership levels and a deregulated private rented sector is also a key factor. ‘Generation Rent’ found that when house prices increase, no-fault evictions also increase, with landlords evicting to sell up or bring in new tenants with higher market rent. This instability has acted as a major obstacle to organising renters in the private sector.
However, Berlin is in no way a renters paradise. Similarly to the UK, for many of those renting here, myself included, the reality is often a precarious rental situation, sometimes moving from one sub-let to another several times in one year. The saturation in the rental market has been facilitated by the over demand and under supply of affordable housing and the huge flows of speculative capital into the city.
Berlin, like many global cities, has experienced a dramatic increase in rents, 60% in fact since 2011. The city is certainly no stranger to the neoliberal financialised growth model of housing and urban development — a large proportion of the city is owned by real estate millionaires. This has partly been enabled by massive sell offs of municipal housing stock in the early 2000’s, paving the way for the domination of global financial actors such as Blackstone, and other private equity or pension funds. In Berlin, the British Pears Brothers collected at least $53 million in over inflated rents and sales in 2017, while using standard real estate loopholes and shell companies in the British Virgin Islands, Cyprus, and Luxembourg and paying only a reported $197,000 in taxes on that income.
The Mietendeckel is not the first policy to try and tackle rising rents. In 2015 a rent brake (or Mietpreisbremse) was legislated for across Germany. Cities like Berlin established a rent index of comparative median rents, and if your new rental contract was 10% over this you had grounds to legally challenge the rent. The legislation was mostly ineffective in tackling the situation, and landlords easily circumvented the rent brake. A strong grassroots renters movement in the city, in particular Mietenwahnsinn — Stoppen (stop the rent madness), has been pivotal in swaying public opinion towards a radical rent cap and supporting the political coalition of Die Linke, The Greens and The Social Democrats to push through the Mietendeckel in the Berlin House of Representatives in January at the beginning of 2020. However, as the legislation unfolds, it could sadly show how fighting the stranglehold of global finance upon housing is a far greater challenge than we thought.
The Mietendeckel came into effect in February 2020, and as of November 23rd landlords have a legal obligation to give the rent decrease if applicable. It includes all residential apartments across the city, with the one exemption of those constructed or ready for rental post 2014. The city has established a rent table of maximum rents, depending on modernisation, location and size. If a tenant’s rent exceeds the rent ceiling outlined by more than 20 per cent they are entitled to a rent reduction, and those below this cannot have their rent increased for 5 years, thereafter only increasing by inflation at around 1.3%. Landlords who refuse to meet regulations and reduce the rent can face an eye watering fine of up to 500,000 euro.
But Berlin is holding its breath for now after legal challenges posed to Germany’s Federal Court of Justice — the Bundesgerichtshof (the highest court of ordinary jurisdiction) — from the real estate lobby, supported by the political coalition of the Christian Democrat Union (CDU), Christian Social Union (CSU), and the Free Democratic Party (FDP). The challenges proposed are whether the Mietendeckel is compatible with the German Constitution and its fundamental right to property, and whether Berlin on a federal level can legally even implement it. A ruling has been estimated for April to June next year, with the decision going one of four ways: uphold the legislation; tweak the law (most probably appealing to landlord profits); strike it down in its entirety but allow tenants to not pay back reduced rent for the period; or strike it down and allow landlords to recoup ‘‘underpaid’ rent back in full. At this stage it is very unclear what the court's decision will be, and for now tenants are advised to put aside the differences in rent in case they have to pay it back.
If the Mietendeckel is successfully legislated for, it will mount a serious challenge to the current speculative model of housing that benefits both huge global financial actors and smaller landlords. It is important to note that landlords can apply for a hardship clause, enabling them to keep the same rental price, only if they can prove they are not financially profiting, which is the key part of this all. In order to provide fair rents, the right to a home needs to be defended, whilst treating homes as assets needs to be attacked and dismantled.
Fighting the mainstream economic narrative around rent control is not an easy task. The commonly used argument — ‘rent controls reduce incentives to maintain existing housing or construction of new housing, skewing supply and demand’ is always heavily weaponized to defend profits. The ‘anti-building’ narrative has been very powerful in the debate around the Mietendeckel in Berlin, and opposition parties have maintained that it will scare away investors in existing stock and new construction. Online real estate portal Immoscout published an analysis in mid-October, stating that the number of rental apartments on offer fell by 41.5 percent within twelve months, adding that this was due to the drop in apartments on the market pre-dating 2014. It seems that as real estate companies see shrinking profits in older residential housing stock, they are shifting their investments to newer construction. ‘Deutsche Wohnen’ one of the largest real estate companies in Berlin (estimated to own 120,000 apartments in the city), have already turned their focus to buying up new buildings and investing in new construction.
The myth around rent controls scaring away investors, is just that, a myth. In the context of the Mietendeckel and to highlight this, The Rosa Luxemburg Stiftung uses the example of the Swedish investor, Heimstaden, who recently agreed to purchase 130 Buildings, 4000 apartments at 830 million euros - 200,000 euros average per apartment. Heimstaden stated that they have factored in the Mietendeckel to their profit margins, and still see it as a lucrative investment.
If anything the Mitendeckel will be less effective due to the dominance of a model that exploits tenants for maximum profits. The blame does not only lie with global financial actors, some smaller landlords have of course sought out loopholes, and in some cases chosen to only rent to ‘foreigners’ who are less able to assert or know their rights. There are many cases already of landlords using ‘shadow rents’ so they can still charge tenants higher rates. ‘Shadow rents’ come in a number of forms, such as exaggerating prices of inventories for furnished apartments, over inflation of operating or maintenance costs, or the sneaky practice of placing a higher rent and a lower rent on new contracts — so if the Mitendeckel is not passed the higher rent can remain in place. These practices range in use from small landlords to real estate giants like Deutsche Wohnen, who continue to shamelessly exploit the housing market in Berlin.
To argue that rent control in Berlin would present severe financial risk for property owners is an over exaggeration to say the least. In the context of the UK, nearly half of landlords own their renters’ home outright i.e. without a mortgage, emphasising the point that landlords treat property and renters as a way to accumulate large profits. This is not to say that all smaller landlords, or those who own one property will not face a serious financial hit through rent controls. But, for those of us who have forked out thousands and thousands to live in often very poor standards of housing, our sympathies for landlords do not stretch far, if at all. The fundamental right to housing, is not just to declare it as a right and provide negligible liberal reform, it needs to be a direct challenge to the system itself — and if that is to eradicate the profits of landlords and real estate, so be it.
However, the Mietendeckel, even if successful, is not enough to combat the exploitation tenants face, or the rapid gentrification of the city. Citizens are fighting for greater demands to stop inflating rental prices, community displacement and gentrification. Most notably the campaign to expropriate privatised housing back into public hands, radically calling for the democratic remunicipalisation of the city's housing stock. The Mietendeckle, or any form of rent control is not the sole solution to housing inequality. Both in Berlin, and in our own cities in the UK we desperately need reforms to land use rules, transformative public housing programmes, and support for cooperative and community led housing.
Sadly the possibility of the UK getting close to these ‘utopian’ housing policies is not so within our grasp. The Mietendeckle has got this far through the demands of a strong tenant-led movement here in Berlin. That is not to say that we should not be demanding for rent controls, there is clearly the political space and popular appeal for such policies. The renters movement in the UK is growing in strength, but its focus should be on securing; greater protections, stable long term tenancies and eradicating no-fault evictions. But winning these legislative changes for tenants is possible even under a Tory government — and once we have this, our power as renters will grow and we can begin to effectively dismantle our polarising and unequal housing market.
Siobhan Donnachie is a coordinator of Greater Manchester Housing Action, and currently resides in Berlin.
With thanks to Jacob Mukherjee for his comments on an earlier draft. Cover photo credit: Amit Kubi.
This piece was made possible thanks to support from the Rosa Luxemburg Stiftung.
29 December 2020