Index rents, excessive rents, rent control: What should change in renting

Germany is a nation of renters. 53 percent of people live here in rented accommodation – the highest rate in the EU. However, rents have risen sharply in recent years, prompting calls for action to be taken.

The federal government has now set out to redesign tenancy law. How can this be achieved? As is often the case, a group of experts will first clarify the matter. The so-called "Tenancy Law Commission," which includes lobby groups representing landlords and tenants and is led by Federal Justice Minister Stefanie Hubig (SPD), has just begun its work. Several tough tasks lie ahead. In addition, further ideas for making rents more affordable are being discussed. Five points are important in this regard:

If inflation rises, rents rise: Index-linked rents are tied to the development of consumer prices. Those who signed such a contract felt this particularly painfully in 2022, when inflation temporarily climbed to 8.8 percent. Unlike other rental agreements, index-linked rents do not have a cap to prevent excessive rent increases. The CDU/CSU-SPD coalition has now committed to stricter regulation of index-linked rents. A draft bill on this is to be presented by the end of the year, according to a parliamentary inquiry by Green Party politician Hanna Steinmüller to the German government, which was obtained by the RedaktionsNetzwerk Deutschland (RND).

Many people probably think that their own rent is outrageously high. Above a certain amount, however, even lawyers refer to rent gouging – and this is prohibited. The precise point at which this occurs is somewhat complicated, because it takes into account the local comparative rent and also depends on whether a situation of hardship is being exploited. If the rent is 50 percent above the local comparative rent, however, depending on the situation, it could even constitute a criminal offense. However, the tenant must be aware of this themselves and be prepared to take action, which critics see as a huge hurdle. The problem: The high rent is also reflected in the rent index.

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Justice Minister Hubig now wants the Tenancy Law Commission to examine how the current regulations can be "given teeth." However, Green Party politician Steinmüller criticizes the fact that the task force's work has so far been vague and that results are not expected until 2027 at the earliest. She believes this does not help tenants.

"This creates the impression that urgently needed improvements are being deliberately delayed," she told the RND. This hesitation is irresponsible, especially when it comes to excessive rents. "If the conservative-red coalition wants to take decisive action against welfare benefit abuse, they shouldn't stand idly by when landlords exploit the tense situation on the housing market," the parliamentarian criticized.

If the landlord needs the apartment or house for himself and can provide a good reason, he or she can terminate the tenancy for personal use. Tenant Association President Melanie Weber-Moritz, however, criticizes this: "We are currently experiencing a significant increase in terminations for personal use and assume that a significant proportion of these terminations are merely faked in order to be able to offer the apartment again at a high price after the previous tenant has moved out," she told the RND. Federal lawmakers must urgently address this.

The CDU/CSU-SPD coalition has decided to extend the rent control (Mietpreisbremse). It ensures that rents for new leases may not exceed the local benchmark rent by more than 10 percent, but it only applies in tight housing markets and to buildings built before 2014. The German Tenants' Association, which also sits on the Tenancy Law Commission, also criticizes the inadequate enforcement of violations. Weber-Moritz calls for a "significant fine."

Hubig recently stated that all a landlord who violates the rent control has to fear is that the increased rent will be demanded back. "In my view, that's unsatisfactory," said the SPD politician. She also wants to do something to prevent the brake from being circumvented by short-term rental contracts and the rental of furnished apartments.

Critics, however, fear that the rent control will hamper precisely what is urgently needed: the construction of new housing. Everything depends on whether the supply of housing can be expanded in the coming years and thus ease the pressure on rental markets, where excessive demand meets too limited supply.

Construction Minister Verena Hubertz (SPD) has taken the first steps with the "Construction Turbo," which is intended to shorten permitting procedures in municipalities and enable faster construction of housing. However, this still requires the green light from the Bundestag. Whether it will actually be implemented will be up to the municipalities. Next Wednesday, the Construction Committee will consider Hubertz's prestige project.