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Rental Market Controls to Support Housing Prices in Berlin

A new report by Fitch Ratings has looked at the impact that rent controls have had on property prices. Fitch analysed the property market in Berlin, which implemented rent controls in February 2020, just before the pandemic caused economic slumps across Europe, and the rest of the World.

Fitch Ratings noted that property prices in Berlin are fundamentally driven by a housing shortage and the availability of cheap mortgages, which is also the case in much of Germany. Family houses and apartment prices grew on average by 7-8% last year in all of the large German cities, despite the pandemic and the national rent freeze, which limits rent increases to a maximum of 10% above the comparative average rent in 2015.

Apartment prices in Berlin have increased by 2.5% over the past 12 months, despite the local rental freeze and subdued economic activity. However, this price rise was lower than the growth rate in the other German ‘big-seven’ cities.

Fitch Ratings stated: ‘We believe growth slowed mainly because the pandemic caused population inflow to crash to near zero while also pushing unemployment further above the national average (unemployment in Berlin is now almost twice as high). We continue to expect that the housing shortage will support price rises. The rent freeze will further constrain rental supply in the medium term, due to lower rents and legal uncertainty as aspects of the freeze are tested in court, and therefore support home prices.’

The firm believes that reduced availability of rental properties will force a greater proportion of those who can afford to buy to do so, contributing to rising demand from first-time buyers. Data for 2020 does not suggest a slump in the supply of apartments for sale in Berlin, but indicates a continued trend of falling sentiment from developers within the build to rent sector.

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