What would Berlin’s rent caps mean for London’s landlords?

As fewer and fewer Londoners own their own property – a trend which analysts predict is going to continue – the need to protect tenants becomes more important.

In a recent poll it was found that almost everyone asked agreed that there should be some form of rent control particularly in London. The key question here is; what type of rent control? The kneejerk answer always seems to be ‘rent caps’. We take a look at the impact of rent caps in Berlin, and whether or not they could be helpful over here.

Rents on the rise

Berlin has some of the fastest rising rents in Europe. They went up by 9% between 2014 and 2015, and in some areas the increase is as much as 45%. This has left many concerned that new tenants, not protected by existing leases, are finding it difficult to afford somewhere to live. A rent cap or brake was introduced in June 2015, tethering rents to within 10% of a local average rent. Debate rages as to whether this will have the desired effect a year on and rent has increased by 5%, a small reduction on last year’s 6.5%.

In fact Berlin has a history of rent control. When large swathes of the city were under a communist regime, rents were effectively capped. This goes some way to explain why many properties in Berlin are so appallingly maintained. It’s not unusual to come across apartments with no kitchen and just a little stove to heat the whole space. Stepping into some apartments can feel like going back in time: threadbare carpet from the 1920s, unpainted walls, drafty windows, even cracks in external walls. For a long time, apartment rents were so low in Berlin that it wasn’t financially viable for landlords to spend money on their upkeep.

This is the worry for London. Will rent caps eventually lead to a much lower quality of rental accommodation? There is also an argument that rent caps just don’t work. In Berlin there are so many loopholes that mean it’s actually very easy to raise rents. If you improve your property in Berlin, you can raise the rent beyond the 10%, and many of the properties really need improvement.

Legislation loopholes

The other big issue is adherence to the legislation. Big landlords will probably abide by the law, but smaller landlords are not as easy to pin down. And in Berlin the rent rates are not enforced by the city. Instead a tenant must take the landlord to court, which many are unwilling to do. This makes the ‘brake’ more of a threat than a legally binding contract.

Rent caps in Berlin and London

In our experience the real threat to Londoners is not rent caps but ‘buy to leave’. This is when properties are bought as investments by foreign owners and only lived in for a week or so a year. This has destroyed swathes of London -­ the Racine, a popular restaurant in Knightsbridge, closed down last year because this area of London had become home to non­-dom investors. Said chef patron Henry Harris at the time; “I had a regular customer living in Cadogan Square call me to say she is selling up because she didn’t like returning home with all the lights off in the flats around her.”

The ‘buy to leave’ problem

This ‘buy to leave’ is the real problem in cities and can cause huge price hikes. We’ve seen something very similar in Wedding, a Berlin neighbourhood. A vast building there is too expensive to run and the low rental income stops it being worth investing in. So the owners have just closed it. That’s reduced the number of apartments available in this area by about 70 or 80. This means the other apartments in the neighbourhood become more desirable and their prices are pushed up.

As more people rent there is more need to protect them, but we must be sure that the measures we introduce are the right ones.

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