The impact of the new German rent controls – a case analysis for Berlin and Cologne Prof. Dr. Michael Voigtländer Research Unit Financial Markets and Real Estate London, 19 March 2015

Research Unit Financial & Real Estate Markets contact Prof. Dr. Michael Voigtländer Head of Research Unit Financial and Real Estate Markets     Twitter.com/mvoigtlaender Research Focus  Housing Policy and Real Estate Economics  Real Estate and Corporate Finance  Monetary Policy and Financial Markets Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London2

Content Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 3 Background Rental indices in Germany The New Rent Control Effect on rents in Berlin and Cologne Conclusion

Major Cities in the growth mode Change in the demand for living space between 2012 and Source: IW Köln, Bertelsmann Stiftung Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London

A Shortage of Construction in Major Cities Source: IW Köln, Statistisches Bundesamt 5 Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London

Content Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 6 Background Rental Indices in Germany The New Rent Control Effect on Rents in Berlin and Cologne Conclusion

Introduction of a rent control New rent contracts max. 10 percent above the local reference rent Applied in „tensed housing markets“, initially for 5 years Exceptions:  Newly Constructed Buildings  Extensive Modernizations Source: Fotolia Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London7

Content Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 8 Background Rental Indices in Germany The New Rent Control Effect on Rents in Berlin and Cologne Conclusion

Rental indices in Germany Qualified Rental Indices Data sources: interviews Rental prices of new and existing stock of the last 4 years Renewed index all 2 years A range for prices according to location, quality and subjective criteria Normal Rental Indices Negotiated between landlords association, tenant association and the city Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London9

Rent indices in Cologne and Berlin Bounds of comparability Many characteristics are measurable and comparable… Apartment size Year of construction Modernization … but what is a „good“ location? Source: Fotolia Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London10

Overview: Advertisements in Berlin (2014) Number of Ads: Source: ImmobilienScout24, Cologne Institute for Economic Research Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London11

Hot Spot Analysis for Berlin (2014) Source: ImmobilienScout24, Cologne Institute for Economic Research Cold Spot Hot Spot Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London12

Hot Spot Analysis for Köln (2014) Source: ImmobilienScout24, Cologne Institute for Economic Research Cold Spot Hot Spot Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London13

Content Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 14 Background Rental Indices in Germany The New Rent Control Effect on Rents in Berlin and Cologne Conclusion

Share of rental bids above the threshold level in Berlin and Cologne in percent, based on the relevant market (without modernization and newly constructed buildings ) 15 Quellen: ImmobilienScout24, Institut der deutschen Wirtschaft Köln Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London CityApartment Sizegood Locationaverage Locationordinary Location Berlin until 40 m²9887,780,1 From 40 m² till 60 m²68,853,727 From 60 m² till 90 m²63,45426,5 Above 90 m²6346,538,3 Cologne Around 40 m²51,426,692,8 Around 60 m²25,516,974,7 Around 80 m²43,019,293,7 Around 100 m²53,431,486,6 Around 120 m²49,435,895,8

Share of affected advertisements by the rent control (Berlin) in percent Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London16 Source: ImmobilienScout24, Cologne Institute for Economic Research

Overall share of advertisements above the rent control in Berlin in percent Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London17 Source: ImmobilienScout24, Cologne Institute for Economic Research CityShare… good Location average Location ordinary Location Berlin in all rental listings21,925,210,4 in relevant rental listings72,461,241,4 Cologne in all rental listings13,99,4526,1 in relevant rental listings42,723,886,8

Content Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London 18 Background Rental Indices in Germany The New Rent Control Effect on Rents in Berlin and Cologne Conclusion

The rent control is a rent freeze Especially small and old apartments located in good areas are affected Experiences in other countries show severe problems of rental freezes Transformation in owner- occupied flats is likely to happen Source: Fotolia Prof. Dr. Michael Voigtländer, The New German Rent Control, 19 March 2015, London19