Forward to the past: Short-Term Effects of the Rent Freeze in Berlin

Anja M. Hahn
Vienna University of Economics and Business & DataScience Service GmbH

Konstantin A. Kholodilin
DIW Berlin & NRU HSE, St. Petersburg

Sofie R. Waltl
Vienna University of Economics and Business & Luxembourg Institute of Socio-Economic Research

Marco Fongoni
Aix Marseille Universite, CNRS, AMSE

Abstract

In 2020, Berlin introduced a rigorous rent-control policy responding to soaring prices by capping rents: the Mietendeckel (rent freeze). The German Constitutional Court revoked the policy only one year later. Although successful in lowering rents during its duration, the consequences for Berlin’s rental market and close-by markets are per se not clear. This article evaluates the short-term causal supply-side effects in terms of prices, quantities and landlords’ strategic behavior. We develop a theoretical framework capturing the key features of first generation rent control policies and Berlin specific aspects. Using a rich pool of detailed rent advertisements, predictions are tested and further empirical causal inference techniques are applied for comparing price trajectories of dwellings inside and outside the policy’s scope. Mechanically, advertised rents drop significantly upon the policy’s enactment. A substantial rent gap along Berlin’s administrative border emerges and rapidly growing rents in Berlin’s (unregulated) adjacent municipalities are observed. Landlords started adopting a hedging strategy insuring themselves against the risk of contractually long-term fixed low rents following a potentially unconstitutional law. While this hedge was beneficial for landlords, the risk was completely borne by tenants. Moreover, the number of available properties for rent dropped significantly, a share of which appears to be permanently lost for the rental sector. This hampers a successful housing search for first-time renters and people moving within the city. Overall, negative consequences for renters appear to outweigh positive ones.

JEL Codes: C14; C43; O18; D04
Keywords: First-Generation Rent Control; Rent Freeze; Urban Policy; Supply Disruptions; Legal Uncertainty.

Dissemination

Forthcoming in Management Science.

Working Paper: Hahn, Anja M., Kholodilin, Konstantin A., Waltl, Sofie R. & Marco Fongoni. Forward to the Past: Short-Term Effects of the Rent Freeze in Berlin (2022). DIW Berlin Discussion Paper No. 1999.

Policy Brief: Hahn, Anja M., Kholodilin, Konstantin A., and Waltl, Sofie R. (2021). Die unmittelbaren Auswirkungen des Berliner Mietendeckels: Wohnungen günstiger, aber schwieriger zu finden. DIW Wochenbericht, 8/2021(2):117–124.

Presentations: [LISER, Luxembourg, January 2021] [3rd International Workshop “Market Studies and Spatial Economics”, Moscow, April 2021] [WU Brownbag Lunch Seminar, Vienna, April 2021] [idealista España, Spain, May 2021][2021 European Real Estate Society’s Annual Conference, Kaiserslautern, Germany, June 2021] [20th International Conference in Public Economics, Journees Louis-Andre Gerard-Varet, Marseille, France, June 2021] [2021 Annual Meeting of the Austrian Economic Association (NOeG), Innsbruck, June 2021] [Social Policy Association Annual Conference, Swansea, UK, July 2021][European Network for Social Policy Analysis (Espanet) Conference, Leuven, Belgium, September 2021][AK Young Economists Conference, November 2021][2021 ReCapNet Conference, Stockholm, Sweden, November 2021][Housing and Finance Workshop, Free University Berlin, January 2022][2022 WU Department of Economics Research Retreat, Podersdorf, Austria] [CEPA Conference: Productivity, Regulation and Economic Policy, The University of Queensland, Australia]

In the press (selected):