Any day now, Berlin’s regional government is likely to approve plans for a five-year freeze on private sector rents from January 2020. Steps will be taken to prevent landlords sneaking through increases in the second half of this year.
The context is a steep increase in rents in the first quarter of the year on the back of high demand in the popular city. But in comparison with other major European locations, average rents in Berlin aren’t extreme. With a furnished two bed in London costing over £1,500, Berlin’s rate of around two-thirds of that figure seems much more reasonable.
The situation in our capital is seen as a driver for the freeze in Berlin. German finance minister Olaf Scholz cited professionals in London who are forced to share with flatmates because of the unaffordable rents and wants to prevent the same situation arising in the German capital. The thinking behind a five-year freeze is that it will give construction the chance to catch up with demand.
Rising rents are one of the consequences of a free market economy, but it’s still worth asking whether such a freeze could be applied in the UK. We have plenty of evidence that our UK government is not a major fan of the private rental sector and that large sections of the press and campaigners see landlords in a Dickensian light. In Scotland, authorities already have the power to define ‘rent pressure zones’ where increases are restricted to the level of inflation, but what about other cities in England where demand is sustaining increases in rental values? Could they see a freeze?
Sadiq Khan, London’s Mayor, has already spoken about the need for rent stabilisation measures, and he has a lot of support, particularly from native Londoners who are having to leave their city because of housing affordability. But on the top of other recent changes and the proposed abolition of Section 21 Evictions, would a freeze be a step too far?
The problem is one of finding the balance. A minor change or a freeze would have little impact on affordability. A change that made renting far more affordable – capping rents to make them similar to Berlin levels – would drive small scale private landlords out of the sector, destabilising a market that’s already feeling somewhat shaken.
Over in Germany, the rental market has evolved differently. There are far fewer small-scale landlords and more property companies. Businesses don’t like the changes, claiming that the freeze will prevent them from funding green measures and remedial work. But the change won’t directly be impacting the pension plans or income streams of thousands of individual buy-to-let landlords with a single property.
There’s no easy answer to the problem. Ultimately, it’s one of supply and demand, and in housing demand always rises and falls far quicker than the supply can be changed. Rent freezes might be vote winners with tenants but they are blunt instruments which remove the price signals from the market and discourage investment in housing provision. And, of course, it is a shortage of housing that drives increasing rents.