Rents were initially frozen for five years in February 2020, affecting about 1.5 million apartments. A second stage came into effect in November 2020 when landlords were forced to cut rent for more than 300,000 tenants.
The court said the federal government, which had introduced a “rent brake” in 2015 to limit rent increases, was responsible for such decisions. Five months before a federal election, property owners and voters were closely watching the ruling.
German property group Vonovia welcomed the verdict but said it would waive its right to claim rent arrears.
“The decision of the Constitutional Court is logical and the rent cap was not suitable for solving the problems on Berlin’s housing market,” said Vonovia Chief Executive Rolf Buch.
Deutsche Wohnen, however, said it would seek reimbursement for the difference between the original and capped rent. Its shares rose 2.8% to the top of German’s blue-chip index.
Berlin’s city senate is led by Social Democrats in coalition with the Greens and Left party. Berlin is one of Germany’s 16 federal states.
“It is now the federal government’s task either to create an effective rent law that ensures a social mix in cities or to transfer the competence for this to the states,” tweeted Senator Sebastian Scheel, who is responsible for housing.
However, German Economy Minister Peter Altmaier ruled out a national cap, saying it was the wrong approach and the only way to guarantee affordable housing was to build more apartments.
The real estate industry had criticized the rent freeze as unconstitutional. Some experts said it could worsen Germany’s housing crisis by scaring off real estate investors.
Rents in Berlin were for years lower than rents in other major European cities, but they have more than doubled since 2008 as around 40,000 people a year have moved to the German capital. Some 85% of residents rent rather than own homes.