Rent Control Fails as Urban Housing Costs Soar

Rents Continue Rising Despite Price Caps

Germany’s largest cities are seeing sustained and dramatic rent increases, even with legal rent control mechanisms in place. A recent evaluation by the Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR), commissioned by the Ministry of Construction, shows that advertised rents in the 14 largest independent cities have surged by nearly 50 percent since 2015. Berlin stands out, with new rental prices more than doubling during this period.

Other major cities such as Leipzig and Bremen also report steep increases, with rents climbing by 67.7 and 57 percent, respectively. Dresden recorded the lowest increase among the major urban centers, at 28.4 percent. Munich remains the most expensive city in terms of rent, at nearly €22 per square meter, followed by Berlin at almost €18 and Frankfurt am Main at around €16.

Rent Cap Law Too Weak to Contain Prices

The Mietpreisbremse (rent brake) was introduced to limit price hikes in tight housing markets. Under current regulations, new rental contracts are not supposed to exceed the local comparative rent by more than 10 percent. However, several exceptions weaken its effect. Newly built homes rented out after 2014 and extensively renovated properties are excluded. Landlords can also apply surcharges for furnishing, further undermining the cap.

Enforcement is also decentralized. There is no public rent monitoring system, and tenants must file complaints themselves if they believe landlords are charging more than allowed. According to the Berlin housing authority, only 7 percent of rental prices checked were found to be legally compliant, highlighting widespread violations and ineffective oversight.

Caren Lay, a Bundestag member for the Left Party who obtained the data from the federal government, has criticized the rent brake as riddled with loopholes. She warned that rent spikes are making life unaffordable for urban renters and increasing social division. Lay also expressed concern that the governing coalition, led by CDU and SPD, is seeking to extend the current rent brake law without introducing any meaningful improvements.

Opposition to Rent Cap Grows Among Housing Providers

Not everyone supports stricter rent controls. The Association of Saxon Housing Cooperatives has publicly opposed the Mietpreisbremse in its region. Chairwoman Mirjam Philipp stated that cooperative housing and municipal companies together manage about 40 percent of the housing stock in Saxony, and affordable housing is still available. The average rent in these properties is €5.62 per square meter, and new rentals are only about €1 higher.

Philipp argued that rather than tightening rent regulations, the focus should shift to encouraging investment and reducing bureaucratic barriers. She warned that rising costs for environmentally friendly renovations, accessibility upgrades, elevators, and layout modifications are pushing housing providers to the financial edge. Limitations on rent adjustments make it increasingly difficult to recoup these costs.

According to Philipp, restrictive rules on modernisation and rent limits deter much-needed investments in urban housing stock. In her view, owners need more freedom to act without city governments micromanaging even minor design choices such as window colors.

Federal Government Proposes Construction Reforms

In response to the mounting housing crisis, the federal cabinet has launched the “Bau-Turbo” initiative, led by Housing Minister Verena Hubertz (SPD). The reform package aims to drastically reduce the time it takes to approve construction projects. Hubertz acknowledged that procedures in Germany are too slow and overly complicated. In some cases, developing a local land use plan can take up to five years. Under the proposed changes, municipalities will have a maximum of two months to approve new building projects.

The initiative is part of an effort to revitalize the housing construction sector. While the previous government had promised to build 400,000 new homes annually, that target was never met. In 2024, only about 215,000 building permits were issued nationwide. The new proposal seeks to streamline processes ranging from environmental assessments to noise regulation reviews, without eliminating necessary safeguards.

Rent Pressure Driving Societal Division

The continuous rise in rents is beginning to affect broader social dynamics. With fewer affordable options available, renters in urban areas are becoming increasingly immobile. Moving within a city—or relocating to another—often leads to steep rent increases, discouraging mobility and deepening inequality. According to Caren Lay, the current situation is accelerating the divide between income groups and putting undue pressure on working-class families.

Some experts also warn that failing housing policy could fuel public resentment and frustration. As more households struggle to find affordable living spaces, pressure grows on the political system to find effective solutions. The combination of ineffective rent control, slow construction approvals, and rising costs for sustainable housing upgrades is creating a crisis that affects millions.

Regulatory Gridlock Hindering Solutions

As the 2025 expiration date for the Mietpreisbremse approaches, debate intensifies. Critics argue that without substantial reform, simply extending the law will not stop the upward trend in housing costs. Meanwhile, property developers and housing cooperatives push back against policies that limit their ability to invest or modernize.

The tension between regulation and investment remains unresolved. While tenant advocates demand stronger protections, housing providers call for flexibility and incentives. The new construction reform may offer partial relief, but without comprehensive housing and rent policies, Germany’s urban renters are likely to face continued financial strain.