The Berlin Rent Index is published every two years. It is compiled by the Rent Index Working Group chaired by the Senate Department for Urban Development, Building and Housing and applies to a total of 1.4 million apartments in the German capital that are relevant to the rent index. It is repeatedly rejected by landlords and challenged in court by property owners. Below, we explain in detail how the rent index works, why it is so controversial, and what rents are legally permissible.
What Does the Berlin Rent Index Regulate?
The capital’s rent index provides information on rent levels in Berlin’s various districts and is, under normal circumstances, recognised both by the city and by representatives of landlords’ and tenants’ interests. The fundamental legal framework is set by Germany’s nationwide tenancy law. It therefore cannot be changed by the State of Berlin, but only at federal level.
When assessing whether a rent is reasonable or whether an increase is justified, the rent index serves as an important reference and is provided for under Section 558 of the German Civil Code (BGB). In practical terms, rents may only deviate from it in legally defined exceptional cases.
The rent index was originally introduced in the 1970s to protect tenants from excessive rents and rent increases following criticism of the Housing Tenancy Protection Act. At the time, the aim was to define the legally relevant concept of the “local comparable rent”. Today, landlords in particular use the rent index to justify planned rent increases, although it is intended to serve both parties equally. It also provides a comprehensive overview of rent price developments across the city.
Cases in Which the Rent Index Does Not Apply
The rent index does not apply to apartments in detached and semi-detached houses or terraced houses. Also excluded are apartments that only became ready for occupancy from 2018 onwards, subsidised housing, and accommodation with a toilet located outside the apartment.
The Berlin Rent Index Shows Landlords the Maximum Permissible Net Cold Rent
The rent index is a collection of data presented in table form that shows rent levels in existing tenancy agreements, based on rent changes and new rental agreements concluded over the previous four years. It can be used to determine the local comparable rent for privately financed apartments. In addition to the district and location, including public infrastructure, public transport connections and building density, the rent index takes into account criteria such as the quality of the apartment’s fittings, including the type of heating, windows and toilet, the year the building was constructed, and its condition in terms of energy efficiency, such as insulation and glazing.
In practical terms, landlords and tenants can use the rent index to determine which average prices or price ranges are customary in different micro-locations and what maximum net cold rents are permissible. The net cold rent refers to the monthly rent per square metre of living space excluding heating and operating costs. Under Section 2 of the German Operating Costs Ordinance, these costs are not included in the basic rent.
Significance of the Rent Index for Property Investors
When an apartment is re-let, a landlord may generally increase the rent, but must comply with the rent control regulations introduced in 2015. Under these rules, the rent for a new tenancy may generally be up to ten per cent above the local comparable rent stated in the rent index. The rent index is therefore particularly important for property investors, both when determining rental income and when calculating property financing. If an investor assumes continuously increasing rents when structuring the financing, any subsequent increases must comply with the applicable rent index.
Other Permissible Rent Increases
A rent increase may also be possible following modernisation or energy-efficiency refurbishment measures, depending on the increase in value resulting from the work. Landlords may allocate eight per cent of the costs incurred to the annual rent. However, neighbourhood conservation areas, known as Milieuschutzgebiete, or other regulations may prohibit certain refurbishment measures.
What Can Limit Planned Rent Increases?
Landlords may increase the rent up to the local comparable rent if the current rent is below this level and the planned increase is not prevented by a rent increase cap or an applicable waiting or restriction period. Under Section 558(3) BGB, the rent increase cap stipulates that the rent may not increase by more than 20 per cent within a three-year period.
The waiting period means that a landlord may only increase the rent if it has remained unchanged for the previous 15 months. The restriction period means that the landlord must wait at least twelve months before announcing another rent increase. Rent increases resulting from modernisation measures and increases in operating costs are not taken into account for this purpose.
If a tenancy agreement provides for stepped rent or index-linked rent, a rent increase under Section 558 BGB is excluded. The same applies if the parties agreed when concluding the tenancy agreement to waive rent increases altogether.
Alternatives to the Rent Index
When planning a rent increase up to the local comparable rent, landlords in some locations may also use alternatives to the rent index. An increase may, for example, be justified using independent rental databases containing collections of rent data. It is also possible to refer to three comparable properties with relevant data or to obtain an expert appraisal.
However, these alternatives involve additional effort for landlords and make it more difficult for tenants to assess whether the demand is accurate and legally permissible.
Furthermore, alternatives to the rent index do not apply where a so-called qualified rent index is in force, as is the case in Berlin. This type of rent index was introduced in Berlin in 1987 and has been prepared according to higher quality standards since 2003.
Why the Current Berlin Rent Index Is So Controversial
The situation is somewhat more complicated with the Berlin Rent Index that was in force at the time. Because the Berlin rent cap had not yet been declared invalid when the 2021 Rent Index was being prepared, there was insufficient data available to produce a rent index based on a conventional data survey. There were simply too many gaps in the rent index table.
Instead, the general statistical inflation rate was used as the basis. As a result, only the Senate and tenants’ associations accepted the rent index, while landlords did not. The Senate prepared this so-called “index-based rent index” in this form for the first time in 2021. Although this method is legally permissible, it remains controversial, which is why property owners have repeatedly challenged the rent index in court.
Berlin Rent Index 2021 – Only Marginal Rent Increases
According to the Berlin Rent Index applicable at the time, which had been published in May of the previous year, rents had increased only slightly compared with 2019, rising by 1.1 per cent. The average net cold rent therefore increased from €6.72 to €6.79 per square metre. Depending on location, size and fittings, the range of local comparable rents extended from €5.51 per square metre for medium-sized apartments in simple post-war buildings to €13.03 per square metre in newer buildings.
Further figures show that apartments costing less than €5.00 per square metre could still be found in Berlin across a range of building age categories and in average locations. In the eastern part of the city, for example, apartments built between 1973 and 1990 and measuring between 60 and 90 square metres were available for €4.65 per square metre. Older buildings constructed before 1918 in simple and average locations were also available from €4.84 per square metre, although with comparatively basic fittings.
The most expensive apartments were found in refurbished pre-1918 period buildings in prime locations and in new-build developments. According to the Berlin Rent Index, apartments measuring less than 40 square metres in buildings constructed before 1918 were rented for €14.39 per square metre in good locations, while the average rent for this building age category was €11.57.
It was considered highly likely that rents would rise significantly again in the following Berlin Rent Index.
Homeownership as a Better Alternative to Renting?
This is one of many reasons to consider homeownership rather than relying on what is often the significantly more expensive rental or rent-to-own housing market. A condominium is not only significantly more cost-effective over the long term, but also protects its owner from the possibility of a landlord terminating the tenancy on the grounds of personal use.
For tenants, such a situation may result in having to leave the apartment. Rent payments are ultimately recurring expenses that do not create an ownership asset, whereas financing a home contributes towards building property ownership and may provide potential for capital appreciation. This is also highlighted by the results of the ACCENTRO Housing Cost Report 2021, which compares the housing costs of homeowners with rental costs.
Homeownership Clearly Ahead in the Cost Comparison
Homeownership continues to be regarded as an attractive form of retirement provision, particularly in Berlin, where rising demand has also contributed to increasing residential property prices. According to ACCENTRO’s Housing Cost Report, the long-term housing cost advantage of ownership compared with renting can amount to as much as 56 per cent.
