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Bloomberg Businessweek February 10, 2020Grosseburieshisfaceinhishandswhenconfrontedwith
complaintsaboutthecompany.“I’mnotsuggestingthatevery-
thingruns100%perfectinourorganization.Wecoulddobet-
ter,”hesays,addingthatDeutscheWohnensuppliesspace
heaterswhentheheatgoesout,automaticallyappliesrent
reductionsuntilthingsarefixed,andconsistentlyinvestsinthe
upkeepandimprovementofproperties.“Iunderstandthatthe
shortfallsinBerlin’shousingmarketarecausinga lotofpeople
headaches,but,if I lookatthekindofproductweareoffering,
it’saffordabletomanypeople,”hesays.
From 2012 to2018,DeutscheWohnenshareholderssaw
annualreturnsof24.5%;andin 2018,thecompany’snet
incomewasabout$2billion.Anticipationoftherentfreeze,
however,wipedroughly$5.3billion,or31%,offthecompany’s
marketvaluelastsummer.(It’ssincerecoveredbymorethan
half.)DeutscheWohnensaysit standstolose$363millionin
incomeoverthenextfiveyearsbecauseofthefreezeandpos-
siblerentreductions.InJulythecityalsostoppedDeutsche
Wohnenfrompurchasingmorethan 670 apartmentsalong
Berlin’sKarl-Marx-Allee,theneoclassical,Stalin-styleboulevard
onceusedforcommunistmarchesinEastGermany.Instead,
Berlinspentabout$1billiontobuytheresidences.“Itis my
firmintentiontobuyapartmentswhereverpossiblesothat
Berlinregainsmorecontroloverthehousingmarket,”Berlin’s
mayor,MichaelMüller,saidatthetime.
“I’ma veryrationalguy,andwhat’shappeninghereis not
rational,”saysGrosseofthecomingregulationsandBerlin’s
flourishingantipathytowardlandlords.Assoonasthismonth,
rentswillbecappedataslittleas$4.30persquaremeterfor
olderapartmentswithfewamenities,andasmuchas$10.90
fornewerapartmentswithbetteramenities.(Thecurrent
averagepriceincentralBerlinis about$12persquaremeter,
accordingtoa reportbythenewspaperDieZeit; inMunich
it’s$19.30.)Laterintheyear,tenantspayingmorethan120%
ofthegovernment-determined prices will be allowed to take
their landlords to court to seek a reduction. Apartments built
after 2014 will be exempt, as will government-controlled hous-
ing (where rents are controlled anyway). Beginning in 2022, all
landlords will be permitted to raise rents 1.3% annually, or in
line with inflation. “But the law doesn’t take into account loca-
tion or quality of building,” Grosse says. “You might have some-
one in a beautiful old building in a central location paying less
than someone in a less-nice prefabricated building from the
’70s out in the suburbs.”
Signaling frustration, Deutsche Wohnen says it’s reviewing a
planned $1.1 billion in new construction spending. Other land-
lords, including large companies and private investors, have
also threatened to pull back. Berlin’s construction industry is
worried. In December more than 240 construction vehicles,
everything from small vans to crane trucks, converged on the
Brandenburg Gate to protest the rent cap. Organizers of the
demonstration, which also included landlords and landlord
associations, warned that Berlin’s rent freeze will destroy jobs.
“Who will want to make long-term investments in a city that
deals with investors in this way?” asks Michael Voigtländer, aneconomist with Germany’s IW Economic Institute. In a recent
report the institute describes Berlin’s coming rent freeze as
a catastrophe that “threatens to cause considerable damage
to both the housing market and Berlin as a whole.”
International examples also give reason for pause. A 2019
Columbia Business School study found that expansion of rent
controls and housing policies in New York City reduced hous-
ing inequality and led to increased well-being. But a 2017 study
found that rent control in San Francisco had the unintended
effect of advancing gentrification, as landlords took rental
apartments off the market and sold them. In Portugal, decades
of rent freezes and rent-control laws left the country with a
plague of crumbling buildings that landlords couldn’t afford
to maintain. After the regulations were lifted in 2012, the mar-
ket began booming. In Sweden, which has perhaps the moststrictly controlled market in the world, the waiting list for a
regulated apartment in Stockholm is almost 675,000 deep. To
bypass the wait, which can take as long as 20 years, people sub-
let apartments, likely paying more and forgoing the security of
a government contract. Grosse, of Deutsche Wohnen, warns
that black and gray markets will likely result from Berlin’s rent
freeze, as they did in West Berlin, which also had strict rent
regulations before the fall of the wall.
Berlin’s senator for urban development and housing,
KatrinLompscher,iscreditedasthe“MotheroftheRent
Freeze.”A memberofGermany’sleft-wingpartyDieLinke,
LompschergrewupinEastGermanyand,asaconstruction
worker, laid heating pipes for buildings before studying
architecture at Germany’s Bauhaus University. She dismisses
internationalcomparisonsandtheconcernsofbigland-
lords.“Thepoliticsofhousingandurbanplanningarecity-
specific. It’s good to look around, to the right and the left,
but then we have to decide what’s right for Berlin,” she says.
“The idea behind the rent freeze is to create breathing roomDEUTSCHE WOHNEN’S GROSSE