Controversy Arises Over Rent Control Policies in Germany and the UK; Experts Call for Solving Dilemma by Increasing Housing Supply

Reportedly, recently, Clemens Fuest, a renowned German economist and President of the Ifo Institute for Economic Research, issued a warning stating that Germany's current rent control policies have not only exacerbated the country's housing shortage but also made it more difficult and costly for tenants to move, while having an adverse impact on labor mobility and economic growth. Similarly, similar policy discussions have emerged in London, UK, and the rationality and effectiveness of rent control have attracted widespread attention.

In his relevant remarks, Fuest pointed out that the policy of limiting the monthly rent amount that landlords can charge has hindered housing construction in Germany and restricted the ability of young workers to find employment in new regions. It is understood that Germany has long protected the rights and interests of tenants through various laws and regulations, with strict restrictions on the rate and frequency of rent increases. For example, it is stipulated that the maximum rent increase within 3 years is 15%, exceeding the local reference rent by 20% is deemed illegal, and exceeding 50% constitutes a profiteering crime. However, the negative effects of this policy have become increasingly prominent.

Research data from the Ifo Institute shows that since 2013, rents for existing leases in Germany have only increased by about 18%, while rents for new leases, which are not subject to too many restrictions, have soared by as much as 50%. In Berlin, although the rent ceiling for new leases is 10% higher than the local reference rent, the regulation on short-term furnished rental properties is relatively loose, leading to the expansion of this niche market. Rent control has also caused rigidity in the rental market. From 2010 to 2020 (the latest year for which data is available), the number of housing moves per 1,000 people in urban central areas of Germany dropped from more than 85 to about 66, with a significant decrease in the migrant population.

"Rent control not only reduces the number of new housing units built but also makes the rental market more rigid," Fuest said. Although the existing regulations protect tenants who do not move without reason, they harm the interests of landlords and potential tenants. He further warned that this rigid situation will threaten young people's employment prospects and damage overall economic growth—many young people who have found jobs in other cities cannot move smoothly because they cannot find suitable housing, which in turn affects labor mobility and economic vitality. It is reported that Germany's housing shortage is becoming increasingly severe, and relevant associations predict that the country may be short of 900,000 to 1 million apartments by 2025, with frequent cancellations of housing construction projects.

Faced with this dilemma, the Berlin government plans to expand and strengthen rent ceiling regulations to further standardize tenants' monthly rent payments; while Fuest calls on the government to focus on increasing housing supply. He emphasized: "Germany's housing shortage can only be solved by increasing housing construction and making more effective use of the existing housing stock." According to estimates, Germany needs to build about 320,000 to 373,000 new apartments every year to meet housing demand, but the current construction progress is far from meeting the standard.

The situation in Germany is similar to that in the UK. At present, although the rent increase in the UK has slowed down, it is still at a relatively high level—in 2024, the annual rent increase once exceeded 9%, and the average rent increase in the past 12 months was 3.5%. Sadiq Khan, Mayor of London, called for gaining the power to control rents when the Tenant Rights Act comes into effect in May to ease the pressure of renting in the local area. It is worth noting that although the UK government has promised to build 1.5 million new homes during this parliamentary term, the actual construction speed has continued to decline.

Data shows that in the three months ending last September, housing construction in England fell to its lowest level in 12 years (excluding the epidemic period), with only 30,880 units completed; since the general election, only 175,290 housing units have been completed, far below the required number for the government's target of 300,000 units per year. In addition, after the 2017 Grenfell Tower fire in London, relevant regulatory requirements have become more stringent, and the construction industry in London is facing more severe challenges in increasing housing supply. It is reported that the fire was caused by the use of flammable materials on the building's exterior walls, and the subsequent investigation report pointed out that the government, enterprises and regulatory authorities were all responsible. The tightening of relevant regulatory policies has also increased the difficulty and cost of housing construction.

Regarding rent control policies, a spokesperson for the Mayor of London said that the Mayor has been calling for the abolition of such measures to establish a system suitable for London's reality and capable of solving the unique housing challenges facing the city. In fact, as one of the first countries to implement government intervention in the housing market, rent control was once an important means of housing security in the UK. However, with changes in the market, how to balance the rights and interests of tenants and housing supply has become an important issue facing the country.

Analysts believe that the original intention of the rent control policies in both Germany and the UK was to protect the rights and interests of tenants and stabilize the rental market, but different degrees of negative effects have occurred during the implementation process. The core contradiction lies in the imbalance between "rent control" and "supply increase". Both the exacerbation of housing shortage in Germany and the failure to meet the construction target in the UK reflect that a single rent control cannot fundamentally solve the housing problem. How to protect the rights and interests of tenants while encouraging housing construction, optimizing the vitality of the rental market, and balancing fairness and efficiency has become an urgent problem for the governments of both countries, and also provides a reference for other countries around the world facing similar dilemmas.