The German government has announced plans to extend the rent control measures, known as the "Mietpreisbremse," until the end of 2029, marking one of the first legislative actions of the new administration.

In parallel, proposed changes to construction law, intended to stimulate housing development, have yet to be finalized, revealing a significant challenge in the country's housing policy.

The Mietpreisbremse allows landlords to increase rent by a maximum of ten percent above the local comparative rent in newly signed contracts.

This safeguard aims to prevent rapid rental increases that could further lock tenants into existing agreements, creating a so-called "lock-in effect" where households are discouraged from relocating due to the high costs of new apartments.

Despite its intentions, evidence shows that the measure has not adequately curbed rising rental costs.

The rent control rules apply to roughly 500 cities and municipalities across Germany, but in many areas, the market rates for new leases continue to climb, sometimes unchecked, alongside local comparables, which rose by 3.2 percent in 2024, surpassing the national inflation rate of 2.2 percent.

Stakeholders have expressed concerns that simply extending the Mietpreisbremse is not a viable long-term solution without concurrent increases in housing supply.

The original legislative framework stipulates that the implementation of rent controls must be coupled with measures to enhance the construction of new housing.

The decision by the government to prioritize the extension of the Mietpreisbremse over initiating new construction policies raises concerns among experts about the efficacy of the rent control measures.

The legal framework surrounding the rent controls is designed to provide temporary relief to prevent exploitation in a tight housing market, and it has been affirmed by the constitutional court as compatible with the Basic Law.

However, the situation remains problematic as property values have continued to diverge from genuine economic activity, exacerbated by external factors such as low interest rates and a lack of innovative investment opportunities.

Due to frustration over financial pressures, many landlords have been reported to disregard the Mietpreisbremse regulations, with limited repercussions.

This trend complicates the enforcement of rent control measures, leading to questions about their effectiveness in actual market conditions.

Notably, new constructions and significant renovations initiated after October 2014 are exempt from these regulations.

Some industry representatives argue that the Mietpreisbremse hampers construction investment by reducing liquidity available for financing new projects.

However, critics point out that the onus lies on municipal authorities to facilitate land availability for development as a remedy to the housing supply issue.

Differences in housing needs underscore the ongoing challenges, with many individuals continuing to flock to urban centers where economic opportunities abound.

The prevailing housing shortage is expected to persist without tangible policy measures aimed at increasing construction and easing regulatory constraints, such as streamlining zoning laws and expediting the approval processes for new developments.

As the government moves forward with the lease freeze, stakeholders are urging a robust approach to construction policy, emphasizing the importance of creating an adequate housing supply to complement any measures aimed at rent control.