Since 2015, the German government has implemented the “rent brake” (Mietpreisbremse) policy in major cities nationwide to curb rising rents. Meanwhile, the supply of rental housing has also increased. Given public concern about the impact of Germany’s rent control policies, conducting rigorous policy evaluations and gaining a clear understanding of how rent regulation mechanisms operate are both of significant importance. This study aims to adopt a macro-level perspective, incorporating new housing supply, to empirically analyse the effects of Germany’s rent control policy.
This study estimates the policy’s effect on rent changes by comparing city-level rents for newly let apartments using the Difference-in-Differences (DiD) approach. Panel data from 110 German cities over 60 quarters between 2005 and 2019 are used for the empirical analysis.
The results suggest that, contrary to public opinion, rent control had a statistically significant dampening effect on the development of rents in the first group of cities that implemented the policy. Nevertheless, the insufficient of new rental supply due to slow building activity vis-à-vis strong in-migration to larger cities remains the main factor for rising rents.
For policy implications, the inadequate supply of residential units must be addressed and construction activity in larger and more attractive cities must be increased if a lasting solution to rising rents is to be found.
