(Bloomberg) -- A Berlin politician who’s trying to shield tenants from steep rent increases dismissed concerns the measures could spook investors, calling the German capital an “El Dorado” for real-estate companies.
Katrin Lompscher, Berlin’s head of urban development and housing, plans to introduce measures in the first quarter to freeze rents for five years and impose upper limits tied to the age of properties. If the legislation survives any legal challenges, some tenants may even qualify for a reduction. The move has fueled speculation that Berlin will lose its allure after outperforming other locations for years.
“The threats made by some companies to withdraw from Berlin shouldn’t be taken seriously,” Lompscher said in an interview at her office in the western half of the once-divided city. “As a business, you want to be at the heart of things and Berlin remains an attractive market. We are simply using a different approach to value properties, in order to improve the lives of those who live here.”
The German capital’s left-leaning government was spurred into action by a property boom that caused rents to double over the past decade. However, critics of the plan -- including economists and large property investors -- have said that the only way to address growing demand for affordable housing is to build more homes.
Lompscher hopes the city can increase the amount of apartments that are built each year to around 20,000, partly through companies her department controls.
Lompscher’s initiative has been sowing doubt since it was proposed in June, Deutsche Wohnen SE Chief Financial Officer Philip Grosse said in a November interview. Berlin’s largest corporate landlord is reviewing almost 1 billion euros ($1.1 billion) of renovation work and investments in new Berlin homes as a result. It has also earmarked as many as 5,000 Berlin properties for disposal.
“The longer we have that uncertainty, the worse it will be,” Grosse said. Deutsche Wohnen lost almost a third of its market value in the months after the reforms were first mooted, but has since cut those losses in half.
Heiko Kretschmer, head of a protest group called “New Ways for Berlin,” last month addressed the issues at a large demonstration at Berlin’s Brandenburg Gate. “The number of homes being built and getting planning permission is already falling, and investors are already going elsewhere,” he said.
Lompscher said she wants to use the next five years to “take the heat out of the market.” While her department has worked closely with other German cities, “it’s clear that we’re taking the most radical approach when it comes to imposing restrictions on rent increases,” she said.
“Others are keeping a close eye on what’s happening in Berlin -- both within Germany and internationally —- and it will have consequences,” Lompscher added.
“We have done everything in our power to ensure that the measures we’ve proposed conform to the constitution. But ultimately the court will decide whether or not we’ve actually achieved that.”
To contact the reporter on this story:
Andrew Blackman in Berlin at [email protected]
To contact the editors responsible for this story:
Chad Thomas at [email protected]
Iain Rogers, Chris Reiter
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