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"Index rents are becoming a dangerous cost trap":
With index tenancy agreements, the rent increases at the same rate as inflation - 30 percent of the newly concluded tenancy agreements in large cities are said to be index agreements, claims the German Tenants' Association
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manager magazin: Mr. Siebenkotten, the German Tenants' Association, with you as President, supports Federal Council initiatives from Hamburg and Bavaria that are essentially trying to cap rent increases. Isn't the widespread instrument of the statutory rental price brake enough?
Lukas Siebenkotten:
No, not at all.
As you say, the rental price brake is at least theoretically "widespread" in tight housing markets, but due to the numerous exceptions initiated by the CDU party in power at the time, it was only effective to a very limited extent.
You see index-linked leases, in which the rent increases at the same rate as inflation, as particularly problematic.
That's right, we are observing that index leases are now increasing massively in larger cities.
This leads to considerable stress.
Does the rental price brake not apply to these contracts?
Yes, index rental contracts must also comply with the rental price brake.
But only for the first rent, i.e. the initial rent, and even this limit is de facto often overridden by the many exceptions.
On the other hand, future rent increases in an indexed rental agreement are no longer subject to a brake.
This means that if the inflation rate rises by 7.9 percent, as it did last year, the landlord can increase the net rent accordingly and continue to increase it in the following years, more or less in step with a rising consumer price index.
Index rents can thus rise much faster and far beyond the local comparative rent, which results from a rent index.
Can you give an example?
For example, if the comparative rent is eight euros per square meter, the landlord, if the apartment is located in an area with a valid rent control regulation, should charge a maximum of 8.80 euros for a new lease.
A 100 square meter apartment would then cost 880 euros cold per month...
… so the landlord is allowed to add ten percent per se.
Yes.
However, if the landlord can refer to one of the many exceptions to the rental price brake, he can demand the rent that the market bears.
In Berlin and Cologne that is currently 13 euros per square meter on average.
In addition, there are the high costs for energy and all other ancillary costs, such as property tax and insurance, which are usually passed on to the tenants in full.
This means that an average of 19 euros per square meter is due in Munich - that means that renting the "cold" 100 square meter apartment alone costs 1900 euros a month!
You really don't have to explain to anyone how disastrous the currently high index is having an impact on these rents and thus on the entire rent index.
High index rents plus high inflation are a hard blow to any renter - and a money-making machine for landlords.
We expect the federal government to step in.
You speak of a massive increase in index leases, what does that mean in concrete terms?
By analyzing the consultations in six of our largest tenants' associations, we found that last year, especially in the metropolises where the housing market is already under enormous pressure, 30 percent of the new apartment rental contracts are so-called index rental contracts.
In Berlin, up to 70 percent of new contracts contain indexation.
At the housing giant Vonovia, only 2.5 percent of the new leases are indexed, compared to only 1 percent of the total portfolio in 2022. And according to the Haus und Grund owners' association, the corresponding rate for millions of privately rented apartments is also less than 3 percent. Aren't you exaggerating the problem?
No way.
One should not be misled by such statements.
On the contrary: Vonovia has long recognized the "potential" of index rents.
This emerges from a presentation available to us from the listed housing giant from the 1st quarter of 2022.
Vonovia assumes that 140,000 residential units are eligible for index leases.
So believe me, the housing industry has long recognized the opportunity to maximize profits through index rents.
Apparently, the instrument has not yet been used on a large scale.
The fact that the conclusion of index contracts was in fact rather a rarity until 2022 is because these contracts were previously only of interest to those landlords who offered a renovated apartment whose rent was far above the comparable rent.
In these cases, the indexed rental agreement alone still offered the possibility of an annual rent increase in line with the inflation rate - which was still low up to this point in time, but allowed further rent increases at a high level.
To what extent are landlords now making use of their right to increase rent in line with inflation?
From the consulting practice of our 15 state associations with more than 300 local tenants' associations, we know that many landlords make full use of this right.
Consultation cases on the subject of index rents have more than doubled in the past year, with almost every third consultation revolving around this.
This involves increases in the cold rent of up to 15 percent, in individual cases even of up to 30 percent.
15 percent – with a significantly lower inflation rate? You have to explain that.
In the case of an indexed rental contract, the landlord can fully add inflation to the rent at the rate at which it has developed since the contract was signed or the last rent increase.
This is how such extreme rent increases come about with the current rapid index development.
If energy prices then also increase by double digits, the burden for many tenants is no longer bearable.
Index rents become a dangerous cost trap in times of high inflation.
That is why we are also calling for a ban on indexed rents for new contracts and a cap of a maximum of 3.5 percent per year for indexed rents in existing buildings.
FDP Minister of Justice Marco Buschmann, in whose department a legal ban would fall, is already dismissing the idea. Freedom of contract should also be a valuable asset in Germany, don't you think?
Absolutely.
However, the following also applies: Housing is a fundamental right and property is an obligation.
The state must therefore intervene to regulate when freedom of contract is no longer guaranteed due to the absolute superiority of one party and housing becomes a luxury good.
And that's exactly what we're experiencing right now.
The index rent also has positive aspects. Rent increases caused by refurbishment, for example, are excluded. You can't ignore that.
The so-called luxury modernizations are excluded, that's true.
However, the landlord may pass on all measures to which he is legally obliged to pass on to the tenants, even in the case of index rents.
These include, in particular, the regulations from the Building Energy Act, which contains requirements for the energetic quality of buildings, as well as from the law on the development of a building-integrated charging and line infrastructure for electromobility.
So you see, the index tenant is unfortunately not protected from expensive modernization rent increases.
At times of low inflation, tenant associations also commented positively on index rents – because they rose more slowly than comparable rents. Your call for a ban now seems a bit opportunistic.
No.
For a long time, inflation could be used as a benchmark for the permissible rent increase in existing buildings.
That has changed in the face of massive inflation.
Rather, it would be opportunistic, if that means unprincipled, not to take countermeasures here.
Without a doubt, there is a lack of affordable housing in many cities. But this is mainly due to the far too little construction activity, too little social housing and the currently high level of immigration to the metropolises. Why don't you address the actual cause of the problem, for example with the Ministry of Construction or the construction industry?
We do that.
But just "build, build, build" alone does not help.
Nobody who seriously deals with the matter believes in that anymore.
What we need are affordable housing.
Comprehensive proposals for a reform of social housing are on the table.
But this will not lead to filling the glaring hole of 700,000 missing apartments in Germany overnight.
That's why we need immediate measures that keep affordable housing affordable and stop the price gouging on the rental market.
That is the task of social tenancy law, which does not allow any enrichment of one side at the expense of the other.
Investors value reliability. Index rents are often used for new buildings in particular. If politicians intervene with a ban or capping limits, construction activity is likely to fall further, economists warn. Or investors take this into account and immediately demand higher rents. That would certainly be of no use to anyone.
Incorrect.
Because I don't see reliability as being based on getting the greatest possible profit for all time.
Rather, investors should be given a reliable, but also mandatory, subsidy framework – and tenants should be given an affordable home.
If the state continues to refrain from corseting the market, the unsustainable conditions that we are currently experiencing on the German rental market will remain.
In your opinion, what are the key levers for more affordable housing in German cities?
Firstly, significantly higher subsidies for social housing and the introduction of a new type of non-profit housing, secondly, tenancy law reforms and thirdly, a Federal Minister of Justice who will also make the necessary changes to the law.
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