In early 2020, the German capital of Berlin took a step that reverberated around the world: It froze the city’s rents at mid-2019 levels for five years.

The move by the city-state’s leftist ruling coalition was a response to Berlin’s spiraling rents: A development boom had doubled rents over a decade. It was something of a global experiment, keenly watched by tenants’ rights activists in many other gentrifying cities. But now the rent brake, as it is known locally, has been undone.

On Thursday, Germany’s Federal Constitutional Court nullified Berlin’s rent cap, on the grounds that German states (the Länder) cannot supplant federal housing law, and that’s what the Berlin Rent Cap Act of 2019 did; rent is already controlled by a series of federal laws that also tackled the tightening housing market.

“Given that the federal legislator exercised its concurrent legislative powers conclusively, at least with regard to the determination of the permissible maximum rent for nonsubsidized housing, the Länder are precluded from passing rent legislation in this regard,” the Karlsruhe court said, handing a win to the CDU and FDP parties that had challenged the law.

The decision opens the way not only for rent rises in the near future, but for landlords to retroactively claim payments above the rent levels that have been capped for the past year.

The Berlin Tenants’ Association described the decision as “a slap in the face” that was “sociopolitically irresponsible.” It said the Berlin law had successfully calmed the growth of rents in the city, unlike previous attempts at making housing more accessible to low- and middle-income households.

“We will now put all our efforts into improving the federal regulations,” said the association’s managing director, Reiner Wild. “The decision of the Constitutional Court will give a new impetus to the nationwide campaign that has already started to stop rents.”

Landlord caution

The struck-down law’s biggest target—and naturally one of its biggest critics—was Berlin’s most prominent landlord, Deutsche Wohnen. The DAX-listed residential property giant’s share price leaped 6% on the news of the court’s decision, before losing most of those gains during the day.

In a muted statement, the company promised that none of its tenants would lose their homes as a result of the ruling and that it would “proceed with the greatest sense of social responsibility.”

The Association of Berlin-Brandenburg Housing Companies (BBU), whose members manage 44% of Berlin’s housing stock, said the city’s “experiment failed as we predicted.” The BBU, of which Deutsche Wohnen is a member, said the Constitutional Court’s decision paved the way for “investments in more new buildings, climate action, and intergenerational living.”

“With the lifting of the rent cap, companies in the social housing industry can return to their original investment plans as soon as the questions of additional rents have been sorted out,” said BBU board member Maren Kern in a statement.

That’s a reference to the “shadow rents” that many landlords have been adding into rental contracts because of the rent brake law. The idea was that, if the law were to be overturned, tenants would have to retroactively pay extra for the period when their rent was capped—and that’s what will happen now, though the BBU insists its members’ demands will be “very limited.”

The landlords certainly have good reason to proceed cautiously now. Although they have successfully defeated the rent cap, another foe looms—and it is potentially more dangerous.

Forced sales?

In late February, a campaign with the self-explanatory name of “Expropriate Deutsche Wohnen & Co.” started collecting signatures. If they get 175,000 by late June, there will be a citywide referendum in September—coinciding with federal elections—on whether the state of Berlin should forcibly buy properties from landlords with more than 3,000 apartments on their books.

In their last update on the matter, a month after the campaign began, its organizers said they had secured over 47,300 signatures. Now they expect to get an awful lot more.

“We see this failure’—i.e., the court’s decision—“as a further incentive: Only the expropriation and socialization of living space offer the prospect of a Berlin with affordable rents, especially now,” said spokeswoman Jenny Stupka, in a Thursday statement. “There is great outrage in the city, and we are convinced that many more people will join our initiative than already have,” said another spokesman, Rouzbeh Taheri.

Wild, the head of the Berlin Tenants’ Association, predicted in his statement as well that “efforts to socialize the large, profit-oriented housing companies will also gain momentum,” thanks to the Karlsruhe court decision.

The “Expropriate Deutsche Wohnen & Co.” campaign is convinced that its referendum plan is legally watertight, unlike the Berlin state law, and it hopes to see Berlin’s governing parties back the plan.

The center-left SPD party, which leads Berlin’s governing coalition, responded to the court’s ruling by calling on the federal government to “further improve tenant protection.” The SPD itself is part of the federal coalition government, so it aimed this call at the CDU, which it said was blocking progress.

“The construction of new apartments is now all the more important,” it said, adding: “The purchase of apartments must also be continued in order to further increase the share of the housing stock of the state-owned housing associations and cooperatives.” The Greens, which are in Berlin’s coalition as well, also called for tenancy law reform at the federal level.

But the expropriation campaign has a clear fan in Die Linke, the SPD’s far-left coalition partner in Berlin, which said Thursday that it will “continue to campaign for the re-municipalization of as many apartments as possible.”