Free Market or Housing Shortage? Berlin Rent Cap and its False Dilemma

Alessio Sardo (University of Genova – Tarello Institute)

Abstract

This essay examines the rise and fall of the Berlin Rent Cap Law (Mieten WoG Bln), which included a number of measures to protect the fundamental interests of tenants (rent freeze, location-independent rent cap on re-letting, and a legal ban on excessive rents). These measures were aimed at countering the drawbacks of gentrification in Berlin. However, in a recent decision, the Bundesverfassungsgeright (BVerfGE) declared the Mieten WoG Bln unconstitutional, for it
violates the vertical separation of powers, as laid down by Art. 73 and 74 of the Basic Law. In particular, this paper analyzes the economic background and the impact of the BVerfGE decision on the Berlin housing market. First, it is argued that the rejection of rent control regulation is based on a false dilemma: it is not a matter of “either free market, or housing shortage”. Second, the standard of constitutional review endorsed by the BVerfGE is compared to the U.S. paradigm for dealing with rent control measures in terms of property rights and regulatory takings. Finally, the analysis suggests that the BVerfGE’s constitutional decision will ultimately contribute to Berlin’s transformation into a neoliberal city. The results of this case analysis are useful for thinking more generally about rent control measures in the EU, and their impact on the construction of neoliberal cities. The method of analysis combines comparative public law, analytic legal philosophy, and economic analysis of law.