Unsuccessful tenant protection - how the reduction of the apportionment rate for modernization costs increases the rent (Bastian Kossmann, Georg von Wangenheim)

In Germany, the so-called local reference rent is the upper limit for rent increases in existing tenancies. However, landlords can increase the rent by a fraction of the modernization costs above this comparative rent on a one-off basis following modernization work that reduces energy requirements or improves the housing value. The rent may not be raised again until it reaches the level of the reference rent. This provision in tenancy law is intended, on the one hand, to give landlords an incentive to modernize rented apartments and, on the other, to protect tenants from being overly burdened. We show that this limit on rent increases not only results in fewer buildings being modernized, but also that where modernization does occur, landlords modernize more extensively and more expensively, and rents rise more than in the absence of the limit.

• Failing to Protect the Tenant - How Restricting the Landlord's Right to Pass on Modernization Costs to Tenants Increases Rents (Bastian Kossmann, Georg von Wangenheim), Discussion Paper, English version
• Failing to Protect the Tenant - How Restricting the Landlord's Right to Pass on Modernization Costs to Tenants Increases Rents (Bastian Kossmann, Georg von Wangenheim), Discussion Paper, German version
• Numerical example for the calculation of the rent level and the resulting profits of the landlord in case of different apportionment ratios