Housing shortages and rising rents have become a source of political pressure in many countries, prompting calls for stronger intervention in rental markets. This column shows that the effects of such intervention can outlast the policy itself: in Berlin, the 2020 rent cap was followed by continued debate over expropriation and further regulation, and the city’s price-rent ratio remained 10%–15% below trend even three years after repeal. The findings suggest that credible threats of future intervention can depress housing valuations, alter market structure, and weaken construction activity even when no regulation is currently in force.
Housing is scarce, and rising rents in large cities have for years been a flashpoint in both economic and social policy debates (Hallaert and Vassileva 2026). When policymakers signal a willingness to intervene aggressively – through rent caps (Monras and García-Montalvo 2025), ownership restrictions, or even expropriation – investors, developers, and households start pricing in the risk of future intervention. That risk can affect housing valuations, investment, and supply even before any new policy is enacted (He et al. 2024). Yet clean evidence on these effects remains scarce, because few settings combine a sharp regulatory shock with a credible threat of further intervention.
Berlin is one of those rare cases. In February 2020, the German capital introduced one of the toughest rent-control regimes seen in a major Western housing market: a rent freeze, binding caps for new leases, and mandatory rent reductions for apartments deemed overpriced. The policy was struck down by Germany’s Constitutional Court just 14 months later. But the political shock did not end there. A city-wide referendum soon backed the expropriation of large private housing companies, and debate over further intervention continued.
Berlin therefore offers a rare opportunity to study not just the effects of rent control itself (Hahn et al. 2024), but also the lasting consequences of regulatory risk. In new research, we examine how this sequence of events affected Berlin’s housing market after the repeal of the rent cap (Dolls et al. 2026).
Purchase prices and rents are drifting apart
Our empirical analysis draws on listings from the ImmobilienScout24 platform RWI-GEO-RED for the years 2017 to 2024. After data cleaning, the sample comprises roughly 2.3 million rental listings and 1.1 million sales listings across the 14 largest German cities with populations above 500,000. Using a hedonic difference-in-differences approach, we compare developments in Berlin with those in the other 13 major cities, each relative to the third quarter of 2018, that is, before the rent cap legislation and the expropriation debate. Our focus is on the price-to-rent ratio, which captures how the market values the future returns and risks associated with residential property.
Figure 1 documents that during the period when the rent cap was in force, Berlin’s price-to-rent ratio stood above its counterfactual level. After the policy was struck down, the pattern reversed. The ratio declined steadily and, from late 2023 through 2024, stabilised at around 15% below the level that developments in comparable cities would have predicted. The persistent wedge between prices and rents suggests that the market attached a discount to future returns from housing in the city.
Figure 1 Log price-rent ratio in Berlin versus other major German cities
Notes: This figure plots event study estimates and associated 95% confidence intervals for apartments subject to the rent cap. The dependent variable is the price-rent ratio. The treatment variables are quarter fixed effects interacted with a Berlin dummy. The sample is restricted to the 14 largest cities in Germany. The first vertical dashed line marks Q2 2019, when the rent cap was announced. The second solid line marks Q1 2020, when the rent cap came into effect. The third solid line marks Q2 2021, when the rent cap was ruled unconstitutional and subsequently repealed. The fourth dashed line marks Q3 2021, when an expropriation referendum took place. The fifth dashed line marks Q1 2023, when a repeated local election was held in Berlin.
Source: Dolls et al. (2026).
Regulatory risk as the mechanism
We interpret this persistence through a simple model of the housing market under regulatory risk. The framework distinguishes between institutional and private investors. Institutional landlords are more exposed to the risk of future intervention, not least because the referendum explicitly targeted large housing companies, while private investors demand a higher risk premium to compensate for that uncertainty.
The model yields a straightforward prediction: when regulatory risk rises for institutional investors, equilibrium prices fall, institutional landlords scale back their activity, and private investors partly step in. Crucially, these effects do not depend on whether regulation is actually in force. They persist as long as perceived regulatory risk remains elevated.
That uncertainty in Berlin did in fact remain elevated is shown by a newspaper-based index of housing policy uncertainty that we construct from the Genios press archive, following the approach of Baker et al. (2016) and covering more than 230 media outlets over the period 2016 to 2023. Among housing-related articles, 28.1% contain uncertainty terms, 22.3% contain political or regulatory terms, and 9.6% contain both; this last group forms our index. Put simply, the index is a kind of fever chart of policy anxiety: it spikes when newspapers discuss housing while simultaneously invoking both politics and uncertainty.
The pattern documented in Figure 2a is striking. Housing policy uncertainty in Berlin rose sharply around the announcement of the rent cap, receded while the policy was in force, and jumped again after the Federal Constitutional Court struck it down, driven by renewed expropriation debates and the announcement of a second referendum. A difference-in-differences analysis confirms a statistically significant increase in housing policy uncertainty in Berlin relative to the control group, concentrated around the major policy events but also persistent beyond them (Figure 2b).
Figure 2 Housing policy uncertainty
a) Number of articles
b) Difference-in-differences estimate
Notes: Panel A plots the evolution in the number of articles containing both policy-relevant terms and uncertainty-related terms. The series are normalised to the third quarter of 2018. The sample is divided into articles that discuss Berlin (red), the 13 next-largest cities (blue), and neither Berlin nor any of the 13 next-largest cities (green). Panel B shows the results of a difference-differences analysis comparing housing policy uncertainty in Berlin with that in the 13 next-largest cities. The first vertical dashed line marks Q2 2019, when the rent cap was announced. The second solid line marks Q1 2020, when the rent cap came into effect. The third solid line marks Q2 2021, when the rent cap was ruled unconstitutional and subsequently repealed. The fourth dashed line marks Q3 2021, when an expropriation referendum took place. The fifth dashed line marks Q1 2023, when a repeated local election was held in Berlin.
Source: Dolls et al. (2026).
This is critical for interpreting the price evidence. Asset prices can move for many reasons, but the index captures uncertainty independently of prices themselves. The fact that it spikes exactly at the key political moments, and remains elevated during the very period when valuation discounts emerge, without a comparable pattern in other large German cities, strongly supports the view that uncertainty itself was the key driver. Although the press corpus ends in 2023, preventing us from extending the index further, the persistence of valuation discounts suggests that expectations remained impaired thereafter.
How does the housing sector respond to regulatory risk?
The portfolio choices of large landlords fit this story. Deutsche Wohnen, Berlin’s largest private landlord in 2018, majority-owned by Vonovia since 2021, and explicitly named in the expropriation campaign, later reduced its exposure to the city together with Vonovia, including through major sales to the state of Berlin. The ownership structure of Berlin’s rental housing stock thus shifted measurably towards public ownership. Pricing behaviour points in the same direction: during the rent cap period, large housing companies cut asking rents more sharply than private landlords, and after the cap was struck down, private landlords and brokers raised rents to around 15%–20% above the counterfactual trend, while large corporate landlords remained more cautious.
Sale prices and construction activity tell the same story. Large housing companies accepted persistently lower sale prices than other sellers, consistent with a deliberate retrenchment under heightened regulatory risk. The clearest real side effect appears in building activity: after the rent cap episode and the expropriation debate began, approved new construction and modernisation in Berlin fell relative to comparable cities, driven disproportionately by the corporate housing sector. Private households partly stepped in, as the model predicts, but not by enough to offset the decline. By contrast, the rent cap’s short-run market distortions that are also documented in our paper – fewer listings, more intensive search, and lower mobility – had largely faded by 2023, so they cannot account for the persistent valuation discount.
Policy implications
The Berlin case shows that even a temporary intervention can leave lasting scars if it shifts expectations about future regulation and the reliability of property rights. Three years after the rent cap was struck down, Berlin’s price-to-rent ratio still stood around 10%–15% below trend. In our view, this was not the mechanical legacy of the cap itself, but the result of persistent regulatory risk.
This has important policy implications: housing policy should treat the credibility and stability of the regulatory framework as a policy asset in its own right. Evaluations of housing interventions should therefore go beyond their immediate effect on rents and consider the expectations they create and the long-run investment responses they trigger. In Berlin, those responses included a shift in ownership towards the public sector and weaker construction and renovation activity. For the current debate, our analysis shows that it does not only matter which policy is passed. Instead, even the threat of intervention carries a cost.
Source : VOXeu
