1、Examination of the furnished rental housing market in Germany THE FURNISHED RENTAL HOUSING MARKET IN GERMANY RESEARCH PROJECT ON BEHALF OF THE GERMAN FEDERAL MINISTRY OF JUSTICE ENGLISH SUMMARY JUNE 2023 Examination of the furnished rental housing market in Germany ABOUT OXFORD ECONOMICS Oxford Econ

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7、nd trade associations;and top universities,consultancies,and think tanks.June 2023 All data shown in tables and charts are Oxford Economics own data,except where otherwise stated and cited in footnotes,and are copyright Oxford Economics Ltd.This Executive Summary is based on the report commissioned

8、and published by the German Federal Ministry of Justice.The modelling and results presented here are based on information provided by third parties,upon which Oxford Economics has relied in producing its report and forecasts in good faith.Any subsequent revision or update of those data will affect t

9、he assessments and projections shown.To discuss the report further please contact:Johanna Neuhoff: The authors of the Executive Summary and the corresponding report are:Johanna Neuhoff and Dr.Jan Sun(Oxford Economics)as well as Prof.Dr.Lehmann-Richter(HWR Berlin)Examination of the furnished rental h

10、ousing market in Germany 2 PRELIMINARY REMARKS In August 2022,the German Federal Ministry of Justice commissioned Oxford Economics to investigate the German furnished rental housing market.Above all,we examined the application of the so-called rental break(see Box 1 for an overview).The regulation w

11、as supposed to slower the sharp rises in rents in Germany over the past decades due to tightened housing markets.BOX 1:BACKGROUND ON THE RENTAL BREAK IN GERMANY The rental break(“Mietpreisbremse”)is part of the rent regulation in Germany.Introduced in 2015,it aims to slow the increase in rent prices

12、 by establishing a maximum rent price that can be charged-10%above the local comparative rent,which is determined in the following four ways:1.Using a rent index(“Mietspiegel”).2.Using a rental database.3.By commissioning an appraisal of a sworn valuer.4.By comparing the rent prices of at least 3 si

13、milar flats.The rental break is not active in all of Germany but only in areas with tense housing markets.Such areas are characterised:1.By rent prices that are increasing faster than the national average,2.By a higher rent burden for households compared to the national average,3.By an increasing po

14、pulation without a corresponding increase in new construction activity 4.By low vacancy rates accompanying strong demand.These areas are determined by the German state governments.The rental break was active at least until August 31st,2022,in 206 municipalities.Apartments that are exempt from the re

15、ntal break:A furnished apartment for temporary use.Note that furnishing alone is not enough for exemption.If the previous rent price was already more than 10%higher than the local comparative rent.In such a case,the new rent price may equal the previous one.A newly constructed apartment first occupi

16、ed after October 1st 2014.A newly structurally renovated apartment being rented out for the first time.1 See Brgerliches Gesetzbuch(BGB)558a.2 See Baugesetzbuch(BauGB)201a.3 See Brgerliches Gesetzbuch(BGB)$549 Abs.2.See Box 3 for an explanation of“temporary use.”4 See Brgerliches Gesetzbuch(BGB)$556

17、e Abs.1.5 See Brgerliches Gesetzbuch(BGB)$556f Abs.1.Examination of the furnished rental housing market in Germany 3 The report was published in June by the German Federal Ministry of Justice.In the following,we have translated the Executive Summary of the report into English.To understand the resul

18、ts,we also summarised the methods we used for the analysis in Box 2.BOX 2:METHODOLOGY OF THE STUDY In our study,we employed multiple methods to answer our five research questions and validate the results.Overall,the analysis was based on the following sources:Public listings database:Our main method

19、 involved an econometric analysis of public listings for rental apartments based on listings data from the Value Market Database containing over 1.6 million rental apartment listings from the period between July 1st,2007,to December 31st,2018,from 14 German cities7.Information was available on the c

20、ore characteristics of each flat,such as the size,furnishings,condition,and number of rooms,as well as other relevant information,such as the rental price and the provider of the flat.Landlord interviews:Furthermore,we interviewed ten landlords and brokers that rent out or market furnished apartment

21、s that each represented different market segments such as specialised landlords,private landlords,and large platform providers.In these guided interviews they explained the reasons for renting furnished apartments,pricing strategies,target groups,contract design,etc.Survey representative of the Germ

22、an population:To estimate the incidence of the furnished housing market,we interviewed 5,007 interviews in the German-speaking population aged 18 and over by computer-assisted telephone interviews(CATI).Online survey of tenants renting a furnished flat:In addition to the motivation for renting a fur

23、nished flat,an online survey of 550 tenants living in furnished apartments was conducted.The tenant survey should reveal how relevant,for example,the exploitation of constraints on the housing market is.This requires quantifiable survey results.Online survey of judges:In addition to the analysis of

24、case law,the analysis of judicial application practice also includes a nationwide survey of all local and regional courts.The central question was whether there are problems in applying the rental break to furnished flats.Another topic was which method the courts use to calculate the furnishing mark

25、up.7 These cities include Berlin,Darmstadt,Dsseldorf,Frankfurt am Main,Freiburg im Breisgau,Freising,Hamburg,Heidelberg,Cologne,Konstanz,Mainz,Munich,Stuttgart,and Tbingen.These cities were selected because they either have tight property markets or an increased demand for furnished rental apartment

26、s due to being a university city.Examination of the furnished rental housing market in Germany 4 EXECUTIVE SUMMARY OF THE REPORT Our study examined the impact that the regulations of the rental break had on the furnished rental housing market in Germany.The research subject was structured around fiv

27、e research questions:1.Has the percentage of furnished apartments increased since 2015especially in areas where the rental break is applied(supply of furnished rental apartments)?2.Has the demand for furnished living spaces increased as well(demand for furnished rental apartments)?3.Is the discernib

28、le increase in the share of furnished apartments due to failure or problems in the application of the rental break in the furnished housing market(practical application of the rental break)?4.Is the supply development based on a reaction to the introduction of the rental break,namely the strategic c

29、onversion of unfurnished to furnished living space(evasion strategies)?5.Given the findings to questions 3)and 4),is political or legislative action needed and,if yes,which(need for political action and policy recommendations)?The results of these questions are presented below.SUPPLY OF FURNISHED RE

30、NTAL APARTMENTS The study showed the furnished rental housing market to be an essential part of the overall market regarding both the available supply and the actual housing situation:in 2022,27%of the publicly available rental listings in Germany were furnished apartments.Additionally,our 2022 surv

31、ey of Germans aged 18 years or older showed 14%of renters living in furnished apartments.Listings for furnished apartments have become more relevant.The share of listings for furnished apartments as a share of all rental apartment listings has risen dramatically between January 2013 and January 2022

32、(+45%).At the same time,the number of listings for furnished apartments increased less strongly(+7%)over the same period.These developments are explained by the fact that listings for unfurnished apartments fell during this period.Due to the higher share of listings for furnished apartments,renters

33、looking for an apartment are often confronted with the decision to choose a furnished apartment as an alternative to an unfurnished one.Furnished apartments mostly consist of one to two rooms.Furthermore,almost half(46%)of the furnished apartment listings have a living area of 45 m or less.Most furn

34、ished apartments are offered in large or university cities,as well as in regions with a growing population.In addition,furnished apartments are usually located near the city centre.The way the apartments are furnished varies greatly.Among the tenants surveyed in our online survey(see Box 2),about ha

35、lf indicated that their apartment had at least a kitchen,cabinets,tables,lamps,chairs,as well as a bed.Only 12%of apartments were“move-in ready”with items such as cutlery or sheets.In addition,11%of those surveyed told us that hotel-like services,such as a concierge service,were included in their re

36、ntal agreement.Examination of the furnished rental housing market in Germany 5 Compared to the unfurnished rental housing market,the share of private landlords in the furnished housing market is significantly higher(about two-thirds of all landlords)and tends to rise.According to realtors and landlo

37、rds that were interviewed by us,private landlords are often capital investors.DEMAND FOR FURNISHED RENTAL APARTMENTS Those renting furnished apartments tend to be young,educated,and employed:63%of the tenants of furnished apartments that we assessed in our online survey had a secondary school certif

38、icate(Mittlere Reife),high school diploma(Abitur),or higher;75%reported that no children lived in the household.The disposable household income varies:17%of those asked had a net household income of more than 3,500 a month and over one-third had less than 1,500 net available per month;19%of those su

39、rveyed received state benefits,which require a test for social indigence.Two-thirds of tenants living in furnished apartments did not specifically look for a furnished apartment.While many of this group(around 40%)decided on a furnished apartment during their searchfor example,due to the location or

40、 a special feature27%had to switch to the furnished market either because they were rejected in the unfurnished market or because they did not find a suitable unfurnished alternative.These are mostly lower-income tenants.The remaining third of tenants living in furnished apartments stated that they

41、were specifically looking for a furnished apartment.Relevant demand segments among the online-surveyed are those that wanted to save on furniture or relocation costs(9%),students and trainees(6%),those needing an apartment for a temporary job-related stay(4%),and(weekend)commuters(4%).Others are tho

42、se who,for private reasons,temporarily move into an apartment(4%)according to our survey these are,for example,due to relationship break-ups,water or fire damage,or bridging the time until their house was completed,those looking for a furnished apartment as an alternative to a hotel or because of ce

43、rtain services(3%),and interns(2%).According to our interviews with rental agents,people searching for an apartment due to crises(including refugees and workers aiding in crisis areas)were also a relevant group.However,this group was not explicitly recorded in our survey.FURNISHED RENTAL APARTMENTS

44、DO NOT CONSTITUTE A SEPARATE MARKET To clarify whether the furnished housing market is separate from the unfurnished housing market,a SSNIP test8 was conducted.This test makes it possible to identify individual submarkets from the point of view of those demanding apartments.The test concludes that t

45、he furnished apartment market does not constitute a separate market.The market for rentals for temporary use could,however,constitute a separate market.Due to the lack of measurable criteria to identify such apartments,this thesis could not be tested in the present study.8 The SSNIP test(Small Signi

46、ficant Non-Transitonary Increase in Price)is used to examine the effects of a hypothetical increase in price on the profit of a particular products supplier.If the profit increases,the market for that product alone is called the relevant market.If the profit does not increase,the next closest substi

47、tute is drawn,and the hypothetical price increase is carried out again.This process is repeated until the profit does not increase in the hypothetical price increase.Once this is the case,the market for these products or services is called the relevant market.Examination of the furnished rental hous

48、ing market in Germany 6 CORRELATION BETWEEN DEMAND AND SUPPLY DEVELOPMENT The number of people looking specifically for furnished apartments increased in some groups in the past years(e.g.,foreign immigrants and people moving when entering the workforce).However,a clear positive correlation with the

49、 development of listings of furnished apartments can only be seen for a few demand groups(e.g.,people moving when entering the workforce),while the correlation for other groups is only very weakly positive(e.g.,commuters and students)or even negative(e.g.,trainees).It can be assumed that the targete

50、d demand of certain groups for furnished apartments partly accounts for the positive market development and the increase in housing demand also contributed to the supply development on the market for furnished apartments.PRACTICAL APPLICATION OF THE RENTAL BREAK Knowledge level of market participant

51、s Our research into the rental break found that both renters and landlords have inadequate knowledge of the subject matter and scope of the rental break.Only about 36%of all surveyed renters of furnished apartments are aware of the application of the rental break to furnished apartments.Landlords te

52、nd to be better informed about the scope of the rental break,but some cited incorrect exceptions when interviewed(e.g.,flat-rate rentals)or the exception of temporary use was not applied correctly(see Box 3).Implementation of the exception“temporary use”by landlords The correct application of tempor

53、ary use is mainly a problem for landlords.Our analyses show that most landlords observe the special reason required for the exception,but not the time limit.While courts have already rejected time limits of seven months as too long,only 7%of leases of the tenants of furnished apartments we surveyed

54、were for six months or less.Moreover,some private landlords as well as one of the large marketing platforms are guided by a“magic upper limit”of one year that was continuously referred to in our landlord interviews.Adding to that,according to the landlords there are further practical problems with t

55、he implementation of the“temporary use”exception.First,landlords would have to decide based on the individual situation of the tenant whether the furnished apartment falls under the rental break or not.From the landlords point of view,BOX 3:AN EXPLANATION OF“TEMPORARY USE”Temporary use,or in German“

56、vorbergehender Gebrauch”,refers to one of the exemptions to the rental break(see Box 1).If an apartment is only rented out temporarily,the rental brake-as well as other provisions of social tenancy law-does not apply.The law does not define what characterises a renting for temporary use only.Accordi

57、ng to case law,the characteristic temporary use consists of two components:On the one hand,the tenants need to rent the living space must have arisen for a special reason(e.g.,temporary work assignment).Secondly,the imminent end of the tenancy must be certain for both parties from the outset,i.e.a t

58、ime limit.Examination of the furnished rental housing market in Germany 7 this is simply impractical.As a result,renting platforms try to filter out potential tenants whose use would not fall under“temporary use”.Second,according to landlords,tenants themselves often do not know how long their tempo

59、rary stay will last.This makes it difficult to comply with the time component for the exception.Third,landlords claim that there is tension with the law on the prohibition of housing misuse9.On the one hand,landlords would have to comply with minimum contract durationsthough these only serve as an i

60、ndicationwhich reduce the risk of a violation of the ban on misappropriation(typically three to six months).At the same time,the contract for temporary use tends to be limited to up to six months.This significantly restricts what landlords perceive as a legally secure period for renting out a furnis

61、hed apartment for temporary use.Determining the rent price from the perspective of market participants If the market participants are aware of the rental break and no exceptions are applicable,the next step is to determine the permissible rent price of the furnished apartment.Our evaluation of case

62、law suggests that the local comparative rent is to be determined with the help of a furnishing markup.Thus,the rent for a furnished apartment results from a“base rent”(measured as the rent for a comparable unfurnished apartment)and a furnishing markup.All market participants face the problem that mo

63、st rent indices in Germany either did not address whether they were applicable for furnished apartments or outright stated that they did not apply to such apartments.As a result,both renters and landlords lack a legally secure and simple benchmark for determining the local comparative values for the

64、 base rent.The legal situation for the calculation of the furnishing markup is also unclear,as the calculation is not regulated by law.In the past,courts have used depreciation approaches.In practice,however,the application of these procedures is problematic because they assume that the landlords kn

65、ow the acquisition costs of the furniture,which is often not the case.In addition,landlords tend to view furnishing costs as a lower limit for the markup on the base rent,since further costs would be incurred due to the special characteristics of furnished apartments(e.g.,high turnover).As a result,

66、the furnishing markup is often calculated as a rough estimate,in that landlords base the costs on the rental price of other furnished apartments.For the reasons just mentioned,tenants cannot simply check the legality of the rent price either.The landlord is legally obliged to provide information to

67、the tenant and must make all the facts available that enable the calculation of the local comparative rent.However,the actual calculation of the comparative rent from the“bare”information is left to the tenant.Especially in the case of a non-applicable rent index,the tenants only option is to commis

68、sion an(expensive)expert.9 The prohibiting the misuse of housing(Zweckentfremdungsverbot von Wohnraum)allows federal states the right to prohibit the misuse of housing in areas with insufficient provision of affordable housing.The regulations vary at the regional level but mostly prohibit to convert

69、 housing to other uses(offices,factories,warehouses)as well as specific forms of short-term renting such as a holiday flat.Examination of the furnished rental housing market in Germany 8 Determining the average furnishing markup on the market Our study extracts an average furnishing markup on the ma

70、rket from quoted rent prices with the help of a matching procedure.According to our calculations,the average furnishing markup between 2007 and 2018 in the public listings database ranged between 3.53 per m and 7.04 per m.A furnishing markup of 3.53 per m was presumably the typical markup during thi

71、s period for apartments that did not fall under the temporary use exception.We compared the average market markup with the depreciation approaches used by the courts based on a fictitious two-room apartment and the results shows that the average market markup tends to be higher than a markup that wa

72、s calculated based on depreciation approaches.In contrast,a sworn valuer will see similar results to our empirical findings,as they will replicate our procedure for a significantly smaller number of apartments.Disputes in and out of court In court,proceedings that involve rent regulation of furnishe

73、d apartments under the application of the rental break are quite rare;almost 84%of judges surveyed(see Box 2)had no previous experience.Furthermore,judges use different methods of calculation for the furnishing markup,the most common being the appointment of a sworn valuer.The low number of court ca

74、ses concerning the rental break and furnished apartments is not due to renters shying away from filing a lawsuit:92%surveyed tenants of furnished apartments stated that they saw no reason for a lawsuit.EVASION STRATEGIES The analysis of evasion strategies adopted by landlords centred around the idea

75、 that the introduction of the rental break in 2015 offered price advantages encouraging landlords to convert unfurnished apartments into furnished ones however results do not substantiate this hypothesis.However,the rental break as a reason to raise their furnishing markups.The rental break has caus

76、ed landlords to significantly increase their rental prices of furnished apartments and are therefore more likely to be used temporarily.In contrast,the furnishing markups of apartments that are likely to be subject to the rental break have fallen.Potentially,this development could be associated with

77、 a shift within the furnished apartment market towards apartments for temporary use:Our analysis suggests that landlords of furnished apartments have reacted to the introduction of the rental break by specialising on the target group that only rents for temporary use.POLICY RECOMMENDATIONS Furnished

78、 rental apartments are highly relevant for the housing market in Germany,which is why furnished apartments should be strongly considered when preparing rent indices.This would allow renters,as well as landlords,to easily determine the permissible rent for furnished apartments covered by the rental b

79、reak.The temporary use exception is of practical importance as according to 549 Abs.2 Nr.1 BGB the courts decide when a rental for temporary use is on hand,based on the circumstances of each case.A Examination of the furnished rental housing market in Germany 9 time limitation of the contract is not

80、 sufficient.The application of this exception is associated with legal uncertainty for both landlords and renters.Landlords are looking for guidelines that determine the permissible rental duration of temporary-use apartments,allowing them to reliably estimate their expected rent income.The lack of

81、an objective criterion to define temporary-use apartments also presents a problem for the creation of rent indices that consider furnished apartments as furnished apartments for temporary use are not allowed to be considered in the rent index.We recommend setting an objectively measurable criterion

82、for when a temporary use exception is on hand as such a criterion can only be the specification of a certain rental period.The question of the duration of this rental period is political in nature.Since the introduction of the rental break has not led to a systematic conversion of unfurnished into f

83、urnished apartments,and the application of the rental break on furnished apartments is not a significant theme of dispute between renter and landlordeither out of or in court,further regulations are unnecessary.However,providing informative material on the rental break to market participants.Moreover,taking measures for easing housing market shortages would be beneficial as only an increase in housing supply can reduce the danger that those searching for an apartment are forced to rent a furnished one.Examination of the furnished rental housing market in Germany