Does the Rental Brake Also Brake Housing Construction

The rental brake is a rent control policy that limits rent increases for new tenancies to no more than 10% above the typical local rent level. Introduced in Germany in 2015, it was initially set to expire after five years but has since been extended twice. While the policy explicitly exempts newly constructed housing, our findings indicate that it still negatively affects housing construction. This can be attributed to two main factors. First, the overall tightening of housing regulations heightens investment risks and renders certain projects unprofitable. Second, by capping rental income from the existing housing stock, the rental brake reduces the financial resources available for financing new housing developments.