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Higher consumer prices are driving up index rents
According to the Berlin Tenants’ Association, index leases have increased. Photo: Kira Hofmann/dpa-Zentralbild/dpa
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Consumer prices have increased significantly. This hits those who have signed an index rental contract twice. You have to be prepared for higher ancillary costs and higher rents.
Index leases can be expensive for tenants given current inflationary trends. The rent is based on the consumer price index of the Federal Statistical Office.
“In recent years, the cost of living has hardly increased,” said the President of the German Tenants’ Association (DMB), Lukas Siebenkotten, the German Press Agency. “That has changed dramatically.” Accordingly, tenants would have to be prepared for significant increases. “The number of such leases is increasing, especially recently,” said Siebenkotten. “We have received feedback from tenants’ associations such as Hamburg that up to half of all leases that are currently being concluded are index or graduated leases.”
According to the Federal Statistical Office, inflation in Germany rose to its highest level since reunification in March. Consumer prices were 7.3 percent above the level of the same month last year. In February it was 5.1 percent. After the Russian attack on Ukraine at the end of February, oil and gas prices in particular shot up.
Increase in index leases
The Berlin Tenants’ Association also estimates that the number of index leases has increased. For many years, they were “more of a niche product,” said tenant association manager Reiner Wild. That was simply because many landlords had less expectations of the possibility of an index rent increase. Currently, an index rent is a great thing for landlords, especially in combination with a high initial rent, said Wild. “Not from the perspective of the tenants.”
There is no exact data on how widespread index leases are. The owners’ association Haus und Grund in Berlin also assumes that the numbers will increase. “The rental agreement with the local comparative rent is still the most widespread,” said association managing director Gerold Happ.
Index rents have advantages and disadvantages, as Happ points out. “There are cities like Hamburg and Munich where the local comparative rent is developing well. But we also have many regions where this is not the case.” With the index rent, the landlords are on the safe side: “In real terms, I get what I have agreed,” said Happ. “For the landlords, the index rent is not bad at the moment.” He assumes that even more landlords will opt for this in the future if inflation continues. “We are now in a situation in which the landlords also notice that everything is becoming more expensive.”
Tenants’ association for cap limit
DMB President Siebenkotten fears that tenants will soon have to pay “a lot more” in view of the high inflation rate, mainly due to the rise in electricity and gas prices. “At the same time, they have to pay the additional costs for the energy again – through the additional costs.” Many landlords have already adjusted the advance payments for the additional costs.
For the tenants’ association, the question arises as to whether a cap is also necessary for index leases, said Siebenkotten. “In our opinion, that would be a sensible means.” In standard rental contracts, the rent can currently rise by a maximum of 20 percent in three years, in cities with a housing shortage by 15 percent.
The traffic light coalition wants to reduce this value to 11 percent. According to Siebenkotten, an adjustment in the index rental contracts would mean that the annual increases would be limited to less than four percent – currently that would be less than the inflation rate.