Life in Germany has become expensive. Grocery prices and energy costs have increased, and now rent increases are also looming. Are index rents becoming a problem for thousands of people?

Many Germans have received mail in the past few months. However, not from relatives, friends or acquaintances. But from their energy suppliers. Sometimes these letters said the price of gas would increase, sometimes rising electricity costs were announced.

Now there is a threat of unpleasant mail again – from the landlord. Index rental contracts are linked to the official consumer price index. The rent can therefore be increased with the inflation rate. In October it was 10.4 percent.

Amanda Fuchs, a FOCUS online reader with an index lease, has already received a letter from her landlord. “The letter said that the basic rent would be increased by 191 euros. So I’ll be paying 1148 euros from January 1st, 2023,” she reports.

Fuchs has lived with her two children in a semi-detached house near Berlin since 2012. She wishes to remain anonymous. According to her own statement, she now spends 50 percent of her income just on housing.

Fox is not alone. There are no exact figures as to how many people in this country – privately or as traders – have concluded index rental contracts. This was confirmed by the German Tenants’ Association when asked by FOCUS online.

According to a report by “Wirtschaftswoche”, 40 percent of rental contracts in Munich alone are linked to the consumer price index. In other German cities, the rate is likely to be similarly high.

“The conclusion of index rentals has increased rapidly in recent months. For example, some DMB tenants’ associations report that index leases are already being agreed for half of all new leases,” writes the German Tenants’ Association.

The extent to which such contracts are troubling consumers in the current situation is not only shown by reader emails to our editorial team. “We are currently receiving many calls for help from index tenants,” said Rolf Bosse, lawyer and chairman of the tenants’ association in Hamburg, the “Stern”.

With soaring energy costs and rising food prices, it’s no wonder. Data from the consumer center show that butter alone is 55 percent more expensive than last year.

The price increase for milk is between 33 and 43 percent, and the costs for pasta, vegetables and meat have also increased massively. In addition, consumers are now paying many times more for electricity and gas than they did last year.

However, not only tenants have to struggle with additional costs, but also those who are on the other side. Bernd Mayer, who doesn’t want to read his real name on the internet, is such a person.

He owns ten apartments in Düsseldorf, six of which he rents out via an index contract. The real estate is his retirement plan. “I’ve been in the business for 30 years,” says Mayer to FOCUS online.

He explains that the legislator is now making such high technical demands on rental apartments that “they have to be constantly renewed”. That he had to rip cables out of the wall because the protective conductor was red and not yellow-green as is the norm today.

“I spend 30 to 40 percent of rental income on property maintenance,” he says. For all these reasons, Mayer has raised the rents for his Düsseldorf apartments. Otherwise his business model is not worth it.

But the people who live in his property would understand. “I don’t do it every year,” he says. “And they won’t have to pay the rent increase for a year, I’ve sort of ‘credited’ them for the coming year.”

That doesn’t change the fact that index contracts are practical for landlords like Mayer. “In a tight housing market with a very low vacancy rate, landlords have a much stronger negotiating position than tenants,” says Konstantin Kholodilin in an interview with FOCUS online.

Kholodilin knows what he’s talking about. Since 2005 he has been a research associate in the Macroeconomics department at the German Institute for Economic Research (DIW). His areas of expertise include real estate markets and economic forecasts.

He describes an experience that Amanda Fuchs also had. “I’m always on the lookout for other apartments. But the housing market is so tight that it’s not possible for me to move,” she writes.

“In view of the high inflation index leases are very advantageous, because the real value of the rents can be preserved,” says real estate expert Kholodilin. In addition, the rental price brake plays only a minor role in index rent increases.

“According to paragraph 557 b, paragraph 4 BGB, it is only applicable to the initial rent of an index rental agreement,” he explains. This means: With high inflation, larger price jumps are also possible. The cold rent may be adjusted once a year.

The fact that the index rental model is apparently becoming more and more popular is alarming for the German Tenants’ Association. The organization, which represents the interests of all tenants of living space in this country, calls for a ban on index rents for new contracts.

In addition, the members demand a “cap limit for existing tenants with index leases, which may not exceed the eleven percent agreed by the traffic light coalition for non-index leases in three years”.

Some politicians also want to take countermeasures. The Hamburg state government, for example, spoke out in the Bundesrat in favor of capping index rents. They should not be allowed to rise more than 3.5 percent per year.

The politicians are concerned with the big picture. With the advance, the Hamburg-based company wants to prevent index rent increases from having a price-driving effect on the entire market.

Federal Building Minister Klara Geywitz (SPD) has said in the past that she is not a fan of index rents. In the meantime, she is clearly on the side of the Hamburg state government.

“Index leases are a problem,” said the politician to the “Frankfurter Allgemeine Zeitung” a few days ago. Because affordable housing is scarce, tenants often have no choice – and would sign index contracts.

This often results in a double burden: not only the ancillary costs increase, but also the basic rent. According to the Federal Building Minister, Hamburg is showing an opportunity that “neither places an unreasonable burden on tenants nor landlords”.

For obvious reasons, the discussion is causing displeasure among landlords. The association of the housing industry GDW, for example, criticized the lack of straightforwardness in politics in an interview with the “Wirtschaftswoche”.

And the landlords’ association “Haus und Grund” emphasized that homeowners must keep their properties in good condition. Consumer prices increased by 3.1 percent last year, while the cost of craftsmen’s services increased by 4.8 percent.

The landlord lobby should therefore be pleased that there are currently no plans to cap index rents in Berlin. In general, the topic falls within the remit of the Federal Ministry of Justice, which is headed by FDP politician Marco Buschmann.

His party is usually on the side of the landlord. So the response of a ministry spokesman to a query from the “FAZ” is not surprising: “The legislature should not change the rules of the game for current contracts at every opportunity.”

A slap in the face for people like Amanda Fuchs. She took on an additional mini-job to make ends meet. “To be honest, I don’t know how things will continue in the future,” writes the mother of two.

“How much do we have to work to be able to live? Unfortunately, living has become a luxury.”