Large landlords in Germany consider rent increases as inflation soars

© Reuters. FILE PHOTO: Appartment buildings are seen from above during sunset at Berlin's Charlottenburg, Germany, March 17, 2016. REUTERS/Fabrizio Bensch

BERLIN (Reuters) - Germany's largest residential landlord Vonovia will increase rents if high inflation rates persist, its chief executive officer said, as consumer prices in Europe's biggest economy have reached the highest level in nearly half a century.

"If inflation is permanently at four percent, rents will also have to rise accordingly each year in the future," Rolf Buch, overseeing a portfolio of some 565,000 apartments, told business daily Handelsblatt in an interview published on Wednesday. "We cannot pretend that inflation will not affect rents."

Vonovia rival LEG, owner of about 166,000 flats, also said inflation would be reflected in rental fees if it persists. "The rental market will not decouple itself from the general price development," an LEG spokesperson told Reuters.

As in other European countries, prices in Germany have risen sharply in recent months, pushed higher first by supply chain problems after the pandemic and then by the war in Ukraine.

Consumer prices increased to 8.7% in May, a level not seen since the winter of 1973/1974 during the first oil crisis.

Average rental prices at Vonovia increased 3.1% in the first quarter, Buch said. He expects rising energy prices to cost tenants up to two months' rental fees per year.

LEG increased rents by an average of 2.7% in the first quarter, according to the spokesperson.

It is a particularly sensitive issue in Germany, where rents have traditionally been relatively stable over many decades, leading to a culture where middle-class families live in rented homes throughout their lives.

Inflation has become a concern for large parts of the population with 94% of Germans not expecting prices to fall any time soon and 56% expecting prices to continue to rise, a Forsa poll showed on Wednesday.

German Chancellor Olaf Scholz on Wednesday called on the government, trade unions and employers to discuss joint measures against high inflation.

"We need a targeted effort in a very unusual situation," Scholz said. Credit-financed subsidies were not a solution, he said, in particular as Germany plans to return to a constitutionally enshrined debt brake next year.