Plans by Berlin state authorities to impose a five-year freeze on residential rental increases will further limit the construction of desperately needed new housing units and damage efforts to meet climate change targets in the sector, Deutsche Wohnen SE CEO Michael Zahn said during a first-half earnings call.

The German landlord has been the listed company most severely affected by the rent-freeze proposal. Deutsche Wohnen, which owns about 150,000 residential rental properties in the German capital, has seen its shares fall by more than 20% since the proposal was forwarded by a Berlin senator in June.

The proposal would introduce a rent freeze for existing leases and re-lets for all rental apartments in Berlin, including furnished apartments and student housing, according to a June note by Jefferies real estate equity analyst Thomas Rothaeusler. A draft bill is expected to be made available for discussion with experts at the end of August, Zahn said.

"The measures do not help those who are dependent on help," Zahn said. "First and foremost, households with higher incomes will benefit from the subsidy. By contrast, low income households fall by the wayside. New construction and climate objectives are not achieved [by such rental regulations]. The uncertainty on the market caused by constant discussions on the reduction of rents is now also negatively affecting new construction activities," he added.

Berlin's rent-freeze proposal followed mass protests in April across several German cities against rising residential rents. Rents in Berlin, particularly, have risen steadily in recent years as the city's population has grown and certain areas of the city have become gentrified. The strength of the market has attracted interest from international and institutional investors, which has pushed up property prices and further fueled rent increases.

In response to the Berlin senate's escalation of the rent-freeze proposal, Deutsche Wohnen in June made a voluntary pledge aimed at limiting rental increases for low-income tenants. The company said it would not raise rents on tenants spending more than 30% of their household's net income on rent. It also pledged to allocate one in four re-letting residential units to social housing tenants.

"It is in my view paramount to find solutions for people affected by the price developments in the [Berlin market]," CFO Philip Grosse said, who noted that the German constitution might prevent the Berlin rent-freeze proposal from becoming law regardless. "And this is why we have introduced our promise to our tenants with respect to hardship clauses to protect those people who actually need protection."

Zahn called for the public and private sector to work together to solve the housing issue. "One-sided accusations and discrimination against the industry, especially the private sector, are harmful in the long term," he said. "The widely expressed belief that the state alone can meet the socio-political and economic challenges is unrealistic. I hope that politics and the housing industry will approach each other and develop a joint masterplan for more new construction, energy efficient refurbishment and fairness."

Talk of a rent-freeze has had "no impact on price expectations in Berlin so far," Zahn said. "What we see in the market is a lot of cheap money and strong demand, and the result is simply that we have an increase in average prices of 20% [year on year], so coming up to €3,000 per square meter," he added. Deutsche Wohnen is convinced that investment in the sector will continue to benefit from the European Central Bank's liberal monetary policy and sees the low interest rate environment remaining in the long-term, he said. "We remain very optimistic on the capital value outlook," Grosse added.

Zahn assured analysts and investors that the company was prepared to respond to any escalation of the Berlin rent-freeze proposal, but it was unclear as to what measures it had in mind. "If our efforts for a better end and a new building policy should remain unsuccessful, you can be assured that we will react fast and comprehensively to possible interference," he said. "In other words, we did our homework."