I don't know... maybe because you need an apartment for yourself, and you now can afford to actually buy the lot because you do not have to compete with investors expecting a dividend of 20% on their investment?
Do you really think that suppressing professional home builders to make room for homesteaders building their own homes by hand is a good idea for Berlin?
Why not get rid of greedy farmers so people can grow potatoes in their backyard? Why this longing to re-implement the failed policies of East Germany? Is it nostalgia for police states and shortages?
> Do you really think that suppressing professional home builders to make room for homesteaders building their own homes by hand is a good idea for Berlin?
No, and it isn't what I am suggesting. The point is that just that it becomes uninteresting for investors, it isn't for people actually living there. That doesn't exclude the professional execution of housing projects. I seriously doubt that people can build their home with their own hands and comply with German regulations. Especially in cities.
Housing developers might expect a lower margin, and if the margin is too low for such a business, people can take on the risk themselves and contract professionals to execute a joined housing development. People are already doing that.
Well if homes are not built by homesteaders then they will be built by for profit companies that are funded by investors.
If your goal is to have more of something then you tax it less and impose fewer costs on it. If your goal is to create less of something, then you tax it more and impose more costs on it. People understand this with cigarette taxes and carbon taxes but suddenly when it comes to apartments the signs are reversed? No, getting the sign right is important. If you want more homes, then reduce the costs of building homes -- or in your parlance, make it "more interesting" for investors.
I agree with you that increasing the supply side will decrease the price.
However, housing is not a consumable (a large part of the houses are over 100 years old). It is not movable (a house in Hamburg does not satisfy demand in Berlin, Potsdam only to a limited degree). And it is a basic need (everyone needs exactly one).
However, the demand side is driven not only by local demand for housing, but also but "external" demand using housing as a source for investment and rent seeking.
The prospective home owner and tenant has to compete with their local salary and capital against international capital buying mostly existing property.
But all that money does not make new space appear. There is no factory to build "space".
So, like the cigarettes, we want to have less "consumers" of property, and that's why I think it makes sense to lower the demand side by making it less attractive to buy housing for investment.
For the people living there, it is a basic need, and that will keep the demand from going to zero.
This is a good point. You can't ignore the overall real estate investment climate. If you think the city is going to tighten the screws on builders and landlords, why bother? Find a city that's more friendly to people building new housing.
Trivia: The term "dismal science" was coined when economists argued for abolishing slavery:
> Carlyle attacked Mill, not for supporting Malthus’s predictions about the dire consequences of population growth, but for supporting the emancipation of slaves. It was this fact–that economics assumed that people were basically all the same, and thus all entitled to liberty–that led Carlyle to label economics “the dismal science.”
They are pushing for something similar in Spain. And there's some disagreement in the coalition government because the far-left wants the controls to be more aggressive.
I expected to agree with that article, but honestly the tradeoff seems reasonable. Given just the data presented there, is it actually worse if rent controlled apartments are hard to get if lots of people are also paying much less rent? I'd really want to see some data about lots of people wanting to move to or within Berlin who are not able to due to lack of supply. That data may well exist but isn't presented here.
Phrases like "reasonable price" are meaningless. There is only "what someone's willing to pay". Property is the one place where people tend to actually get that.
> I'd really want to see some data about lots of people wanting to move to ... Berlin who are not able to due to lack of supply.
Even if there were those lots of people unable to move, would that actually be a problem in various cases? Unlike many other European countries, where the countryside has emptied out and brain-drained as its young people move to the big city, Germany has managed to keep many of its small towns viable places to live and work.
Is it worse if now there is a special class of people who happened to be in the right buildings at the right time when this law passed who will now forever get discounted rent, leaving everybody else to pay full price?
Well in most of US you can pay off the land but you still have property taxes which can go up. Also the tax basis can be adjusted based on the market value of similar properties in your area.
The vast majority of rent controlled cities have rent control boards where landlords can request and increase in rent in case of exceptional circumstances. In those cases, the landlord must show that the rent is not enough to cover maintenance, and the increase is granted.
In general though, maintenance on average only costs ~150-300$ a month, so it's not necessary.
You mean, exactly like people who have enough money to buy instead of rent as real estate values keep climbing?
In Berlin, people that already have social relations and support structures are the one that get discounted rent, which is what we want! This is better than if wealthy people get to pay less for housing. It's not as if the alternative made it cheaper.
Exactly, it should be extended to all rental units.
An important part of the regulation is that the landlord cannot raise the rent when a new tenant moves in - the rent is locked for the unit, not the tenant. This prevents situations like New York, where you are essentially unable to move.
> An important part of the regulation is that the landlord cannot raise the rent when a new tenant moves in - the rent is locked for the unit, not the tenant. This prevents situations like New York, where you are essentially unable to move.
The consequence of that, as claimed in the article, is that when the old tenant leaves, it often ceases to be a rental property - it's not offered for rent but put on sale for someone who'll live there as an owner. Already there are half as many spaces available for rent as it was a few years ago, and the number is still shrinking. If this goes on, most of the rental stock will get converted to non-rental and you'll be able to move only if you can get sufficient credit to buy the dwelling.
You also need to look at how many formerly rent controlled apartments have been sold and taken off the market. The charts don't really show that, but the articles suggests that is happening
The purpose of this regulation is to provide cheap rent for the poor. Not to enable "the rich" to acquire new real estate which they then proceed to not rent out at all ... Increasing the number of homeless.
Now of course this legislation "prevented that", by refusing owners do this while tenants are in the apartments. Except the net result seems to be when tenants do leave, the apartments are taken out of the housing market altogether, exacerbating the already pretty critical problems.
And in the German press you will find accounts of pressure tactics (such as schemes to force tenants into default, "using" things like a divorce to kick people out (man signed contract, woman stays in apartment, gets kicked out when man refuses to pay but woman is not allowed to sign contract in her own name), creating critical maintenance problems ...) to create that situation.
Not that I know Berlin's situation, but hypothetically they could be converted into Airbnbs which end up competing with local hotels instead of rentals.
I know rental stock immediately opened up in Dublin when the pandemic started, for example, before such a large increase would have arisen from renters leaving the city for suburbs.
Apartments aren't kept out of the housing market, actually. If they are, then the Vancouver solution is very effective - a 1% tax on the value of the property if not occupied.
The key thing here is supply and demand. If there is no profit to be made in renting out the property, then there is little reason to buy them up, in actuality. The exception is large companies that buy up a large amount of properties to manipulate the markets, but this has already been thinked of.
The main result of this if the unoccupied tax is used when necessary is a fall in the value of properties. This is a good thing for everyone that doesn't own a property that is unoccupied. This is what is wanted.
The point of occupation was vacancy. Rent control is used to lower rent, and vacancy taxes are used to enforce vacancy. These are two separate effects and goals.
But, people are not buying it, companies are. Most known offenders are Akelius and Deutsche Wohnen, who just buy those apartments for cheap, wait until the renters leave (or make them leave), then renovate the apartment and rent for 4 times the price. The rich is getting richer, while people are being screwed.
Which is why the ruling alliance is trying to expropriante all entities with more than 3000 units. That's a nuclear options but it certainly fixes the issue.
It remains to be seen whether they are just paying less rent, or there are other disadvantages. Beside the obvious maintenance issue (will landlords invest more than legally mandated?), a german-specific issue is that it is quite common in Germany that renters who want to end their lease search for their own successors. The reason is that apartments often come without kitchens, low-end apartments even without flooring. The renter needs to take care of that, and if you end your lease, your investment is lost. Unless you find a successor who is willing to pay for it, which is quite easy if you live in a desired, low-rent apartment. Where I live (outside Berlin), people pay several thousand euros "for kitchen and floors" to the previous tenant to get a city-owned, low-rent apartment. Often they pay more than the kitchen and floors are actually worth, even though legally they are not even required to pay for this. But it's the price to be chosen as successor among many applicants. Landlords usually play along, as it's less work for them and this process will ensure that they get only the most affluent renters. I expect that renters in Berlin will be willing to pay even more to get one of the regulated apartments, as they are even cheaper.
Those aren’t really analogous. Doctors aren’t pro-vaccine because it’s good for their business interests. They’re pro-vaccine because their community agrees that they work and are produced safely. In the case being discussed, the argument is the anti-rent-control folks are letting business interests drive their argument.
What do all businesspeople have in common? They are trying to make money – and that's all they have in common. So we can expect a pro-business publication to advocate for policies that funnel wealth to businesses, without much regard for anything else.
In contrast, the one thing all doctors have in common is that they try to keep people healthy. So we can expect the medical community to advocate for policies that accomplish that. Of course there are doctors who could potentially have a conflict of interest between getting more business and doing their job correctly. But then we can still expect both factors to play a role, i.e. very few doctors would focus purely on getting business. And many doctors don't even have that conflict, e.g. employed ones whose job is secure.
If vaccines harmed people's health while benefitting doctors' bottom lines, we'd see a split between employed or ethical doctors vs unethical self-employed ones. It's inconceivable that there's a consensus among doctors for a policy they believe is harmful.
Anyway, I doubt vaccines even do increase demand for doctors. Administering them is cheap (~5 minutes of a nurse's time), treating the diseases they prevent is not.
If the bread price explodes, poor people will starve and the rest of the population ends up paying a boatload of money to the lucky few bakers. If the bread price remains stationary, people will starve randomly.
People are going to starve either way, why not skip the whole "make the bakers filthy rich" part?
I fully agree, thousandfold price increases would suggest that processes that control prices in free market system had become unstable. In such cases I'd agree with state intervention. Fortunately it doesn't happen that often.
> Also, this doesn't really apply to housing.
Correct, it's more complex there and some of the reasons are mentioned in the article.
Why? That argument doesn’t address the fact that many cities have an absolute limit on supply in the form of space, and no amount of construction that starts today will bring prices down today.
Here are some arguments to refute if you want to oppose rent control, particularly the first one (copied and pasted directly from investopedia):
“Rental prices in many U.S. cities are rising far faster than wages for moderate-income jobs. [edit: note here that most of the US has banned rent control, and this is happening regardless]
“Rent control enables moderate-income families and elderly people on fixed incomes to live decently and without fear of a personally catastrophic rent hike.
“Neighborhoods are safer and more stable with a base of long-term residents in rent-controlled apartments.”
Berlin has 4,227 inhabitants/km², Hong Kong (widely considered to be a very livable city, and also one with hard geographic constraints on expansion) has 6,300. So we have existence proof that Berlin, if it chose to, could support an increase in housing of 50% or so, which would certainly drive rents way down.
Edit: Not sure why I looked so far away, Paris is at 21,000. Like virtually every housing story, this is an example of the people who live in a place deciding they don't want anyone else to live there, and putting up economic walls that only the rich can surmount.
> Berlin has 4,227 inhabitants/km² [...] Paris is at 21,000.
These numbers aren't comparable: The municipality of Paris is just the small urban core of a much larger metropolitan region. Berlin has about 3.7 million inhabitants on 890 square kilometers, Paris 2.2 million on 105 square kilometers.
A fairer comparison is with the Petite Couronne consisting of Paris + the innermost ring of its neighbors (https://en.wikipedia.org/wiki/%C3%8Ele-de-France#Petite_Cour...), which has 6.7 million people on 760 square kilometers. Still denser than Berlin! But the ratio is far less extreme than you made it look. For an alternative approach, take Berlin's densest districts: Friedrichshain-Kreuzberg, Mitte, and Neukölln add up to about 100 square kilometers (like Paris) and a bit over a million people. So about 2x less dense than Paris rather than 5x.
> [edit: note here that most of the US has banned rent control, and this is happening regardless]
Where do you get that idea? It is false. New York? San Francisco? California has statewide rent control as of January 1 of last year. Many of the places where people want to move still do have rent control. Rent control is not a live issue in, e.g., Tulsa, OK or Amarillo, TX, whether it is legal or not.
> “Neighborhoods are safer and more stable with a base of long-term residents in rent-controlled apartments.”
If you have good evidence for this claim, I would like to see it. Moreover: "safer" and "more stable" relative to what? I guess your claim would be "safer and more stable than the counterfactual w/out rent control and with more housing." If you have good empirical evidence for that claim, I would love to see it.
"As of 2019, five states (California, New York, New Jersey, Maryland, Oregon) and the District of Columbia have localities in which some form of residential rent control is in effect (for normal structures, excluding mobile homes). Thirty-seven states either prohibit or preempt rent control, while eight states allow their cities to enact rent control, but have no cities that have implemented it."
> Why? That argument doesn’t address the fact that many cities have an absolute limit on supply in the form of space, and no amount of construction that starts today will bring prices down today.
You mean... scarcity? That the argument specifically mentions as the thing that price controls doesn't fix? Are you _sure_ it doesn't address it?
Calling a permanent unfixable limit a market “scarcity” is bizarre, and so is comparing it to something that’s only temporarily scare. Obviously the solutions to permanent loss of supply and temporary shortages must be completely different. There are some real downsides to rent control, and there are some real upsides in some cities and for some people. There are also huge downsides to allowing a free-for-all, especially for the people who need housing anywhere near their jobs. It’s easy to ignore an argument that is only semantics and opinionated dogma when it’s avoiding the realities of the problems at hand.
Given the unmeasurable social costs of people starving and dying when there isn't enough food (you can say similarily for people not having houses and freezing to death when there's a blizzard, but also read the sidenote at the end), the capitalists involved in selling and distributing food should not be compensated equally in monetary terms (by selling at higher prices) when there is a shortage of food, since they are the ones at fault of not having reserve resources and prepare their production line from various disasters such as storms and droughts. Even people from the ancient times built and used granaries to store food for years and opened it up to their fellow villagers when storms/droughts happen (even without any profit motives, there wasn't even a notion of "profit" at all!) Capitalists in the current era should prepare far better than them, as our knowledge of biology, climate, and logistics are much more sophisticated than before; a shortage of food should be outright unimaginable given the advanced technology we have. Once there are empty food shelves, the disaster's already happened (at least in the short term you can't materialize food anymore by doing smart "economics"), and really at that dire point capitalists don't deserve the right to receive profit in the same way as normal times.
If the moral argument for this doesn't convince you - then there is a much more convincable political argument (of "dialectical materialism"), which basically goes as: once basic things like food and shelter aren't a given, and then capitalists gouge prices up creating an even bigger moral catastrophe among the poor, enough people would be fucking mad at them and band together wreck shit up, and some people would eventually have their heads cut off (as happened in many points in society, for example the French revolution). It's only that the current structures of power (the state & capital) are much more powerful than the past that this is more unlikely to happen, but if I were really in power I wouldn't dare try to steer closer to this event, as bloodshed doesn't really feel that good to participate. And that's the most uncontroversial center-wing take I can create.
Sidenote: I think your analogy of bread isn't really comparable to the housing problem though, since housing acts less of an ideal commodity than food in economic terms. Housing is far more troublesome if you approach it in a free-market lense, since it's far easier to create a natural monopoly on land than anything else, and thus it is hard for free markets to create a "fair" price that matches with the actual use-value. That's why even some libertarians in support of free markets also think economic rent from land is unfair business practice and should be controlled by heavy taxes (such as the economic ideology of Georgism: https://en.wikipedia.org/wiki/Georgism)
I read your entire comment and despite being three paragraphs long I can't see how it addresses gp's point, which is that the scarcity is still there whether you institute price controls, and instituting price controls only changes the symptoms.
Housing is not scarce though, some people (companies) own 14 houses whilst others have non. It's not a problem rent control can solve, but it's also not a scarcity problem.
This is an odd statement. The claim is - I think correctly - that regulating a price to combat scarcity will never help. Why should this statement apply to bread and not housing, or vice versa?
This is a silly simplification that posits that sticking the word "market" on something means that it will behave the same way and is beholden to the same forces. The bread "market" and the housing "market" are not comparable in this way. I think a lot more nuance is required for convincing case against (or for) rent control.
"limiting profits is bad" says the worlds biggest pro-capital megaphone while referencing a company that usually does paid pro-business questionnaires.
"As expected, rents in Berlin’s regulated market plummeted in relative terms." and "Newly built apartments have therefore become even more unaffordable for most people."
They are not directly lying, but I'd count this as dishonesty by omission. Newly built apartments in Berlin's city center were already impossible to finance for most people before the regulation started. So their complaint is like saying "most people cannot afford a home in Pacific Heights" which is true, but irrelevant to the regulation.
"There was also an acceleration of apartments going up for sale, as landlords tried to cash out of their now less profitable investments." You know, for the families trying to live there, that is amazing news!
"the landlord tends to sell the unit rather than re-let it" Wasn't that the goal of the regulation, to increase home ownership by those living there?
"The biggest question is whether this episode of left-wing populism has damaged confidence in Berlin’s real-estate market permanently. If investors fear that local property rights will be put at risk in every election, they might stop building houses in the city at all." Oh wow. I'd wager that 99% of those living in Berlin won't mind if international investment corporations build their overly shiny and overpriced apartments somewhere else.
And lastly, this article appears to not mention one critical thing about Berlin at all, which is "Wohnungsbaugenossenschaft". Regular families joining a non-profit to construct apartment buildings for their own use together. One of the goals of this regulation was to boost that, and scaring away for-profit investors might just be the way to make space for non-profit investments.
I don't blame Bloomberg and Ifo Institute for delivering what their customer base wants to read. But it would be foolish to treat this as objective reporting.
Disclaimer : I am not supporting any kind of police state with state controlled production
Everybody you met had probably left because of so called "socialism", so you have quite a bias in your data. Have you heard of "Ostalagia"? There is still a not so small "communist" party in Russia by the way.
Whether or not this succeeds or is a disaster a) depends on what wants the outcome to be like, and b) when this is settled in court. As of now house owners (and remember: we talk mostly investment companies, not individual persons) are encouraged to speculate that the court overrules rent controls and (somewhat illegally) hold back appartments from the market. Once this is settled one way or the other these flats will be available on the market again, and if rent control survives, at somewhat acceptables prices.
Remember that rents did increase ~300% or so over the last 15 years, but income maybe only 10 or 20%.
> as demand from new arrivals far outstripped supply
This is mischaracterizing what is going on. There is rampant speculation by multinationals buying up old housing stock and attempting to do the New York City model of hyperluxury renovations at the expense of existing residents.
The alternative proposed by the article is basically : let it unregulated, the market will provide.
Which is how it was before. Was the problem solved? No. Maybe it is not the right solution but I doubt very much the author is concerned by the problem.
The article says only some places have their rent capped so the rents of the uncapped ones are skyrocketing. I am not convinced it is a solution cause I don't claim to be competent in the matter but how about all rents be capped? This is a solution the article does not even bother to discuss. So it's just yet another piece telling you that things are how they are (that is to your disadvantage) and nothing should be done about it. The article put right wing populism and left wing populism on a equal footing but as far as I can see one tries to give access to a decent life and public services, the other leaves to fend for yourself while blaming any minority group for it.
> The alternative proposed by the article is basically : let it unregulated, the market will provide. Which is how it was before. Was the problem solved? No.
Sigh. Here's what the article actually says:
> The right answer to that shortage would be to increase supply — for instance, by cutting red tape in zoning and construction.
That's an alternative reform proposal, not going back to how things were before. I think it would work better than rent control, because increasing supply is better than haggling over fixed supply.
Edit: another possible solution is a land value tax. It's non-distortionary (doesn't lead landlords to reduce or increase supply) and prevents a lot of rent increase.
So increase offer by deregulating even more? Zoning and urban policies actually have a purpose : A nice city to live in And I am ready to bet that red tape has been cut again and again everywhere without solving the problem. Sorry for misrepresenting the article reform proposal but it did not strike me as a very innovative solution. More like more of the same.
Shrug. If two million people want to live in a city which has room only for a million, something has to give. Rent control doesn't increase housing. You must either increase housing somehow, or leave a million people unhappy.
If you don't mind the other million, and only care about people already living in the city, you can make it honest by introducing a city-wide Tenant Permit issued only to current tenants. Rents stabilize due to fixed demand, people aren't tied to one apartment, and landlords are incentivized to offer better service. It has all the benefits of your plan and none of the drawbacks, right?
It frustrates me to no end that on threads like these, comments on Georgist land-value taxes are buried so deeply. I wonder why they are not more widely recognised or discussed?
> Which is how it was before. Was the problem solved?
One of the problems is that when Berlin was partitioned it was a showcase for Eastern and Western Germany and lots of money flowed in for construction without really enough people to fill it. Now people are moving there and no one building.
"Price changes in the regulated market dropped relative to those in the 13 other cities. That’s because real estate loses value if its future cash flows to landlords are capped. There was also an acceleration of apartments going up for sale, as landlords tried to cash out of their now less profitable investments." & "And whenever somebody does move out — when moving to another city, for example — the landlord tends to sell the unit rather than re-let it."
Sounds like it is a massive success? Those units don't magically disappear, they are bought - by homeowners. It seems like the landlords were artificially driving up the housing market while not adding any value.
The only problem here is that they limited it to pre-2014 apartments. Maybe they should just extend it to all apartments instead.
If you know more than others, that's great. If you're going to post about it, please share some of what you know so the rest of us can learn. Just putting the other person down doesn't help, and poisons the atmosphere.
So you're driving out renters, who are typically less affluent, in favor of the wealthy.
Whether or not you call that success or failure depends on what you're trying to achieve, but usually these sorts of actions are trying to create housing affordability. Taking most of the supply off the market for new renters (by selling to people who can afford to buy and by incentivizing those who were already renting to stay for as long as possible) definitely does not create an affordable situation for those who need it.
Without creating more supply, you end up with one of two problems for folks at the bottom. Either you don't regulate housing, and their prices go up too much for many to afford, or you do something like this and you keep the existing stock affordable but guarantee that there won't be nearly enough stock for all the people (at the bottom of the economic ladder, at least) who want it.
In this case, you're not helping poorer folks as a class, you're only helping the specific set of poorer folks who were already renters (and who don't need to move into a bigger place, since they can't leave their current rentals). If you want to move to Berlin and you're not rich, you're SOL.
That certainly doesn't seem to be the intended effect, so based on that I don't think it's fair to call it a massive success.
This is not how it works. Without the possibility to rent out or consolidate homeownership, the inflationary pressure on home prices collapses.
You create an insane level amount of supply for homeownership on this market. An absolutely insane level.
Indeed, the vast majority of increase in housing prices is because rents are so high that 7% YoY returns are possible. Without these returns, then there is no way to justify inflation in housing prices for simple homeowners.
If somehow millions of people do buy houses in Berlin, then you build public housing to undercut the price of housing.
The idea that your scenario will happen is not really rooted in fact. To me, it seems like a way to rationalize the principle that rent control must always fail - whereas in the real world it doesn't, see Vienna.
Homeownership in Berlin is very low, at 17% or so. The absolute majority of the housing market is based on renting out units. Before saturation of homeownership happens, a gulf remains.
>This is not how it works. Without the possibility to rent out or consolidate homeownership, the inflationary pressure on home prices collapses.
No, as we seen in north america that's not really true. Homes can go up on speculation alone.
>You create an insane level amount of supply for homeownership on this market. An absolutely insane level.
Is homeownership a necessary component of this? Creating a insane level of supply for apartment rental achieves the same thing. If there are more units then there are renters, prices have to fall to meet demand.
> If there are more units then there are renters, prices have to fall to meet demand.
Not if it's so cheap to keep empty apartments around that you would rather not make money now, in the hope that you will be able to make more money in the future.
It's not exactly the same, but around here there is a huge oversupply of spaces for shops/restaurants. Owners prefer to keep them empty rather than have someone give them money.
EDIT: Well, maybe it's not actually oversupply. There might actually be a lot of demand, but not at the excessive prices landlords demand.
>Not if it's so cheap to keep empty apartments around that you would rather not make money now, in the hope that you will be able to make more money in the future.
Ironically rent control laws that cause this. Accepting a lower rent now would mean locking in a lower monthly rate for the future, whereas if you left it empty you can hope that the rental market will recover and charge high rents in the future.
If only the state could heavily tax empty apartments and cap resell price to counter that. But wait, it actually can.
Pushing renters and speculators out of the housing markets in favor of people who actually want to settle in the city is probably the best you can do as a municipality.
I must absolutely thank you. I derive personal enjoyment from broken systems and the mass suffering that they produce. Everyone is happy. Isn't that nice?
My personal enjoyment is watching people argue against measures which have demonstrably been effective in cities around the world (Vienna, Toronto) based on purely theoritical and ideological reasons while failing to address both their poor understanding a subject underpining their ideology and the fact that the current situation is actually broken.
Commercial spaces aren't rent controlled here, and many of them are empty. Many apartments are rent controlled, and I've never heard of them being empty for any appreciable amount of time.
>Commercial spaces aren't rent controlled here, and many of them are empty
AFAIK that's not due to government regulations, but due to how banks handle valuations. Leaving a property empty doesn't affect the valuation, but accepting a lower rent does. This has effects on the landlords, such as making it harder for them to get new loans, or triggering covenants on existing loans.
This is exactly the BS that happens with houses in foreclosure / bank owned. The solution should be to raise taxes on units that are not presently being used or actively being refurbished / litigated / etc.
There is still legal uncertainty. The German Constitutional Court hasn’t settled this matter yet. I would assume that that’s causing most uncertainty and people waiting. A temporary effect until legal certainty exists.
I'm not speculating at all. The article has the data to back the facts : house prices went down in Berlin.
Yes, homes can go up on speculation alone, but this is a bubble that will pop. In North America, rising rents act as a backstop that prevent the bubble from popping, because of guaranteed rental incomes that protect you.
It's not possible to create an insane level of supply for appartment rentals. There's two reasons for this. Firstly, there's the obvious limit to how much you can build within a reasonable commute time with reasonable infrastructure at a good quality of life. Secondly, studies have shown that 10% increases in supply lead to 1% decreases in price, more or less. Coupled with 4% rent increases over inflation every year, it's just not feasible to rely on additional supply.
In the real world, free markets lead to rent increasing right up until the level where too many people are in poverty due to high rent. That's because the natural increase in rent is simply too high to be counterbalanced by supply.
That's why from the worst planned cities to the very densest like Hong Kong, housing stays more or less as expensive as it can be without people moving out due to poverty.
The only solution is to make real estate a barely profitable or depreciating asset. This is done here by aggressive rent control. As renting stops being so affordable, apartments are sold, homeownership increases, and renting becomes something you do to prevent depreciation, not to make profit.
Crucially though, here, building more apartments stays profitable, because they can go to homeowners or to people who buy housing as a stable asset (and then rent it out). Coupled with public housing, you can get the best possible trade-off.
> I'm not speculating at all. The article has the data to back the facts : house prices went down in Berlin.
but supply has dropped as well. Freezing food prices would also drop food prices, but won't stop bread lines.
>Yes, homes can go up on speculation alone, but this is a bubble that will pop. In North America, rising rents act as a backstop that prevent the bubble from popping, because of guaranteed rental incomes that protect you.
Not exactly. Price-to-rent ratios are above 30 in major north american cities, reaching as high as 50 in SF. While future cashflows might provide some backstop in terms of your investment, that's really not much of a consolation when you can be doubling your money roughly every 20 years with stocks.
>In the real world, free markets lead to rent increasing right up until the level where too many people are in poverty due to high rent. That's because the natural increase in rent is simply too high to be counterbalanced by supply.
>The only solution is to make real estate a barely profitable or depreciating asset. This is done here by aggressive rent control. As renting stops being so affordable, apartments are sold, homeownership increases, and renting becomes something you do to prevent depreciation, not to make profit.
I'm not sure how rent control fixes this. If you have 1M families but only 100,000 plots of land, they're going bid up the price until enough people can't afford it. This dynamic is in play regardless of whether there are landlords or not.
> when you can be doubling your money roughly every 20 years with stocks.
With housing, a poorly-capitalised speculator can get a mortgage to buy property, and pay it off using rental income, with a deposit of maybe 15-20% of the value of the property. This lets them capture the price increase on a multiple of their deposit.
It is much harder to do something similar with the stock market and loans. Amount loaned would be lower and interest rates higher.
Nowhere does it say that supply has dropped. If renting is less profitable, then supply of houses to be sold will actually go up.
The ability to rent is not the primary driver of speculation. But it drastically lowers downside risk, which gives less incentive for anyone to pop the bubble.
>I'm not sure how rent control fixes this. If you have 1M families but only 100,000 plots of land, they're going bid up the price until enough people can't afford it. This dynamic is in play regardless of whether there are landlords or not.
"If renting is less profitable, then supply of houses to be sold will actually go up."
You wrongly assume that the landlord gets to make this choice. In this situation, the landlord does not - the tenant does. If renting is made more attractive by rent control, then fewer renters move out and supply is thus lessened.
You could try the Japanese solution of treating houses like cars, with strict inspections and tearing down/rebuilding essentially buying a new one every 10-20 years. (Obviously they can't export the used houses so it's not a complete analogy)
>Secondly, studies have shown that 10% increases in supply lead to 1% decreases in price, more or less.
Source?
This also hand waves the fact that a 1% decrease is still great in the face of say, a 4% increase, totaling a 5% spread — even more if factoring in inflation.
Sounds like increasing supply is still one of the best ways to keep prices in check.
I don't have the time to dig up the study, but it already factored in inflation.
Even with a 5% spread, to hold off real rent increases for ten years, you'd need to increase housing by 116%. Which is completely unrealistic. This rent control policy had the same effect as reversing 12 years of rent increases, which would require you to multiply supply by 2.5 over those twelve years.
Needless to say, this is not possible.
Increasing supply is assuredly important and necessary for keeping prices in check. But it will have a much smaller impact than rent control. The main purpose it will serve is to make sure mobility is still good.
The affordability crisis many cities are facing are not caused by the fact that rent increases exist, it's that they're increasing faster than wage increases.
One does not need to hold off rent increases for an arbitrary amount of time, they just have to stay inline with wages to remain affordable. With that in mind, it is certainly not impossible to build enough to keep up with job/wage growth.
I agree that no single policy can fix everything, but the current status quo of pitting the haves (rent control) vs. have-nots (newcomers/movers) is not working.
Nobody was talking about nationwide averages, because the housing crunch is local, not an average of what's going on throughout the country.
Wages in [U.S.] metropolitan areas have increased much more than what was referenced in your source [1], while housing in many of those areas has not kept up with that growth.
Just look at the wage growth at top metros, many of which have grown a lot recently, but have failed to increase housing supply to correspond with that growth.
Affordability crisis in these metros are the result of restrictive zoning policies that greatly restrict supply. The ones holding the bag are those that need to move, or had the unfortunate timing of being born more recently and are stuck paying recent market rates.
Rent control adds even more fuel to the fire by artificially constraining supply even further through reduced liquidity. People will stay longer than they otherwise would in their rent controlled unit because moving to a new one means paying market-rate on a different unit.
No, throughout this entire thread I have been specific about:
- Cities/metros, not the entire US.
- I was also specific about cities/metros that are experiencing a housing crisis, and not making an argument that all metros are in a housing crisis.
- I then cited my sources, and once again was specific about wage growth in top metros and how many have failed to grow their housing supply along with wages. That 86% of the U.S. is urbanized and growing 1% faster than average is not the issue here, it's that where growth is happening, supply is not keeping up.
- I then argued that restrictive policies are constraining supply. In the case of this article pertaining to Berlin, it's rent control. Metros in the U.S. with supply constrains (Like the SF Bay) also use rent control and limit supply.
Despite being specific, you keep conflating my arguments, or steering away from my core argument: Constrained housing supply is not keeping up with demand. I'm also arguing that it isn't impossible to build enough supply to keep up with demand.
The idea that if half of all housing in a city were sitting empty (which is what doubling housing supply means) would only cause prices to decrease by a couple percent is completely ridiculous on its face.
Go look at SF housing prices lately to see how the moderate increase in supply, from people moving out of the city lately, has caused an absolutely huge rent drop of around 30% .
Based on what I've seen elsewhere in Germany, Berlin will start seeing lots of empty apartments now that it is too much of a gamble whether you'll earn profit renting (since Germany's laws protect the renter more than the landlord, which you can combat with a portfolio of properties that earn a certain level of rent to cover the non-paying tenant that you can't evict), and because there isn't much of a good reason to sell (maybe in a few years things improve, or maybe the apartment is useful for family, or one's own future retirement home).
> It's not possible to create an insane level of supply for appartment rentals
This is technically true, but not for the reasons you list, and it isn't the case here.
You can always build up. 150 floor buildings are not possible - if rent goes high enough they are worth building. Nobody is going to build that if they don't expect a return on investment though.
It isn't a problem in reality because jobs face the same pressures. eventually some company will decide rent in those dense neighborhoods (sometimes cities as well) are too high, and move. That moves some housing demand with it.
Secondly, studies have shown that 10% increases in supply lead to 1% decreases in price, more or less. Coupled with 4% rent increases over inflation every year, it's just not feasible to rely on additional supply.
That doesn't follow. To build more supply the question how much it costs to build vs how much you can rent for. A a landlord the total profit in rent for the city isn't my concern it is my marginal profit that matters. Even if we double the supply of apartments in the city, my building 100 more isn't going to make much a difference in that, but I get a larger share of that 10% decrease in price and so my profit is still higher building 100 apartments than zero.
I don't know what is going on in Berlin (I can guess). I know in San Francisco the city has for many years refused to allow building at anywhere close to demand. Thus more people want to live in the city than actually can get an apartment there. Plenty of builders are willing to build more supply, but they are not allowed to under reasonable terms so they don't. (as a result of this there is a lack of experienced people in construction and so even if SF allowed unlimited building in practice there would only be a gradual uptick in building over 10 years while the industry gets experienced people back)
You are assuming that the only reason anyone would build is to rent things out. This ridiculous. A great many constructions are for people that own their houses. That alone solves the conundrum.
It doesn't in SF, because the problem there is that they can't reasonably build anything. Whether it's a house or an apartment building, it's not really getting built. And building a new house to replace an existing house (which is happening), doesn't increase housing stock. It just makes it newer.
You assume prices were merely driven by greedy landlords. That is of course untrue. Prices were driven up by the popularity of the city, with people seeking a place to rent outbidding each other and bidding prices up.
That demand will not simply go away, but newcomers will have to buy instead to rent. Or, there will be a huge black market. I've read an article about Stockholm were that seems to be what has happened.
A big irony is that the left who created the law has hurt some of their staunchest supporters, who did subsist by subletting their flats, which they had rented at old, low prices. That income is now also going away - it is not just "greedy rich speculators", but also transgender artists getting by on minimum income from subletting their flats whom they have hurt.
It is of course possible to lower prices by making the city less attractive. Socialism has succeeded in doing that already once, that is why Berlin was so cheap in the 90ies.
"You create an insane level amount of supply for homeownership on this market. An absolutely insane level."
You're completely ignoring the fact that homeownership, even if prices aren't incredibly high, requires a large down payment that many people don't have, which is why they rent. Those people still can't afford to buy and are pushed out, and they're the ones you're supposed to be helping.
"If somehow millions of people do buy houses in Berlin, then you build public housing to undercut the price of housing."
This is where your argument totally loses steam. You can't just handwave and say you'll build public housing... that is an incredibly expensive and politically difficult thing to do. When your theoretical solution to the problem is something that is very much not guaranteed (or even likely), and you pretend it'll just be no problem at all, you're ignoring reality and not presenting a useful solution.
Public housing is neither incredibly expensive nor politically difficult as long as you have a competent government and laws that don't artificially make it more expensive (see: US).
The economics are very simple. The price of housing if it's not profitable to rent and even less profitable to hold will drop until occupancy is high. Those that can't put down a down payment will rent, the others will buy. If not, the price will just continue to go down.
This argument isn't theoretical. It's an actual process that has been done and works.
Where abouts does it work currently and do you have any data to support this? I'm genuinely curious.
Also don't forget about renters keeping tennancies vacant temporarily, to avoid losing their locked in rent control rate. I have heard many stories of affluent people keeping a "cheap" apartment in New York vacant for years on end.
> This is where your argument totally loses steam. You can't just handwave and say you'll build public housing... that is an incredibly expensive and politically difficult thing to do. When your theoretical solution to the problem is something that is very much not guaranteed (or even likely), and you pretend it'll just be no problem at all, you're ignoring reality and not presenting a useful solution.
Just issue municipal bonds, and use that money to build. Investors pay the German government to hold their money. Building is not expensive at all.
> Indeed, the vast majority of increase in housing prices is because rents are so high that 7% YoY returns are possible. Without these returns, then there is no way to justify inflation in housing prices for simple homeowners.
The market is constrained by supply, which is constrained by regulation. If you want to see how this works without any rental market, look at Oslo. The prices are truly something else.
If there are 1000 units and they are being rented out then people are more willing to move to a residence that suits their needs better. When it makes sense people move away.
Once you add rent control people might stay simply because of the low rent, even if they are fully capable of paying market rate rent. They might have to commute to the edge of town and it still is a better deal for them. You get a stagnant housing market where people rarely move. The vacancy rate goes down and instead of renters always being able to at least visit an apartment with the fair chance of competing with say 5 people at most you now have dozens of renters all looking at the same apartment. This gives the land lord more power to charge higher prices and since he has to cancel out the losses from existing rent controlled apartments he might not even have a choice and simply increases the rates when possible.
The problem is that the land lord is being put under more pressure to perform and thus he becomes more selective and only gets the "best" tenants which favors the wealthy.
Of course, all those people getting paying dirt cheap rent are happy since they benefit personally from an externality.
>So you are replacing landlords with people who actually live there.
...who are now saddled with decades of mortgage payments, and have a high percentage of their net worth being tied up in a not very well diversified asset class.
If land prices are increasing faster than inflation it is bad unless they can get out before the bubble pops. Obviously if they bought too high that is a bad investment. Lets ignore this and assume a sane market where values mostly are similar to inflation.
While property increases with inflation are not nearly as good an investment as investments that do better than inflation, it isn't as bad as it sounds. The whole point of buying property in this case is a place to live. So in 30 years you no longer have a rent payment at all, and in between your rent never goes up. This payment situation needs to be factored in to the calculation since you will be living someplace no matter what. (unless you would normally live in a cardboard box) As a result people who invest in property to live in need to invest a much smaller portion of their total portfolio into something else. And since this is a place to live it doesn't matter how well it performs overall since you are not selling (at least not until you go to a nursing home which you can/should insure for).
Let me point out that rent doesn't increase when you own property. So if you invest just the difference between market rent and your rent over the years you will have more money to invest. Now that money doesn't have as long to grow (since it isn't front loaded as much), but owning is still a good part of a long term portfolio.
Note that the above makes some assumptions that may not be true, or that could be true but you don't want to for lifestyle reasons. That is perfectly fine - there is no one size fits all. Every situation is different, you need to make your own decisions as best you can. The first assumption above is you live there for the rest of your life (some amount of trading is allowed, but be careful as each trade is costly), the second is you pay off the dwelling.
Technically, for many owners their carrying costs do increase year over year. Property taxes, HOA, maintenance, etc all tend to increase over time. Depending on where you live, these non-mortgage costs can be thousands of dollars per month and they don't go away when the mortgage is paid off.
If you look at it in terms of portfolio construction, you would never want more than 10-20% of your net worth in your home, much less the 50+% many people have in practice. Owning your home is a pretty mixed bag, financially, and made worse in practice because people have far too much of their net worth in it. They'd benefit from renting much longer and buying much less home if it was a financial argument.
I've owned my current home for several years, and go back and forth between renting and owning. Even though I live in a "hot" property market and benefited from appreciation, I actually lost money versus renting the equivalent and investing the difference, and I do keep track.
Carrying costs are important to this consideration. They shouldn't be significant compared to rent or the payment, but in some areas they are.
I fully agree that 50% of net worth in a home is too much. Though I doubt that the people you are thinking of actually have that much net worth in a house - the house might be worth that much, but odds are they only own 5-10% of it, and the rest is net worth of the bank. By the time your house is 50% yours you should have seen enough decrease in carrying costs - compared to inflation - that you have more investments elsewhere to pay it off.
The analysis of lost money vs investing needs to compared over a lifetime not a shorter span. Your payoff comes at the end when you need much less invested in the first place to pay for the rent you no longer owe at all. If God hasn't told you the future in detail you can't know: how much will inflation be, when will you die, and other such things that affect how your lifetime investments play out.
That last also gets into life goals. if your plan is to live cheap and work for the rest of your life to leave a large sum of money to your heirs that means a different investment strategy vs someone who wants to retire early and leave nothing behind when they die. For the latter there is a difference between someone who wants to retire and spend all their time in the shop building something vs someone who wants to retire and travel the world.
Only you know your life goals today (and you don't know how they might change in the future!) so you need to make the right decisions for your. Renting and buying a dwelling both have pros and cons so there is no right decision for everyone.
> The caps represent a windfall to one group of tenants: those, whether rich or poor, who are already ensconced in regulated apartments. Simultaneously, they hurt all other groups — especially young people and those coming from other cities — by all but shutting them out of the market.
That’s not success, that’s picking winners and losers. Same as with SF Bay Area, Santa Monica (in LA) and any other place with rent control - being in place early makes you a winner. Finding a vacant rent stabilized place is like winning a lottery. Problem is what do you do with young people that should be moving out, or moving to the city for school?
Only real answer to housing is to build more of it. Else, you force people to move, pay more and/or cram ever more bodies into the same space. The latter is also what makes poor much more vulnerable, and not just in the pandemic.
Unfortunately, Berlin-style appears to mean “moving is almost impossible because 50 other people also want to view the same flat as you at the same time you’re looking at it, and you literally can’t outbid them”.
That was my experience, anyway. I eventually found a house share to get started, and after I arrived a hooked up with someone who happened to already have a place big enough for me to move into.
If I move within the city again, it will have to be by buying a place.
The solution is make it so that no one benefits from this dynamic (via a land tax), rather than just expanding the group that gets the benefits (which will never expand to include everyone, since land is scarce).
And then, of course, California decided to pass Proposition 13 [1] which made sure that owners who got in early also "win" vs more recent buyers.
There are owners of identical homes on the same block in San Francisco who pay 10x what their neighbors pay due only to when they bought (and the resultant purchase prices).
This is unlike saner places in the country which reassess property values regularly.
Even without Prop 13, this problem still applies, and is inherent to real estate.
Buying land is essentially buying a monopoly (since land is in fixed supply), and getting access to its rents for perpetuity. Prop 13 gives you even more of the rents, but in places with Prop 13, property taxes are low enough that most of the rents still go to the landowner.
You can compare land to taxi medallions, and see that all the reasons taxi medallions are bad also apply to land. Allowing indefinite ownership of the rents from a scarce resource essentially gives a slice of the future productivity of the community to those who were lucky to buy early enough.
Not at all, owners take on the risk and capital responsibility. I suspect those who bought in Detroit in the peak of that market would not look like a winner today. An extreme example, but still. Other less extreme examples would be in international markets where the base currency has declined - nominally the houses are more expensive, but in real terms could have lost over 50% of value.
If the housing market is relatively flat (and the currency is stable), then owning still typically provides you with benefits, such as equity accumulation.
Of everyone I know, the very few who looked for and somehow got a new flat right now benefit even more as they don't need to fear any backrent - their rent is lower from the start.
In my case, yes I benefit from the lowered rent but it's even harder to move if I want to (which I would if it was easier), I might owe a pretty big amount if the law is overturned, my flat is now getting sold and the other tenants are writing on the walls and threatening 'war' over the sale (even though realistically nobody here can be kicked out for 10-11 years after the sale).
> Those units don't magically disappear, they are bought - by homeowners.
I think you're assuming that the units are bought by owner-occupants and not other investors who have higher risk tolerance or who are betting that the law won't survive review by higher courts.
Let us recall that that inflation in Germany is close to 0. Thus, saying that policy X is responsible for a price hike is hilarious. There is no reason to raise the prices of unregulated apartments (second plot), except the greed of those owning the units.
Another way to read this article is "this rent control is bad because we real-state speculators are now focusing our greed on a smaller number of people, instead of focusing it on everyone else".
That being said, it is not clear from the plots that the overall amount of money that is being spent, city-wide, on housing has increased or decreased. I would argue this is the only valid metric to asses how effective this particular policy is.
> Let us recall that that inflation in Germany is close to 0.
OK.
> Thus, saying that policy X is responsible for a price hike is hilarious.
Not so fast. If inflation is close to 0, and policy X is introduced, and then price hikes show up in a category subject to policy X, why is it hilarious to say that policy X is responsible? Why is it not reasonable to at least suspect X?
> Let us recall that that inflation in Germany is close to 0. Thus, saying that policy X is responsible for a price hike is hilarious. There is no reason to raise the prices of unregulated apartments (second plot), except the greed of those owning the units.
This is a "not even wrong" attempt to connect inflation with supply and demand.
I don't actually see the disaster at all. Prices are staying low for millions of people already living in the city. Yes it's a pain for people who move but it might very well be a worthwhile trade-off.
However the real long term point is made at the end of the article.
>"The biggest question is whether this episode of left-wing populism has damaged confidence in Berlin’s real-estate market permanently. If investors fear that local property rights will be put at risk in every election, they might stop building houses in the city at all."
This isn't a disaster, this is what needs to happen. Drive down the property market, reclaim the housing stock, turn it into mixed income public housing, which is exactly what Vienna did when the Social Democrats took control of the city in the early 20th century. Today most of Vienna's housing is public housing, and it is considered one of the most livable cities on the planet. Driving the landlords and real estate companies out of the city is only a disaster for the professional rentier class. The only problem Berlin has right now is that it hasn't gone far enough.
If there are 100 houses in Berlin, and 101 households want to live there, no amount of reclaiming the housing stock is going to create space for that additional household.
Berlin's population has been growing by leaps and bounds. The only way for everyone to have enough housing is to create enough housing for everyone to live there, or to make it sufficiently unattractive to live in that people leave.
I have mixed feelings about this policy as a berliner.
But the article is definitely skewed towards the landowners and huge renting companies.
Some facts for you:
Rate of home ownership among Berliners, Londoners, Parisans:
- Berlin: 17.5%
- London: 52%
- Paris: ~60%
The main problems is huge home-renting corporations.
The article refers to a separate discussion about breaking up huge companies that own more than 3,000 apartments. As far as I know this criteria meets only a couple of huge companies such as Deutsche Wohnen that over the past couple of years have artificially created a sense of scarcity and caused the rent to increase without a proportionally increase to wages(Not only blue collar but also High Tech wages)
It is very ironic that companies such as Deutsche Wohnen were able to grab so many apartments when Berlin wall fell with dirt cheap prices. You can argue rushed privatisation caused this problem and something needs to be done if Berlin wants to avoid becoming SF.
Regarding the rate of home ownership among Berliners. I remember reading that Germans in general are more likely to to rent than own their housing. Is that not true?
>"It is very ironic that companies such as Deutsche Wohnen were able to grab so many apartments when Berlin wall fell with dirt cheap prices. You can argue rushed privatisation caused this problem and something needs to be done if Berlin wants to avoid becoming SF."
Interesting. Is Deutsche Wohnen origins the old East Berlin then?
> Interesting. Is Deutsche Wohnen origins the old East Berlin then?
Not really, no. It was founded in 1998 and initially had no Berlin holdings at all. It then bought various entities with housing stock in Berlin, which also have complex histories - e.g. one example was founded as a city-owned company in the 1920s, lost its East German properties obviously but continued to operate in West Berlin, after reunification got the eastern bits back, and then was privatized in the 90s. But of course East German state ownership plays a role in how the situation overall came together.
>I remember reading that Germans in general are more likely to to rent than own their housing. Is that not true?
The majority rent not because of a lifestyle choice but because they can't afford to buy anything so renting is their only choice. What else are they gonna do, be homeless? All mid-upper class German families I met owned their properties.
Which means a comeback of Soviet-style blocks. Given that red-green-red coalition is basically a comeback of DDR socialist party, this feels like DDR strikes back in Berlin.
There were actually two types of Soviet blocks in general terms. The first type was based on community and had a lot of greenery, a lot of community shops in walking distance, and those are actually worth quite a lot of money nowadays.
The rest were those that were built in order to rapidly provide housing to workers as industrial capacity was being massively built up.
In any case, in my city, the most iconic and beautiful housing structure was public housing, so if done right it can be beautiful and amazing to live in.
Otherwise, the private housing market is always there as competition.
If there's anyone I'd trust to get it right, it would be the Berlin lefties. Hopefully they are successful and set a good example for others to follow.
I grew up in a city with a lot of Soviet-style blocks (Ostrava).
Construction quality of said block living was notoriously shoddy. State of the buildings only improved when most of the units were sold into private hands (usually that of the tenants, no megacorps). After that, the tenants-turned-owners started investing into repairs and reconstructions.
I live in Berlin and don't find anything wrong with Plattenbau (Soviet-style blocks). It can be done cheap or good, but even cheap is durable in this case. Many buildings are only now being refurbished, many decades after construction. What I like about former East Berlin is the walkability. Wide open pedestrian walkways, focus on public transport and plazas for people to gather. Contrast that to wide open roads, focus on the private automobile and malls elsewhere.
I think this article is getting the interpretation of the facts all wrong.
They point to the predictable drop in supply in the regulated market as if it was a bad thing, but they ignore where that supply is coming from. Those are not newly-built apartments, because the price controls don't apply for new construction.
When an old apartment becomes available, it's because the previous occupant moved out, e.g. because they could no longer make rent. So making rents more affordable leads to fewer people having to move for financial reasons, which I think is a good thing.
Disclaimer: I live in a regulated apartment and don't intend to move, so it's probably not surprising that I like this policy.
It also leads to fewer people being able to move. Have a kid and your one bedroom apartment is too small, but don't have enough cash to buy a bigger place? Unfortunately, you're going to have to move out of Berlin, because two- and three-bedrooms are being sold when their tenants move out, so there's no supply available for you to move into.
You're definitely one of the people this type of policy helps, but you're benefitting at the direct expense of less affluent people who want to move into bigger apartments and who want to move into your city from outside of it.
That's fine if it's what they intend with these policies, but they're almost always championed as helping poorer people, when that's too overbroad to be accurate, because they actually only help poorer people who are currently renters and don't need to move (and bear in mind they also help rich people who are currently renters and don't seem to move, which hardly seems to be the goal).
The proposed rent control in Berlin is sticky, in that the rentier cannot increase rent between renters beyond a certain amount.
The most likely scenario is that they will find a place to move into in a year or so, which will fit their family planning.
Otherwise, if they have enough for a modest downpayment as the collapse of the renting market leads to increased supply in bought housing, they can also buy a condo.
If even that doesn't happen, they can also go into public housing.
I live in a rent controlled city. The scenario you are describing doesn't happen. When I was a kid, we moved 7 times. All we had to do was look for housing a few months in advance, and move as our lease was up.
I've also lived in rent controlled cities (like SF), and my experience runs counter to yours. Your experience is an anecdote, not data.
I get the impression you didn't actually read the article. It points out very clearly that when apartments go vacant in Berlin, they're being sold, not re-rented. If that's what happens when a renter leaves, then there's no stock for new renters to move into.
And just throwing in public housing as though it's a magical solution is wildly unrealistic, especially when you're dealing with large numbers of people.
I'm sure you live somewhere nice, but it's not reflective of the world.
If the apartments are being sold, then they must find buyers. If there is no way to rent them, then it's not profitable to hold on to them, and their value decreases. At that point, people can simply buy apartments, and everyone is happy.
My experience is typical and backed by data. In my city, roughly 25% of the renting population moves every year.
> you're benefitting at the direct expense of less affluent people who want to move into bigger apartments
Aren't you forgetting about the even less affluent people who wouldn't be able to afford a bigger apartment even at the same price per area as their current apartment and who'd be priced out of the market (a.k.a. forced to move out) by rising rents?
> and who want to move into your city from outside of it
I think not being able to move to your city of choice is less bad than being forced to leave it. The only way someone can move to Berlin without pushing others out is if the supply increases, which the rising prices for new apartments certainly incentivize. So the policy endures that the additional construction required to accommodate newcomers is paid for by them, rather than by all citizens.
"Aren't you forgetting about the even less affluent people who wouldn't be able to afford a bigger apartment even at the same price per area as their current apartment and who'd be priced out of the market (a.k.a. forced to move out) by rising rents?"
What? No... the whole point is the answer is supply, not rent control. Supply keeps prices down, rent control pushes prices up (for those units that hit the market, which are the only ones that matter in this case). Having a lot of supply on the market is what those people need, and rent control is what drives them out.
"I think not being able to move to your city of choice is less bad than being forced to leave it."
Okay, that's a fair preference, but the problem is it's never what anyone says they're trying to achieve when they enact rent control. The reasoning is always to help people who aren't well off financially, not to keep outsiders out of your city. If xenophobia is the goal, then by all means rent control away.
> the answer is supply, not rent control. Supply keeps prices down
Supply requires construction, which takes time, which limits the speed at which supply can be created. Meanwhile, demand has been growing much faster. So far, supply has not succeeded at keeping prices down, while rent control has.
> rent control pushes prices up (for those units that hit the market, which are the only ones that matter in this case)
First of all, units that hit the market are not the only ones that matter. There are already people living in those apartments who don't want them to hit the market because they'd like to continue living there, thankyouverymuch.
Secondly, the Bloomberg article shows that rent in rent-controlled apartments fell and the price for apartments that are sold, not rented, fell as well. The price increase is concentrated in the unregulated market for new construction, where it at least serves the useful purpose of incentivizing increasing supply, although still not quickly enough.
> Having a lot of supply on the market is what those people need, and rent control is what drives them out.
What? No... their landlords raising the rent to a level they can't afford is what drives them out, and rent control prevents that.
> The reasoning is always to help people who aren't well off financially, not to keep outsiders out of your city.
The reasoning is that poor people shouldn't get evicted from their apartments just because someone else is willing to pay more, and if that limits the ability of some outsiders to move there, that's an acceptable tradeoff. If those outsiders are willing to provide for their own supply by paying for the construction of new housing, they're very much welcome. I wouldn't call that xenophobia.
The thing I'm curious about is the impact of rent controls on traffic and commute times. This is a big deadweight loss of rent control, I think - people will often move because where they work changed, so if person A gets a job in person B's neighborhood and vice versa, the efficient outcome is for them to swap apartments rather than have opposite commutes. Rent control effectively locks people into their current apartment, which means some combination of longer commutes and taking worse jobs in lieu of an excessive commute that cannot be ameliorated by moving.
The graphs seem misleading or at least raises additional questions.
Yes, compared to the next 13 largest cities there seems to be a difference. However, the difference in graphs existed even before the policy proposal+enactment. The margin is also relatively small and only for a small timespan.
There should also be comparison to more comparable big cities like Munich, Cologne, Hamburg, or Frankfurt. Other cities are substantially smaller or have no (or even negative) population growth.
Of cause the rent in those cities grows differently compared to Berlin. Thereby shifting the average.
I get that it's Bloomberg's duty to root for the landlords, but to me the data in the article shows a very clear win for renters.
If I'm reading the graphs right, price controls in Berlin have slashed rent price growth by nearly 60% for almost all of the city's apartment stock.
Meanwhile, rent for the remainder, those apartments built since 2014, is only growing 10% faster than the baseline.
So if we're gonna do the math: [lots of apartments * -60% inflation], against [fewer apartments * +10% inflation], equals a presumed windfall for renters, versus the alternative history where this rent control policy doesn't get enacted.
The issue is that supply fell, so while there was a windfall for existing renters, anyone trying to join the renter class (by moving into the city, growing up and moving out of their parent's place, etc) is unable to find an apartment.
If you project this trend forward 10 or 20 years, you end up with a situation where most affordable rentals are being used by an aging population and the young have nowhere to live.
This also explains why these policies become entrenched: before, the world was divided into rich vs poor; now it's divided into (rich + old and poor) vs young and poor.
The situation in Berlin before the policy change was that the city government had made it very hard to build apartments at all. Each time a project it developed, the developer is blackmailed into supporting various unrelated policies, being it parking space related, maximum stories, etc., and sometimes capriciously denied permission to build. This is how my green-leaning, government-trusting architect friends describe the situation.
This happened all the while time Berlin changed from being viewed as a forgotten backyard in Germany with few companies and high unemployment to the capital city of the dominant and richest country in Europe. Especially the great financial crisis accelerated this change of perception.
Consequently, many people moved to Berlin. For many years 100k people per year moved into a city of 4m. Stated in terms of economics, supply of apartments was very steady, and demand jumped up.
The sound response of a market is to signal that through price hikes. That should encourage investment in residential building. When this is being suppressed nothing can even get better. Only longtime renters are favored. People with already cheap and large apartments benefit. Losers are those young couples expecting a baby.
A solution that could potentially work would be to accept temporary pains from high prices, remove regulatory obstacles from new construction and let the industry find a new balance. Maybe accelerate the process by governmental subsidies, if you like that sort of policy.
But the current policy can't work in theory, it doesn't work in practice. And it only benefits old established interests who are privileged already.
I moved to Berlin two years ago and the finding a house was incredibly exhausting. As the article mentions, there are two categories, rent capped apartments and non rent capped apartments.
For the first category, there are 2000+ applicants per day per apartment, making it impossible to actually have a chance to get the apartment. The odds getting that apartment as a foreigner that do not speak German is non existent, you actually have better odds on playing lottery and winning it, then buying a new apartment.
The second category is the overpriced apartments, the "landlords" (mostly the same three evil companies) are asking stupid amounts of rent for small apartments (1100 - 1200 cold rent for 50sqm ??). Those apartments are not accessible to 90% of the population. They are very happy to rent to the foreigners, since they can extract money from them, plus they do not know the local laws, so they can push newbies around.
Currently there are two categories of people living in the Berlin as well: The new comers, who are screwed and the old renters who rented for cheap, who landlords can not get rid of.
The first category are mostly expats, who are being screwed by landlords who do not want to rent to foreigners (especially if you are not from Europa), so they are pushed to new, non-rent capped apartments, making their lives even harder.
The second category is people rented huge apartments for 300 Euro per month 10 years ago, with 2% increases per year, who are not going to move soon.
Berlin wants to be the startup capital and an expat center, but it is not going to happen if they allow systematic exclusion* and abuse of expats that are trying to settle in the city.
I can go and rant for days but I think this post is already long enough.
* I did not want to use "racism" word here but it really feels like it is.
>"The second category is the overpriced apartments, the "landlords" (mostly the same three evil companies) are asking stupid amounts of rent for small apartments (1100 - 1200 cold rent for 50sqm ??)."
Which companies are these?
>"The first category are mostly expats, who are being screwed by landlords who do not want to rent to foreigners (especially if you are not from Europa),"
Unless I'm reading this incorrectly doesn't this contradict your earlier statment that they want to rent to expats "since they can extract money from them, plus they do not know the local laws, so they can push newbies around."?
I'm curious How did you ultimately end up finding a place?
My first apartment was a limited lease for 6 months (like AirBnB but a private company), which I could terminate within a month if I could find another place. I could not, had to extend it to 2 years (the landlord said it will not be possible to extend beyond 2 years). After the 1.5 years of search, I was able to get not so affordable but acceptable place.
1.5 years to find an apartment, that is not cheap but bordering the acceptable rent. Nobody should suffer this in their lifetimes.
I am not going to name the companies and get sued. Stuff like that are serious in Germany.
First question: I looked mostly in the center, nothing more than 7 kms away from my workplace. I needed somewhere that I can commute by bike, since the traffic and the fight for parking spaces are too exhausting. S-Bahn is too overcrowded.
For your second question, double of the rent cap, two rooms (or maybe 1.5), don't care if the building is old or new. Partly furnished is preferred but I do not mind unfurnished.
Please post with your main account if you are going to ask more personal questions.
Confirms my thinking that everyone wants to live in the middle and there isn't enough supply and really not enough space for new supply.
From my anecdotal experience, if all listed rents were double the rent cap, all apartments would still be filled, but lots of people would be locked out of the market.
Classic gentrification problem. I don't know the solution.
I think for foreigners it just means paying a ton more, and just accepting that the value-for-money trade-off when seeing cheaper but more desirable places is not real - because they are mostly unattainable.
> it is not going to happen if they allow systematic exclusion* and abuse of expats that are trying to settle in the city.
I don't think its deliberate exclusion/racism as you say.
When we looked we always found that there were other people more deserving than us. Like a pregnant couple with baby always needs more room more than us. If you are German, speak German, and are going to live here a long time, it makes more sense for landlord. If you don't earn a tech salary you will struggle to find anything within the city, so you are probably more deserving.
The tech foreigners usually can pay more, they just see cheaper rents that they can't get because of rent control and feel hard done-by.
If Berlin was your city, Germany your country, would you prioritize apartments for the wealthy tech people over the teachers for example?
All that matters should be how likely the person is able to pay the rent and not damage/burn down the apartment/disturb the neighbors.
> would you prioritize apartments for the wealthy tech people over the teachers
I am not German so I am not sure how to answer that. Logic says someone that earns extremely well, has unlimited working contract and is educated very well is a very good candidate, just as a public worker. But, for some reason, the applications that I have sent in German, even though the company representative (or very rarely the owner) is able to speak English, got 10 times more responses. Go figure.
>as a foreigner that do not speak German
Nothing is preventing you from learning Hochdeutsch. It is a simple language. Easier than python, certainly.
The problem is not caused by these land lords or real estate owners, but broken USSR era govenrnment planning combined with extremely lazy and corrupt modern government. Berlin had higher population than today in 1938, and the city administration did not have any issues.
Berlin's a big city and I bet most people don't care about start-ups or expats. Don't confuse what some politicians and companies are saying with the broad opinions of the entire population of Berlin.
Now that we got the alleged need for expats (which isn't) out of the way, let's address some of the other points:
* if you're a foreigner, especially from outside Europe you have less of a shared cultural background with the typical local landlord. Of course they're gonna like someone local more.
* if you don't even speak the local language, you're at a disadvantage in almost every imaginable situation in a foreign country. Some people are nice and make an effort to speak English - that's a courtesy, not something that is owed to you.
It looks like you were sold some fantasy start-up heaven which doesn't exist. Not everything revolves around software and nomad developers, shocking as that may be.
> The situation in Berlin before the policy change was that the city government had made it very hard to build apartments at all.
Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.
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[ 2.3 ms ] story [ 405 ms ] threadWhy not get rid of greedy farmers so people can grow potatoes in their backyard? Why this longing to re-implement the failed policies of East Germany? Is it nostalgia for police states and shortages?
No, and it isn't what I am suggesting. The point is that just that it becomes uninteresting for investors, it isn't for people actually living there. That doesn't exclude the professional execution of housing projects. I seriously doubt that people can build their home with their own hands and comply with German regulations. Especially in cities.
Housing developers might expect a lower margin, and if the margin is too low for such a business, people can take on the risk themselves and contract professionals to execute a joined housing development. People are already doing that.
If your goal is to have more of something then you tax it less and impose fewer costs on it. If your goal is to create less of something, then you tax it more and impose more costs on it. People understand this with cigarette taxes and carbon taxes but suddenly when it comes to apartments the signs are reversed? No, getting the sign right is important. If you want more homes, then reduce the costs of building homes -- or in your parlance, make it "more interesting" for investors.
However, housing is not a consumable (a large part of the houses are over 100 years old). It is not movable (a house in Hamburg does not satisfy demand in Berlin, Potsdam only to a limited degree). And it is a basic need (everyone needs exactly one).
However, the demand side is driven not only by local demand for housing, but also but "external" demand using housing as a source for investment and rent seeking.
The prospective home owner and tenant has to compete with their local salary and capital against international capital buying mostly existing property.
But all that money does not make new space appear. There is no factory to build "space".
So, like the cigarettes, we want to have less "consumers" of property, and that's why I think it makes sense to lower the demand side by making it less attractive to buy housing for investment. For the people living there, it is a basic need, and that will keep the demand from going to zero.
Is physics "dismal" because we can't have free energy or perpetual motion machines (that can do work)?
> Carlyle attacked Mill, not for supporting Malthus’s predictions about the dire consequences of population growth, but for supporting the emancipation of slaves. It was this fact–that economics assumed that people were basically all the same, and thus all entitled to liberty–that led Carlyle to label economics “the dismal science.”
https://www.econlib.org/archives/2015/07/the_origins_of_1.ht...
Even if there were those lots of people unable to move, would that actually be a problem in various cases? Unlike many other European countries, where the countryside has emptied out and brain-drained as its young people move to the big city, Germany has managed to keep many of its small towns viable places to live and work.
In general though, maintenance on average only costs ~150-300$ a month, so it's not necessary.
Isn't that why landlords argue they should make profit, because they carry the risk?
Under rent control the situation goes from being extremely advantageous to the landlord to just being regular advantageous.
In Berlin, people that already have social relations and support structures are the one that get discounted rent, which is what we want! This is better than if wealthy people get to pay less for housing. It's not as if the alternative made it cheaper.
An important part of the regulation is that the landlord cannot raise the rent when a new tenant moves in - the rent is locked for the unit, not the tenant. This prevents situations like New York, where you are essentially unable to move.
Mumbai did this and it was a disaster: https://marginalrevolution.com/marginalrevolution/2017/04/tw...
Now of course this legislation "prevented that", by refusing owners do this while tenants are in the apartments. Except the net result seems to be when tenants do leave, the apartments are taken out of the housing market altogether, exacerbating the already pretty critical problems.
And in the German press you will find accounts of pressure tactics (such as schemes to force tenants into default, "using" things like a divorce to kick people out (man signed contract, woman stays in apartment, gets kicked out when man refuses to pay but woman is not allowed to sign contract in her own name), creating critical maintenance problems ...) to create that situation.
So no, that is a very, very bad thing.
are the apartments just kept locked up?
I know rental stock immediately opened up in Dublin when the pandemic started, for example, before such a large increase would have arisen from renters leaving the city for suburbs.
The key thing here is supply and demand. If there is no profit to be made in renting out the property, then there is little reason to buy them up, in actuality. The exception is large companies that buy up a large amount of properties to manipulate the markets, but this has already been thinked of.
The main result of this if the unoccupied tax is used when necessary is a fall in the value of properties. This is a good thing for everyone that doesn't own a property that is unoccupied. This is what is wanted.
Because rent could be considered affordable in Vancouver ? In which Canada do you live ?
Whatever is going on in Vancouver, it isn't effective (at controlling rent prices)
What else is new.
In contrast, the one thing all doctors have in common is that they try to keep people healthy. So we can expect the medical community to advocate for policies that accomplish that. Of course there are doctors who could potentially have a conflict of interest between getting more business and doing their job correctly. But then we can still expect both factors to play a role, i.e. very few doctors would focus purely on getting business. And many doctors don't even have that conflict, e.g. employed ones whose job is secure.
If vaccines harmed people's health while benefitting doctors' bottom lines, we'd see a split between employed or ethical doctors vs unethical self-employed ones. It's inconceivable that there's a consensus among doctors for a policy they believe is harmful.
Anyway, I doubt vaccines even do increase demand for doctors. Administering them is cheap (~5 minutes of a nurse's time), treating the diseases they prevent is not.
This is the key statement to refute if you want to argue for rent control.
Even if you don't fully agree with this quote, claiming that only arguments by analogy can ever be valid arguments for rent control is... surprising.
People are going to starve either way, why not skip the whole "make the bakers filthy rich" part?
Also, this doesn't really apply to housing.
> Also, this doesn't really apply to housing. Correct, it's more complex there and some of the reasons are mentioned in the article.
If the bakers gets filthy rich, kudos on them !
Here are some arguments to refute if you want to oppose rent control, particularly the first one (copied and pasted directly from investopedia):
“Rental prices in many U.S. cities are rising far faster than wages for moderate-income jobs. [edit: note here that most of the US has banned rent control, and this is happening regardless]
“Rent control enables moderate-income families and elderly people on fixed incomes to live decently and without fear of a personally catastrophic rent hike.
“Neighborhoods are safer and more stable with a base of long-term residents in rent-controlled apartments.”
Edit: Not sure why I looked so far away, Paris is at 21,000. Like virtually every housing story, this is an example of the people who live in a place deciding they don't want anyone else to live there, and putting up economic walls that only the rich can surmount.
By whom? Ricchie McRich?
Every working class Hong Konger I talked to (even highly skilled ones) said living there is cramped and brutally expensive and would like to emigrate.
These numbers aren't comparable: The municipality of Paris is just the small urban core of a much larger metropolitan region. Berlin has about 3.7 million inhabitants on 890 square kilometers, Paris 2.2 million on 105 square kilometers.
A fairer comparison is with the Petite Couronne consisting of Paris + the innermost ring of its neighbors (https://en.wikipedia.org/wiki/%C3%8Ele-de-France#Petite_Cour...), which has 6.7 million people on 760 square kilometers. Still denser than Berlin! But the ratio is far less extreme than you made it look. For an alternative approach, take Berlin's densest districts: Friedrichshain-Kreuzberg, Mitte, and Neukölln add up to about 100 square kilometers (like Paris) and a bit over a million people. So about 2x less dense than Paris rather than 5x.
Where do you get that idea? It is false. New York? San Francisco? California has statewide rent control as of January 1 of last year. Many of the places where people want to move still do have rent control. Rent control is not a live issue in, e.g., Tulsa, OK or Amarillo, TX, whether it is legal or not.
> “Neighborhoods are safer and more stable with a base of long-term residents in rent-controlled apartments.”
If you have good evidence for this claim, I would like to see it. Moreover: "safer" and "more stable" relative to what? I guess your claim would be "safer and more stable than the counterfactual w/out rent control and with more housing." If you have good empirical evidence for that claim, I would love to see it.
From Wikipedia
"As of 2019, five states (California, New York, New Jersey, Maryland, Oregon) and the District of Columbia have localities in which some form of residential rent control is in effect (for normal structures, excluding mobile homes). Thirty-seven states either prohibit or preempt rent control, while eight states allow their cities to enact rent control, but have no cities that have implemented it."
https://en.wikipedia.org/wiki/Rent_control_in_the_United_Sta...
German construction industry used to be chronically overbooked, though. IDK how does the situation look now.
German bureaucracy probably does not help. When it comes to red tape, Germany is one of the most onerous countries to do anything new.
You mean... scarcity? That the argument specifically mentions as the thing that price controls doesn't fix? Are you _sure_ it doesn't address it?
Given the unmeasurable social costs of people starving and dying when there isn't enough food (you can say similarily for people not having houses and freezing to death when there's a blizzard, but also read the sidenote at the end), the capitalists involved in selling and distributing food should not be compensated equally in monetary terms (by selling at higher prices) when there is a shortage of food, since they are the ones at fault of not having reserve resources and prepare their production line from various disasters such as storms and droughts. Even people from the ancient times built and used granaries to store food for years and opened it up to their fellow villagers when storms/droughts happen (even without any profit motives, there wasn't even a notion of "profit" at all!) Capitalists in the current era should prepare far better than them, as our knowledge of biology, climate, and logistics are much more sophisticated than before; a shortage of food should be outright unimaginable given the advanced technology we have. Once there are empty food shelves, the disaster's already happened (at least in the short term you can't materialize food anymore by doing smart "economics"), and really at that dire point capitalists don't deserve the right to receive profit in the same way as normal times.
If the moral argument for this doesn't convince you - then there is a much more convincable political argument (of "dialectical materialism"), which basically goes as: once basic things like food and shelter aren't a given, and then capitalists gouge prices up creating an even bigger moral catastrophe among the poor, enough people would be fucking mad at them and band together wreck shit up, and some people would eventually have their heads cut off (as happened in many points in society, for example the French revolution). It's only that the current structures of power (the state & capital) are much more powerful than the past that this is more unlikely to happen, but if I were really in power I wouldn't dare try to steer closer to this event, as bloodshed doesn't really feel that good to participate. And that's the most uncontroversial center-wing take I can create.
Sidenote: I think your analogy of bread isn't really comparable to the housing problem though, since housing acts less of an ideal commodity than food in economic terms. Housing is far more troublesome if you approach it in a free-market lense, since it's far easier to create a natural monopoly on land than anything else, and thus it is hard for free markets to create a "fair" price that matches with the actual use-value. That's why even some libertarians in support of free markets also think economic rent from land is unfair business practice and should be controlled by heavy taxes (such as the economic ideology of Georgism: https://en.wikipedia.org/wiki/Georgism)
"As expected, rents in Berlin’s regulated market plummeted in relative terms." and "Newly built apartments have therefore become even more unaffordable for most people." They are not directly lying, but I'd count this as dishonesty by omission. Newly built apartments in Berlin's city center were already impossible to finance for most people before the regulation started. So their complaint is like saying "most people cannot afford a home in Pacific Heights" which is true, but irrelevant to the regulation.
"There was also an acceleration of apartments going up for sale, as landlords tried to cash out of their now less profitable investments." You know, for the families trying to live there, that is amazing news!
"the landlord tends to sell the unit rather than re-let it" Wasn't that the goal of the regulation, to increase home ownership by those living there?
"The biggest question is whether this episode of left-wing populism has damaged confidence in Berlin’s real-estate market permanently. If investors fear that local property rights will be put at risk in every election, they might stop building houses in the city at all." Oh wow. I'd wager that 99% of those living in Berlin won't mind if international investment corporations build their overly shiny and overpriced apartments somewhere else.
And lastly, this article appears to not mention one critical thing about Berlin at all, which is "Wohnungsbaugenossenschaft". Regular families joining a non-profit to construct apartment buildings for their own use together. One of the goals of this regulation was to boost that, and scaring away for-profit investors might just be the way to make space for non-profit investments.
I don't blame Bloomberg and Ifo Institute for delivering what their customer base wants to read. But it would be foolish to treat this as objective reporting.
Everybody you met had probably left because of so called "socialism", so you have quite a bias in your data. Have you heard of "Ostalagia"? There is still a not so small "communist" party in Russia by the way.
Remember that rents did increase ~300% or so over the last 15 years, but income maybe only 10 or 20%.
This is mischaracterizing what is going on. There is rampant speculation by multinationals buying up old housing stock and attempting to do the New York City model of hyperluxury renovations at the expense of existing residents.
Sigh. Here's what the article actually says:
> The right answer to that shortage would be to increase supply — for instance, by cutting red tape in zoning and construction.
That's an alternative reform proposal, not going back to how things were before. I think it would work better than rent control, because increasing supply is better than haggling over fixed supply.
Edit: another possible solution is a land value tax. It's non-distortionary (doesn't lead landlords to reduce or increase supply) and prevents a lot of rent increase.
If you don't mind the other million, and only care about people already living in the city, you can make it honest by introducing a city-wide Tenant Permit issued only to current tenants. Rents stabilize due to fixed demand, people aren't tied to one apartment, and landlords are incentivized to offer better service. It has all the benefits of your plan and none of the drawbacks, right?
One of the problems is that when Berlin was partitioned it was a showcase for Eastern and Western Germany and lots of money flowed in for construction without really enough people to fill it. Now people are moving there and no one building.
Sounds like it is a massive success? Those units don't magically disappear, they are bought - by homeowners. It seems like the landlords were artificially driving up the housing market while not adding any value.
The only problem here is that they limited it to pre-2014 apartments. Maybe they should just extend it to all apartments instead.
If you know more than others, that's great. If you're going to post about it, please share some of what you know so the rest of us can learn. Just putting the other person down doesn't help, and poisons the atmosphere.
https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sor...
Whether or not you call that success or failure depends on what you're trying to achieve, but usually these sorts of actions are trying to create housing affordability. Taking most of the supply off the market for new renters (by selling to people who can afford to buy and by incentivizing those who were already renting to stay for as long as possible) definitely does not create an affordable situation for those who need it.
Without creating more supply, you end up with one of two problems for folks at the bottom. Either you don't regulate housing, and their prices go up too much for many to afford, or you do something like this and you keep the existing stock affordable but guarantee that there won't be nearly enough stock for all the people (at the bottom of the economic ladder, at least) who want it.
In this case, you're not helping poorer folks as a class, you're only helping the specific set of poorer folks who were already renters (and who don't need to move into a bigger place, since they can't leave their current rentals). If you want to move to Berlin and you're not rich, you're SOL.
That certainly doesn't seem to be the intended effect, so based on that I don't think it's fair to call it a massive success.
Edit: Not to criticize the profanity version, I prefer it, just offering an alternative that doesn't need to be censored.
You create an insane level amount of supply for homeownership on this market. An absolutely insane level.
Indeed, the vast majority of increase in housing prices is because rents are so high that 7% YoY returns are possible. Without these returns, then there is no way to justify inflation in housing prices for simple homeowners.
If somehow millions of people do buy houses in Berlin, then you build public housing to undercut the price of housing.
The idea that your scenario will happen is not really rooted in fact. To me, it seems like a way to rationalize the principle that rent control must always fail - whereas in the real world it doesn't, see Vienna.
Homeownership in Berlin is very low, at 17% or so. The absolute majority of the housing market is based on renting out units. Before saturation of homeownership happens, a gulf remains.
No, as we seen in north america that's not really true. Homes can go up on speculation alone.
>You create an insane level amount of supply for homeownership on this market. An absolutely insane level.
Is homeownership a necessary component of this? Creating a insane level of supply for apartment rental achieves the same thing. If there are more units then there are renters, prices have to fall to meet demand.
Not if it's so cheap to keep empty apartments around that you would rather not make money now, in the hope that you will be able to make more money in the future.
It's not exactly the same, but around here there is a huge oversupply of spaces for shops/restaurants. Owners prefer to keep them empty rather than have someone give them money.
EDIT: Well, maybe it's not actually oversupply. There might actually be a lot of demand, but not at the excessive prices landlords demand.
Ironically rent control laws that cause this. Accepting a lower rent now would mean locking in a lower monthly rate for the future, whereas if you left it empty you can hope that the rental market will recover and charge high rents in the future.
Pushing renters and speculators out of the housing markets in favor of people who actually want to settle in the city is probably the best you can do as a municipality.
AFAIK that's not due to government regulations, but due to how banks handle valuations. Leaving a property empty doesn't affect the valuation, but accepting a lower rent does. This has effects on the landlords, such as making it harder for them to get new loans, or triggering covenants on existing loans.
That being said, I live in a rent controlled city, and occupancy rates are upwards of 90%, so that doesn't check out.
Yes, homes can go up on speculation alone, but this is a bubble that will pop. In North America, rising rents act as a backstop that prevent the bubble from popping, because of guaranteed rental incomes that protect you.
It's not possible to create an insane level of supply for appartment rentals. There's two reasons for this. Firstly, there's the obvious limit to how much you can build within a reasonable commute time with reasonable infrastructure at a good quality of life. Secondly, studies have shown that 10% increases in supply lead to 1% decreases in price, more or less. Coupled with 4% rent increases over inflation every year, it's just not feasible to rely on additional supply.
In the real world, free markets lead to rent increasing right up until the level where too many people are in poverty due to high rent. That's because the natural increase in rent is simply too high to be counterbalanced by supply.
That's why from the worst planned cities to the very densest like Hong Kong, housing stays more or less as expensive as it can be without people moving out due to poverty.
The only solution is to make real estate a barely profitable or depreciating asset. This is done here by aggressive rent control. As renting stops being so affordable, apartments are sold, homeownership increases, and renting becomes something you do to prevent depreciation, not to make profit.
Crucially though, here, building more apartments stays profitable, because they can go to homeowners or to people who buy housing as a stable asset (and then rent it out). Coupled with public housing, you can get the best possible trade-off.
but supply has dropped as well. Freezing food prices would also drop food prices, but won't stop bread lines.
>Yes, homes can go up on speculation alone, but this is a bubble that will pop. In North America, rising rents act as a backstop that prevent the bubble from popping, because of guaranteed rental incomes that protect you.
Not exactly. Price-to-rent ratios are above 30 in major north american cities, reaching as high as 50 in SF. While future cashflows might provide some backstop in terms of your investment, that's really not much of a consolation when you can be doubling your money roughly every 20 years with stocks.
>In the real world, free markets lead to rent increasing right up until the level where too many people are in poverty due to high rent. That's because the natural increase in rent is simply too high to be counterbalanced by supply.
>The only solution is to make real estate a barely profitable or depreciating asset. This is done here by aggressive rent control. As renting stops being so affordable, apartments are sold, homeownership increases, and renting becomes something you do to prevent depreciation, not to make profit.
I'm not sure how rent control fixes this. If you have 1M families but only 100,000 plots of land, they're going bid up the price until enough people can't afford it. This dynamic is in play regardless of whether there are landlords or not.
With housing, a poorly-capitalised speculator can get a mortgage to buy property, and pay it off using rental income, with a deposit of maybe 15-20% of the value of the property. This lets them capture the price increase on a multiple of their deposit.
It is much harder to do something similar with the stock market and loans. Amount loaned would be lower and interest rates higher.
The ability to rent is not the primary driver of speculation. But it drastically lowers downside risk, which gives less incentive for anyone to pop the bubble.
>I'm not sure how rent control fixes this. If you have 1M families but only 100,000 plots of land, they're going bid up the price until enough people can't afford it. This dynamic is in play regardless of whether there are landlords or not.
Well, empirically, it does fix it, doesn't it?
You wrongly assume that the landlord gets to make this choice. In this situation, the landlord does not - the tenant does. If renting is made more attractive by rent control, then fewer renters move out and supply is thus lessened.
Source?
This also hand waves the fact that a 1% decrease is still great in the face of say, a 4% increase, totaling a 5% spread — even more if factoring in inflation.
Sounds like increasing supply is still one of the best ways to keep prices in check.
Even with a 5% spread, to hold off real rent increases for ten years, you'd need to increase housing by 116%. Which is completely unrealistic. This rent control policy had the same effect as reversing 12 years of rent increases, which would require you to multiply supply by 2.5 over those twelve years.
Needless to say, this is not possible.
Increasing supply is assuredly important and necessary for keeping prices in check. But it will have a much smaller impact than rent control. The main purpose it will serve is to make sure mobility is still good.
One does not need to hold off rent increases for an arbitrary amount of time, they just have to stay inline with wages to remain affordable. With that in mind, it is certainly not impossible to build enough to keep up with job/wage growth.
I agree that no single policy can fix everything, but the current status quo of pitting the haves (rent control) vs. have-nots (newcomers/movers) is not working.
The average hourly US wage has not increased or barely so.
Therefore, the inflation adjustment done above corrects for it.
If you want rent increases to stay in line with wages, they will need to be held off entirely.
Wages in [U.S.] metropolitan areas have increased much more than what was referenced in your source [1], while housing in many of those areas has not kept up with that growth.
Just look at the wage growth at top metros, many of which have grown a lot recently, but have failed to increase housing supply to correspond with that growth.
Affordability crisis in these metros are the result of restrictive zoning policies that greatly restrict supply. The ones holding the bag are those that need to move, or had the unfortunate timing of being born more recently and are stuck paying recent market rates.
Rent control adds even more fuel to the fire by artificially constraining supply even further through reduced liquidity. People will stay longer than they otherwise would in their rent controlled unit because moving to a new one means paying market-rate on a different unit.
This is playing out similarly in Berlin.
[1] https://www.garnereconomics.com/images/reports/Metro_and_Non...
As far as I understand then, your entire argument is unfounded and contrary to the data.
FYI, the US urbanization rate is 86.4%.
- Cities/metros, not the entire US.
- I was also specific about cities/metros that are experiencing a housing crisis, and not making an argument that all metros are in a housing crisis.
- I then cited my sources, and once again was specific about wage growth in top metros and how many have failed to grow their housing supply along with wages. That 86% of the U.S. is urbanized and growing 1% faster than average is not the issue here, it's that where growth is happening, supply is not keeping up.
- I then argued that restrictive policies are constraining supply. In the case of this article pertaining to Berlin, it's rent control. Metros in the U.S. with supply constrains (Like the SF Bay) also use rent control and limit supply.
Despite being specific, you keep conflating my arguments, or steering away from my core argument: Constrained housing supply is not keeping up with demand. I'm also arguing that it isn't impossible to build enough supply to keep up with demand.
Go look at SF housing prices lately to see how the moderate increase in supply, from people moving out of the city lately, has caused an absolutely huge rent drop of around 30% .
This is technically true, but not for the reasons you list, and it isn't the case here.
You can always build up. 150 floor buildings are not possible - if rent goes high enough they are worth building. Nobody is going to build that if they don't expect a return on investment though.
It isn't a problem in reality because jobs face the same pressures. eventually some company will decide rent in those dense neighborhoods (sometimes cities as well) are too high, and move. That moves some housing demand with it.
Secondly, studies have shown that 10% increases in supply lead to 1% decreases in price, more or less. Coupled with 4% rent increases over inflation every year, it's just not feasible to rely on additional supply.
That doesn't follow. To build more supply the question how much it costs to build vs how much you can rent for. A a landlord the total profit in rent for the city isn't my concern it is my marginal profit that matters. Even if we double the supply of apartments in the city, my building 100 more isn't going to make much a difference in that, but I get a larger share of that 10% decrease in price and so my profit is still higher building 100 apartments than zero.
I don't know what is going on in Berlin (I can guess). I know in San Francisco the city has for many years refused to allow building at anywhere close to demand. Thus more people want to live in the city than actually can get an apartment there. Plenty of builders are willing to build more supply, but they are not allowed to under reasonable terms so they don't. (as a result of this there is a lack of experienced people in construction and so even if SF allowed unlimited building in practice there would only be a gradual uptick in building over 10 years while the industry gets experienced people back)
That's more than enough to justify building an infinite amount of housing.
That demand will not simply go away, but newcomers will have to buy instead to rent. Or, there will be a huge black market. I've read an article about Stockholm were that seems to be what has happened.
A big irony is that the left who created the law has hurt some of their staunchest supporters, who did subsist by subletting their flats, which they had rented at old, low prices. That income is now also going away - it is not just "greedy rich speculators", but also transgender artists getting by on minimum income from subletting their flats whom they have hurt.
It is of course possible to lower prices by making the city less attractive. Socialism has succeeded in doing that already once, that is why Berlin was so cheap in the 90ies.
You're completely ignoring the fact that homeownership, even if prices aren't incredibly high, requires a large down payment that many people don't have, which is why they rent. Those people still can't afford to buy and are pushed out, and they're the ones you're supposed to be helping.
"If somehow millions of people do buy houses in Berlin, then you build public housing to undercut the price of housing."
This is where your argument totally loses steam. You can't just handwave and say you'll build public housing... that is an incredibly expensive and politically difficult thing to do. When your theoretical solution to the problem is something that is very much not guaranteed (or even likely), and you pretend it'll just be no problem at all, you're ignoring reality and not presenting a useful solution.
The economics are very simple. The price of housing if it's not profitable to rent and even less profitable to hold will drop until occupancy is high. Those that can't put down a down payment will rent, the others will buy. If not, the price will just continue to go down.
This argument isn't theoretical. It's an actual process that has been done and works.
Also don't forget about renters keeping tennancies vacant temporarily, to avoid losing their locked in rent control rate. I have heard many stories of affluent people keeping a "cheap" apartment in New York vacant for years on end.
Just issue municipal bonds, and use that money to build. Investors pay the German government to hold their money. Building is not expensive at all.
The market is constrained by supply, which is constrained by regulation. If you want to see how this works without any rental market, look at Oslo. The prices are truly something else.
Once you add rent control people might stay simply because of the low rent, even if they are fully capable of paying market rate rent. They might have to commute to the edge of town and it still is a better deal for them. You get a stagnant housing market where people rarely move. The vacancy rate goes down and instead of renters always being able to at least visit an apartment with the fair chance of competing with say 5 people at most you now have dozens of renters all looking at the same apartment. This gives the land lord more power to charge higher prices and since he has to cancel out the losses from existing rent controlled apartments he might not even have a choice and simply increases the rates when possible.
The problem is that the land lord is being put under more pressure to perform and thus he becomes more selective and only gets the "best" tenants which favors the wealthy.
Of course, all those people getting paying dirt cheap rent are happy since they benefit personally from an externality.
But the landlords who owned (often own many) them were also wealthy. So you are replacing landlords with people who actually live there.
...who are now saddled with decades of mortgage payments, and have a high percentage of their net worth being tied up in a not very well diversified asset class.
If land prices are increasing faster than inflation it is bad unless they can get out before the bubble pops. Obviously if they bought too high that is a bad investment. Lets ignore this and assume a sane market where values mostly are similar to inflation.
While property increases with inflation are not nearly as good an investment as investments that do better than inflation, it isn't as bad as it sounds. The whole point of buying property in this case is a place to live. So in 30 years you no longer have a rent payment at all, and in between your rent never goes up. This payment situation needs to be factored in to the calculation since you will be living someplace no matter what. (unless you would normally live in a cardboard box) As a result people who invest in property to live in need to invest a much smaller portion of their total portfolio into something else. And since this is a place to live it doesn't matter how well it performs overall since you are not selling (at least not until you go to a nursing home which you can/should insure for).
Let me point out that rent doesn't increase when you own property. So if you invest just the difference between market rent and your rent over the years you will have more money to invest. Now that money doesn't have as long to grow (since it isn't front loaded as much), but owning is still a good part of a long term portfolio.
Note that the above makes some assumptions that may not be true, or that could be true but you don't want to for lifestyle reasons. That is perfectly fine - there is no one size fits all. Every situation is different, you need to make your own decisions as best you can. The first assumption above is you live there for the rest of your life (some amount of trading is allowed, but be careful as each trade is costly), the second is you pay off the dwelling.
If you look at it in terms of portfolio construction, you would never want more than 10-20% of your net worth in your home, much less the 50+% many people have in practice. Owning your home is a pretty mixed bag, financially, and made worse in practice because people have far too much of their net worth in it. They'd benefit from renting much longer and buying much less home if it was a financial argument.
I've owned my current home for several years, and go back and forth between renting and owning. Even though I live in a "hot" property market and benefited from appreciation, I actually lost money versus renting the equivalent and investing the difference, and I do keep track.
I fully agree that 50% of net worth in a home is too much. Though I doubt that the people you are thinking of actually have that much net worth in a house - the house might be worth that much, but odds are they only own 5-10% of it, and the rest is net worth of the bank. By the time your house is 50% yours you should have seen enough decrease in carrying costs - compared to inflation - that you have more investments elsewhere to pay it off.
The analysis of lost money vs investing needs to compared over a lifetime not a shorter span. Your payoff comes at the end when you need much less invested in the first place to pay for the rent you no longer owe at all. If God hasn't told you the future in detail you can't know: how much will inflation be, when will you die, and other such things that affect how your lifetime investments play out.
That last also gets into life goals. if your plan is to live cheap and work for the rest of your life to leave a large sum of money to your heirs that means a different investment strategy vs someone who wants to retire early and leave nothing behind when they die. For the latter there is a difference between someone who wants to retire and spend all their time in the shop building something vs someone who wants to retire and travel the world.
Only you know your life goals today (and you don't know how they might change in the future!) so you need to make the right decisions for your. Renting and buying a dwelling both have pros and cons so there is no right decision for everyone.
That’s not success, that’s picking winners and losers. Same as with SF Bay Area, Santa Monica (in LA) and any other place with rent control - being in place early makes you a winner. Finding a vacant rent stabilized place is like winning a lottery. Problem is what do you do with young people that should be moving out, or moving to the city for school?
Only real answer to housing is to build more of it. Else, you force people to move, pay more and/or cram ever more bodies into the same space. The latter is also what makes poor much more vulnerable, and not just in the pandemic.
That was my experience, anyway. I eventually found a house share to get started, and after I arrived a hooked up with someone who happened to already have a place big enough for me to move into.
If I move within the city again, it will have to be by buying a place.
Isn't this just the housing market in general? Why should renters not benefit from the same dynamics that owners do?
There are owners of identical homes on the same block in San Francisco who pay 10x what their neighbors pay due only to when they bought (and the resultant purchase prices).
This is unlike saner places in the country which reassess property values regularly.
[1] https://en.wikipedia.org/wiki/1978_California_Proposition_13
EDIT: also, why prop 13 applies to non-residential real estate is another issue.
Buying land is essentially buying a monopoly (since land is in fixed supply), and getting access to its rents for perpetuity. Prop 13 gives you even more of the rents, but in places with Prop 13, property taxes are low enough that most of the rents still go to the landowner.
You can compare land to taxi medallions, and see that all the reasons taxi medallions are bad also apply to land. Allowing indefinite ownership of the rents from a scarce resource essentially gives a slice of the future productivity of the community to those who were lucky to buy early enough.
If the housing market is relatively flat (and the currency is stable), then owning still typically provides you with benefits, such as equity accumulation.
This law only benefits tenants who already have an apartment in Berlin, anyone else is completely out of luck.
Source: I live in Berlin.
In my case, yes I benefit from the lowered rent but it's even harder to move if I want to (which I would if it was easier), I might owe a pretty big amount if the law is overturned, my flat is now getting sold and the other tenants are writing on the walls and threatening 'war' over the sale (even though realistically nobody here can be kicked out for 10-11 years after the sale).
I think you're assuming that the units are bought by owner-occupants and not other investors who have higher risk tolerance or who are betting that the law won't survive review by higher courts.
Another way to read this article is "this rent control is bad because we real-state speculators are now focusing our greed on a smaller number of people, instead of focusing it on everyone else".
That being said, it is not clear from the plots that the overall amount of money that is being spent, city-wide, on housing has increased or decreased. I would argue this is the only valid metric to asses how effective this particular policy is.
OK.
> Thus, saying that policy X is responsible for a price hike is hilarious.
Not so fast. If inflation is close to 0, and policy X is introduced, and then price hikes show up in a category subject to policy X, why is it hilarious to say that policy X is responsible? Why is it not reasonable to at least suspect X?
This is a "not even wrong" attempt to connect inflation with supply and demand.
- it doesn't apply to newer/new buildings
- it still hasn't been through the higher courts so it still can be overruled (and the tenants will owe the past rent retroactively)
However the real long term point is made at the end of the article.
>"The biggest question is whether this episode of left-wing populism has damaged confidence in Berlin’s real-estate market permanently. If investors fear that local property rights will be put at risk in every election, they might stop building houses in the city at all."
This isn't a disaster, this is what needs to happen. Drive down the property market, reclaim the housing stock, turn it into mixed income public housing, which is exactly what Vienna did when the Social Democrats took control of the city in the early 20th century. Today most of Vienna's housing is public housing, and it is considered one of the most livable cities on the planet. Driving the landlords and real estate companies out of the city is only a disaster for the professional rentier class. The only problem Berlin has right now is that it hasn't gone far enough.
Berlin's population has been growing by leaps and bounds. The only way for everyone to have enough housing is to create enough housing for everyone to live there, or to make it sufficiently unattractive to live in that people leave.
But the article is definitely skewed towards the landowners and huge renting companies.
Some facts for you:
Rate of home ownership among Berliners, Londoners, Parisans:
- Berlin: 17.5%
- London: 52%
- Paris: ~60%
The main problems is huge home-renting corporations. The article refers to a separate discussion about breaking up huge companies that own more than 3,000 apartments. As far as I know this criteria meets only a couple of huge companies such as Deutsche Wohnen that over the past couple of years have artificially created a sense of scarcity and caused the rent to increase without a proportionally increase to wages(Not only blue collar but also High Tech wages)
It is very ironic that companies such as Deutsche Wohnen were able to grab so many apartments when Berlin wall fell with dirt cheap prices. You can argue rushed privatisation caused this problem and something needs to be done if Berlin wants to avoid becoming SF.
- https://guthmann.estate/en/market-report/berlin/
- https://www.trustforlondon.org.uk/data/housing-tenure-over-t....
- https://tradingeconomics.com/france/home-ownership-rate#:~:t....
- https://www.dw.com/en/berlin-social-democrats-reject-expropr...
>"It is very ironic that companies such as Deutsche Wohnen were able to grab so many apartments when Berlin wall fell with dirt cheap prices. You can argue rushed privatisation caused this problem and something needs to be done if Berlin wants to avoid becoming SF."
Interesting. Is Deutsche Wohnen origins the old East Berlin then?
Not really, no. It was founded in 1998 and initially had no Berlin holdings at all. It then bought various entities with housing stock in Berlin, which also have complex histories - e.g. one example was founded as a city-owned company in the 1920s, lost its East German properties obviously but continued to operate in West Berlin, after reunification got the eastern bits back, and then was privatized in the 90s. But of course East German state ownership plays a role in how the situation overall came together.
The majority rent not because of a lifestyle choice but because they can't afford to buy anything so renting is their only choice. What else are they gonna do, be homeless? All mid-upper class German families I met owned their properties.
There were actually two types of Soviet blocks in general terms. The first type was based on community and had a lot of greenery, a lot of community shops in walking distance, and those are actually worth quite a lot of money nowadays.
The rest were those that were built in order to rapidly provide housing to workers as industrial capacity was being massively built up.
In any case, in my city, the most iconic and beautiful housing structure was public housing, so if done right it can be beautiful and amazing to live in.
Otherwise, the private housing market is always there as competition.
If there's anyone I'd trust to get it right, it would be the Berlin lefties. Hopefully they are successful and set a good example for others to follow.
Construction quality of said block living was notoriously shoddy. State of the buildings only improved when most of the units were sold into private hands (usually that of the tenants, no megacorps). After that, the tenants-turned-owners started investing into repairs and reconstructions.
They point to the predictable drop in supply in the regulated market as if it was a bad thing, but they ignore where that supply is coming from. Those are not newly-built apartments, because the price controls don't apply for new construction.
When an old apartment becomes available, it's because the previous occupant moved out, e.g. because they could no longer make rent. So making rents more affordable leads to fewer people having to move for financial reasons, which I think is a good thing.
Disclaimer: I live in a regulated apartment and don't intend to move, so it's probably not surprising that I like this policy.
You're definitely one of the people this type of policy helps, but you're benefitting at the direct expense of less affluent people who want to move into bigger apartments and who want to move into your city from outside of it.
That's fine if it's what they intend with these policies, but they're almost always championed as helping poorer people, when that's too overbroad to be accurate, because they actually only help poorer people who are currently renters and don't need to move (and bear in mind they also help rich people who are currently renters and don't seem to move, which hardly seems to be the goal).
The most likely scenario is that they will find a place to move into in a year or so, which will fit their family planning.
Otherwise, if they have enough for a modest downpayment as the collapse of the renting market leads to increased supply in bought housing, they can also buy a condo.
If even that doesn't happen, they can also go into public housing.
I live in a rent controlled city. The scenario you are describing doesn't happen. When I was a kid, we moved 7 times. All we had to do was look for housing a few months in advance, and move as our lease was up.
I get the impression you didn't actually read the article. It points out very clearly that when apartments go vacant in Berlin, they're being sold, not re-rented. If that's what happens when a renter leaves, then there's no stock for new renters to move into.
And just throwing in public housing as though it's a magical solution is wildly unrealistic, especially when you're dealing with large numbers of people.
I'm sure you live somewhere nice, but it's not reflective of the world.
My experience is typical and backed by data. In my city, roughly 25% of the renting population moves every year.
Aren't you forgetting about the even less affluent people who wouldn't be able to afford a bigger apartment even at the same price per area as their current apartment and who'd be priced out of the market (a.k.a. forced to move out) by rising rents?
> and who want to move into your city from outside of it
I think not being able to move to your city of choice is less bad than being forced to leave it. The only way someone can move to Berlin without pushing others out is if the supply increases, which the rising prices for new apartments certainly incentivize. So the policy endures that the additional construction required to accommodate newcomers is paid for by them, rather than by all citizens.
What? No... the whole point is the answer is supply, not rent control. Supply keeps prices down, rent control pushes prices up (for those units that hit the market, which are the only ones that matter in this case). Having a lot of supply on the market is what those people need, and rent control is what drives them out.
"I think not being able to move to your city of choice is less bad than being forced to leave it."
Okay, that's a fair preference, but the problem is it's never what anyone says they're trying to achieve when they enact rent control. The reasoning is always to help people who aren't well off financially, not to keep outsiders out of your city. If xenophobia is the goal, then by all means rent control away.
Supply requires construction, which takes time, which limits the speed at which supply can be created. Meanwhile, demand has been growing much faster. So far, supply has not succeeded at keeping prices down, while rent control has.
> rent control pushes prices up (for those units that hit the market, which are the only ones that matter in this case)
First of all, units that hit the market are not the only ones that matter. There are already people living in those apartments who don't want them to hit the market because they'd like to continue living there, thankyouverymuch.
Secondly, the Bloomberg article shows that rent in rent-controlled apartments fell and the price for apartments that are sold, not rented, fell as well. The price increase is concentrated in the unregulated market for new construction, where it at least serves the useful purpose of incentivizing increasing supply, although still not quickly enough.
> Having a lot of supply on the market is what those people need, and rent control is what drives them out.
What? No... their landlords raising the rent to a level they can't afford is what drives them out, and rent control prevents that.
> The reasoning is always to help people who aren't well off financially, not to keep outsiders out of your city.
The reasoning is that poor people shouldn't get evicted from their apartments just because someone else is willing to pay more, and if that limits the ability of some outsiders to move there, that's an acceptable tradeoff. If those outsiders are willing to provide for their own supply by paying for the construction of new housing, they're very much welcome. I wouldn't call that xenophobia.
Yes, compared to the next 13 largest cities there seems to be a difference. However, the difference in graphs existed even before the policy proposal+enactment. The margin is also relatively small and only for a small timespan.
There should also be comparison to more comparable big cities like Munich, Cologne, Hamburg, or Frankfurt. Other cities are substantially smaller or have no (or even negative) population growth. Of cause the rent in those cities grows differently compared to Berlin. Thereby shifting the average.
If I'm reading the graphs right, price controls in Berlin have slashed rent price growth by nearly 60% for almost all of the city's apartment stock.
Meanwhile, rent for the remainder, those apartments built since 2014, is only growing 10% faster than the baseline.
So if we're gonna do the math: [lots of apartments * -60% inflation], against [fewer apartments * +10% inflation], equals a presumed windfall for renters, versus the alternative history where this rent control policy doesn't get enacted.
If you project this trend forward 10 or 20 years, you end up with a situation where most affordable rentals are being used by an aging population and the young have nowhere to live.
This also explains why these policies become entrenched: before, the world was divided into rich vs poor; now it's divided into (rich + old and poor) vs young and poor.
This happened all the while time Berlin changed from being viewed as a forgotten backyard in Germany with few companies and high unemployment to the capital city of the dominant and richest country in Europe. Especially the great financial crisis accelerated this change of perception.
Consequently, many people moved to Berlin. For many years 100k people per year moved into a city of 4m. Stated in terms of economics, supply of apartments was very steady, and demand jumped up.
The sound response of a market is to signal that through price hikes. That should encourage investment in residential building. When this is being suppressed nothing can even get better. Only longtime renters are favored. People with already cheap and large apartments benefit. Losers are those young couples expecting a baby.
A solution that could potentially work would be to accept temporary pains from high prices, remove regulatory obstacles from new construction and let the industry find a new balance. Maybe accelerate the process by governmental subsidies, if you like that sort of policy.
But the current policy can't work in theory, it doesn't work in practice. And it only benefits old established interests who are privileged already.
For the first category, there are 2000+ applicants per day per apartment, making it impossible to actually have a chance to get the apartment. The odds getting that apartment as a foreigner that do not speak German is non existent, you actually have better odds on playing lottery and winning it, then buying a new apartment.
The second category is the overpriced apartments, the "landlords" (mostly the same three evil companies) are asking stupid amounts of rent for small apartments (1100 - 1200 cold rent for 50sqm ??). Those apartments are not accessible to 90% of the population. They are very happy to rent to the foreigners, since they can extract money from them, plus they do not know the local laws, so they can push newbies around.
Currently there are two categories of people living in the Berlin as well: The new comers, who are screwed and the old renters who rented for cheap, who landlords can not get rid of.
The first category are mostly expats, who are being screwed by landlords who do not want to rent to foreigners (especially if you are not from Europa), so they are pushed to new, non-rent capped apartments, making their lives even harder.
The second category is people rented huge apartments for 300 Euro per month 10 years ago, with 2% increases per year, who are not going to move soon.
Berlin wants to be the startup capital and an expat center, but it is not going to happen if they allow systematic exclusion* and abuse of expats that are trying to settle in the city.
I can go and rant for days but I think this post is already long enough.
* I did not want to use "racism" word here but it really feels like it is.
Which companies are these?
>"The first category are mostly expats, who are being screwed by landlords who do not want to rent to foreigners (especially if you are not from Europa),"
Unless I'm reading this incorrectly doesn't this contradict your earlier statment that they want to rent to expats "since they can extract money from them, plus they do not know the local laws, so they can push newbies around."?
I'm curious How did you ultimately end up finding a place?
Pretty sure they are talking about Vonovia [0], Degewo [1], Deutsche Wohnen [2].
[0]: https://www.vonovia.de/en [1]: https://www.degewo.de/ [2]: https://www.deutsche-wohnen.com/en/
1.5 years to find an apartment, that is not cheap but bordering the acceptable rent. Nobody should suffer this in their lifetimes.
I am not going to name the companies and get sued. Stuff like that are serious in Germany.
Curious - how far outside of the center of Berlin did your search extend, and what was your parameters for an acceptable place/rent?
For your second question, double of the rent cap, two rooms (or maybe 1.5), don't care if the building is old or new. Partly furnished is preferred but I do not mind unfurnished.
Please post with your main account if you are going to ask more personal questions.
From my anecdotal experience, if all listed rents were double the rent cap, all apartments would still be filled, but lots of people would be locked out of the market.
Classic gentrification problem. I don't know the solution.
I think for foreigners it just means paying a ton more, and just accepting that the value-for-money trade-off when seeing cheaper but more desirable places is not real - because they are mostly unattainable.
I don't think its deliberate exclusion/racism as you say.
When we looked we always found that there were other people more deserving than us. Like a pregnant couple with baby always needs more room more than us. If you are German, speak German, and are going to live here a long time, it makes more sense for landlord. If you don't earn a tech salary you will struggle to find anything within the city, so you are probably more deserving.
The tech foreigners usually can pay more, they just see cheaper rents that they can't get because of rent control and feel hard done-by.
If Berlin was your city, Germany your country, would you prioritize apartments for the wealthy tech people over the teachers for example?
> would you prioritize apartments for the wealthy tech people over the teachers
I am not German so I am not sure how to answer that. Logic says someone that earns extremely well, has unlimited working contract and is educated very well is a very good candidate, just as a public worker. But, for some reason, the applications that I have sent in German, even though the company representative (or very rarely the owner) is able to speak English, got 10 times more responses. Go figure.
The problem is not caused by these land lords or real estate owners, but broken USSR era govenrnment planning combined with extremely lazy and corrupt modern government. Berlin had higher population than today in 1938, and the city administration did not have any issues.
Wow that's cheap, London you'd pay double or triple that.
A good 1 bed ~50 sqm in a major city (read - jobs) would run close to $2,000 with a few exceptions.
Now that we got the alleged need for expats (which isn't) out of the way, let's address some of the other points:
* if you're a foreigner, especially from outside Europe you have less of a shared cultural background with the typical local landlord. Of course they're gonna like someone local more.
* if you don't even speak the local language, you're at a disadvantage in almost every imaginable situation in a foreign country. Some people are nice and make an effort to speak English - that's a courtesy, not something that is owed to you.
It looks like you were sold some fantasy start-up heaven which doesn't exist. Not everything revolves around software and nomad developers, shocking as that may be.
Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.