Rent controls have split housing in Berlin into two distinct markets

https://www.bloomberg.com/opinion/articles/2021-03-02/berlin-s-rent-controls-are-proving-to-be-the-disaster-we-feared

by vanburen • 5 years ago

304 708 5 years ago

drpgq• 5 years ago

Yes why build an apartment in Berlin if they will just inevitably move the date for rent controlled buildings forward eventually.

yokaze3• 5 years ago

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?

rsj_hn8• 5 years ago

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?

refurb11• 5 years ago

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.

dmfdmf2• 5 years ago

If only there was a science that could have predicted this.

cpufry• 5 years ago

the dismal science

dmfdmf2• 5 years ago

It is only dismal if you think money should grow on trees which seems to be the premise behind FED policy today.

Is physics "dismal" because we can't have free energy or perpetual motion machines (that can do work)?

BurningFrog2• 5 years ago

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.”

https://www.econlib.org/archives/2015/07/the_origins_of_1.ht...

billpg• 5 years ago

Did a landlord write this?

Darmody• 5 years ago

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.

sparsely• 5 years ago

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.

robertlagrant10• 5 years ago

Think about how much money a landlord has to invest with in keeping a property attractive to renters. What's the point?

axihack• 5 years ago

Exactly, what is the point?

cassepipe5• 5 years ago

Time to sell for a reasonable price then.

Mediterraneo102• 5 years ago

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.

fallingknife2• 5 years ago

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?

rbranson3• 5 years ago

This sounds a lot like land ownership.

sudosysgen24• 5 years ago

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.

crote3• 5 years ago

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.

steviedotboston• 5 years ago

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

sudosysgen24• 5 years ago

If they are finding homeowners which are not renting them, is that not a good thing?

tjansen• 5 years ago

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.

ahoy2• 5 years ago

This is an opinion piece in bloomberg, a pro-business, pro-wealthy publication. Is there any surprise that they dislike rent controls?

robertlagrant10• 5 years ago

This is true. Same logic goes for anti-vaxxers and doctors. Of COURSE doctors recommend going to doctors. They WOULD say that.

pfraze• 5 years ago

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.

ahoy2• 5 years ago

The difference is, of course, doctors provide healthcare services and landlords provide middleman-who-makes-housing-more-expensive services.

anoncake6• 5 years ago

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.

robertlagrant10• 5 years ago

In a food shortage, for example, regulating the price of bread only trades one expression of scarcity (high prices) for another (empty shelves).

This is the key statement to refute if you want to argue for rent control.

tom_mellior4• 5 years ago

"Proof by analogy is fraud." -- Bjarne Stroustrup

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.

crote3• 5 years ago

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?

krcz2• 5 years ago

When the price explodes, bakers may hire more people and bake bread during night and day, increasing the supply.

alacombe3• 5 years ago

That's petty resentment right here found in both communist ethics and catholicism... "if I can't get filthy rich, nobody shall be".

If the bakers gets filthy rich, kudos on them !

dahart4• 5 years ago

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.”

bradleybuda• 5 years ago

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.

huitzitziltzin2• 5 years ago

[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.

inglor_cz2• 5 years ago

Berlin has a lot of empty space, including various brownfields that would look better if they were built over.

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.

robertlagrant10• 5 years ago

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?

lasagnaphil• 5 years ago

Okay, I'll try.

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)

gruez7• 5 years ago

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.

La1n5• 5 years ago

I think you would first need to show that bread and housing follow the same rules if you want to say that analogy applies to rent control

robertlagrant10• 5 years ago

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?

AlexandrB3• 5 years ago

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.

robertlagrant10• 5 years ago

Saying "these markets cannot be compared" and "more nuance is required" without justifying either statement is pointless.

ghostwriter• 5 years ago

"You know, Quasimodo predicted all this"

fxtentacle2• 5 years ago

"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.

fallingknife2• 5 years ago

"Communism is bad" says everybody I have ever met who lived in a communist country.

fxtentacle2• 5 years ago

I agree, I phrased that badly. I've now edited it to "limiting profits is bad".

cassepipe5• 5 years ago

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.

radiospiel• 5 years ago

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%.

beerbajay• 5 years ago

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.

cassepipe5• 5 years ago

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.

cousin_it2• 5 years ago

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.

cassepipe5• 5 years ago

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.

brutusborn3• 5 years ago

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?

u678u5• 5 years ago

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.

crote3• 5 years ago

"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.

wendyshu• 5 years ago

Maybe read an economics textbook before opining on economics?

dang• 5 years ago

Hey, can you please omit personal swipes from your HN comments? We're trying for something quite different here: https://news.ycombinator.com/newsguidelines.html.

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...

awillen6• 5 years ago

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.

ycombinatorrio• 5 years ago

I learned a new word SOL (S*t outta luck)

sudosysgen24• 5 years ago

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.

La1n5• 5 years ago

So you're driving out renters, who are typically less affluent, in favor of the wealthy.

But the landlords who owned (often own many) them were also wealthy. So you are replacing landlords with people who actually live there.

sologoub3• 5 years ago

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.

smnrchrds2• 5 years ago

I think that quote refers to American style of rent control that is tied to the tenant, as opposed to the German style that is tied to the building.

walshemj3• 5 years ago

Which in a lot of cases will be brought by speculators see London sf and Vancouver

AlexandrB3• 5 years ago

being in place early makes you a winner

Isn't this just the housing market in general? Why should renters not benefit from the same dynamics that owners do?

cbmuser2• 5 years ago

The problem is that's virtually impossible to find new in apartments these days.

This law only benefits tenants who already have an apartment in Berlin, anyone else is completely out of luck.

Source: I live in Berlin.

Tenoke4• 5 years ago

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).

bdowling3• 5 years ago

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.

syats• 5 years ago

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.

AnimalMuppet• 5 years ago

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?

jdminhbg• 5 years ago

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.

raverbashing• 5 years ago

Two important details about the rent control law:

- 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)

Barrin92• 5 years ago

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.

compiler-guy2• 5 years ago

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.

kamyarg• 5 years ago

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.

- 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...

bogomipz2• 5 years ago

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?

detaro• 5 years ago

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.

ChuckNorris897• 5 years ago

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.

sudosysgen24• 5 years ago

Seems to me it is working as intended. Now the only thing remaining is to build a lot of public housing to increase supply at affordable prices.

orloffm• 5 years ago

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.

sudosysgen24• 5 years ago

Why would it have to be Soviet blocks?

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.

La1n5• 5 years ago

Better soviet-style blocks than no housing.

llampx5• 5 years ago

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.

yorwba3• 5 years ago

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.

awillen6• 5 years ago

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).

sudosysgen24• 5 years ago

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.

yorwba3• 5 years ago

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.

ThrustVectoring• 5 years ago

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.

zapnuk• 5 years ago

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.

caseyross• 5 years ago

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.

el_nahual2• 5 years ago

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.

fabiofzero• 5 years ago

It's Bloomberg so of course anything helping the poor is a "disaster".

febeling• 5 years ago

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.

csunbird6• 5 years ago

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.

bogomipz2• 5 years ago

"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?

throwaway129036• 5 years ago

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?

sowjetthrowaway• 5 years ago

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.

u678u5• 5 years ago

stupid amounts of rent for small apartments (1100 - 1200 cold rent for 50sqm

Wow that's cheap, London you'd pay double or triple that.

blub6• 5 years ago

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.

alacombe3• 5 years ago

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.

neonate• 5 years ago

https://archive.is/l3i2w

aphextron• 5 years ago

In a food shortage, for example, regulating the price of bread only trades one expression of scarcity (high prices) for another (empty shelves).

Well sure. But the total amount of people who have some bread is now greater, versus a select few wealthy people getting all the bread they want, as the wretched masses stare longingly. You can either increase total happiness, or concentrate it to the powerful. It's pretty clear by the tone of this article which side the writer lands on.

0x1DEADCA02• 5 years ago

Once the evil rich pigs have lots of bread, more than even they can eat, do they then not start using it to purchase labor from the starving poor?

tyree7312• 5 years ago

Not necessarily and, historically, not true at sufficient scale.

cambalache2• 5 years ago

No, they use it to buy lands, resources, mercenaries to get more land and to keep the status quo. I suppose if you are a mercenary you will be fine (as long as your head is not split in 2)

_2d302• 5 years ago

Unclear on how claimed price controls would ensure equitable distribution of bread. Why is the price of bread being capped making it so that more people get bread? If I’m rich and the price of bread is artificially low, maybe I’ll just buy up even more bread and now fewer people get bread.

mc32• 5 years ago

If it’s capped too low then bakers and baxters go out of the baking business and into something more economically sustainable.

kuschku3• 5 years ago

Because you can define the cap so e.g. it only applies for one apartment per person, so you can't use it to get multiple ones cheap.

xvedejas2• 5 years ago

In the short term, I'm in agreement without caveat, but in the long term letting the prices rise supports industrial growth. The wealthy buying all the bread they want funds the expansion of the farming industry, allows them to invest in more intensive farming practices, and even better encourages price discrimination, whereby the wealthy actually get the same amount of bread as everyone else but pay extra for the "artisan" varieties. Getting the rich to pay more for essentially the same thing is itself an equalizer.

It's not hard to draw the comparison with housing. Let the rich buy the "luxury" apartments on the top floor (just an example), helping fund the building of large buildings which don't get built without cost-benefit and risk analyses squarely in the black.

kuschku3• 5 years ago

The issue is, there's only a limited supply (Berlin can't grow forever), and as result there's already many apartments left empty today to artificially increase the prices of apartments, as they're treated as investments in a bubble, with the intention to profit from increasing value, not from rent.

Not regulating the price was tried for 30 years, and led to many families unable to afford housing, or spending 80%+ of post-tax income on housing.

sokoloff8• 5 years ago

Rationing bread would increase the number of people who have some bread.

Regulating the price to a point well below the free market supply/demand driven price causes a decrease in the amount of bread supplied to the market (and probably increase hoarding/decrease the breadth of distribution).

Think back to toilet paper shortages last spring. Rationing was arguably the best move (and was what local markets around me did).

Mediterraneo102• 5 years ago

Regulating the price to a point well below the free market supply/demand driven price causes a decrease in the amount of bread supplied to the market.

In some countries like Egypt, bread (or another basic staple) is heavily subsidized below the free market price, but that doesn’t seem to meaningfully impact the market’s supply: any consumer able to pay that artificially low price can still eat all the bread he or she wants.

codeflo7• 5 years ago

I agree, although the toilet paper situation was a bit different IMO because the shortage wasn't in the supply chain -- it was absolutely clear that inventories would restock sooner or later. In that situation, higher prices wouldn't have incentivized more production.

Still, supermarkets could have temporarily raised prices 10x and still sold their inventory. Why didn't more of them do it? Presumably, they made the rational calculation that the bad reputation they'd get from such a move would outweigh any short-term profits.

nonsince• 5 years ago

Rental properties are inherently rationed by the fact that there is no reason to rent more than one flat in the same city.

ChuckMcM• 5 years ago

I think this is something that is often overlooked in progressive circles. Markets treat high prices as signal to increase supply. When supplies cannot be increased you get market inequities.

Rationing for goods like bread, paper, milk, gasoline, etc. Can be a stand-in while the problem that is preventing the market from responding by increasing supply is fixed.

WalterBright7• 5 years ago

Rationing does nothing to increase the supply, and distributes the existing supply to people who don't need it. Rationing assumes everyone has exactly the same need, which is nonsense and leads to gross inefficiencies. Rationing inevitably leads to hoarding and a black market.

codeflo7• 5 years ago

If anything, the article is too optimistic, because supply isn't constant. We're rehashing Eco 101 here, price controls decrease supply, in housing just with a longer delay. Tragically, that delay may be longer than an election cycle, which explains the political motivation to implement such policies.

Shivetya• 5 years ago

The bread example is apt if considered in the context of the apartment issue. What was driving up the price of housing was that they were not creating new housing at a pace to keep up with demand.

So using the focus you had on bread, so you lower the price of bread so more people can afford it. However you don't increase the bakers ability to create bread and they still only have the same amount of bread as before. Well for the most part you have only swapped who has the bread and the number without is basically the same as before. You have done nothing but reduce the profit of the bread maker, at most.

The right answer is to increase availability to where those who have the desire to have bread are satisfied and bread remains around that needs someone to buy it.

Almost all housing shortages are government created if not 100%. Either through direct changes to laws and regulation or through providing the means for other groups to contest the construction of new properties in the courts because enough loop holes exist to stop any new housing.

Kalium6• 5 years ago

You can either increase total happiness, or concentrate it to the powerful.

The nasty, invisible catch with price caps is that this outcome you've described is an idealized one. It's possible to get neither as you make whatever you're trying to regulate functionally unavailable to anyone.

How much bread do you think bakers will produce if a loaf costs $1.20 to make, but politics dictates they cannot sell for above $1 each? In such a scenario nobody gets any bread except what the bakers make for themselves.

It's also possible to try to increase total happiness and actually just wind up concentrating it to the powerful. This is what rent control has done in San Francisco. It's dangerously easy to confuse goal and outcome in policy-making.

fragmede• 5 years ago

This is related to Goodhart's Law, which is "When a measure becomes a target, it ceases to be a good measure." It's a large area of study to figure out how to get the outcome you actually want, while measuring something close, because good metrics can be hard to come by.

rsj_hn8• 5 years ago

Yes, this cogent analysis describes why communist nations are known for food security whereas those capitalist nations are known for starvation.

lornemalvo• 5 years ago

When I look at the list of famines in the last centuries, it does not look like capitalism provides any kind of food security.

roenxi• 5 years ago

But at what point does someone try to solve the shortage by baking more bread? If the price rises, more people will open bakeries.

Economics answers 2 questions:

1) Who gets what today?

2) What should people prepare for tomorrow?

Regulating an excessive focus on (1) will get bad results on (2) because it makes it less sensible to be come a baker.

I'm not writing software because I believe there is a philosophical shortage of software. I do it because there are decent odds that I'll be overpaid relative to the work I put need to put in. Those odds are resulting in a lot of software being written.

jkingsbery• 5 years ago

In practice, this almost never happens. There isn't a fixed supply of bread. When the price of bread goes up, the following all happen:

- Bakers will bake more bread - People from an area with cheaper bread will travel farther to sell bread where it's more expensive - Individuals will decide to bake bread for themselves - Companies that don't bake bread but that have the capability of baking bread (either directly, or with minor changes) will start baking bread.

All these activities happen in proportion to the price increase, increasing volume and putting pressure on prices to go back down. And this article describes the data showing that this happens.

AdrianB12• 5 years ago

Except when you have a bad crop season on an entire continent. No grain - no bread, so bakers will NOT bake more bread.

WalterBright7• 5 years ago

Regulating the price leads inevitably to either gluts or shortages.

standardUser• 5 years ago

The goal of rent control - or more accurately rent stabilization - should be to smooth out fluctuations in rent over time, not to create a class of housing stuck below market in perpetuity. Most of what people object to about rent control isn't the attempt to stop families form suffering wild rent increases that can destabilize entire neighborhoods/workforces, but rather to smooth out those increases to give families a proper chance to adapt or move.

kall• 5 years ago

A different policy (Mietpreisbremse -> rent price brake) with this explicit goal is in place in "high-pressure" rental markets all over Germany. It means price cannot be more than 10% over the local average.

Berlin specifically wanted something more.

ridaj• 5 years ago

The right answer to that shortage would be to increase supply — for instance, by cutting red tape in zoning and construction

Hmm but didn't they indeed provide incentives for increasing supply, by exempting new construction from rent regulation? In fact the later argument saying that prices started going up in the unregulated market would support the notion that the policy is indeed providing a powerful incentive to new buildings. Sure, the article also laments that there still isn't enough supply, but can one argue that giving more rent money to owners of old properties would help fix this?

How did new construction change in Berlin? What about homelessness? I don't know but find it shady that the numbers aren't shown.

fallingfrog4• 5 years ago

If you’re going to argue that supply will only go up if you allow price to rise infinitely, you’re getting it backwards- the increase in supply is supposed to make the price go back down, that’s the whole idea. There is supposed to be a balance that develops that holds the price down to an affordable level.

Why does this never happen? Well, there are many areas of the United States where real estate prices are skyrocketing even though all the houses are vacant- because real estate is being used as a vehicle for speculation. And the same thing is happening in almost every city in the western world. It’s likely the same thing is happening in Berlin. The demand is not coming from renters so allowing the price to go up does not help renters, it’s all just a tidal wave of free money from central banks looking for somewhere to go.

Also the author of the article is an Ayn Rand free-market-as-magic-bullet ideologue with an axe to grind. He makes no pretense of trying to write a balanced analysis. He even appears to be framing things like rents and real estate prices falling as pure negatives when both those things are purely positive from the point of view of anyone but a real estate owner.

mtoner23• 5 years ago

The demand is coming from renters though. People are moving to Berlin. They need to build more houses or prices will go. Markets dont solve everything but they do here. Just ask tokyo how they got out of their housing crisis. Build More.

fallingfrog4• 5 years ago

The population of Germany is declining, (Berlin population has been stagnant since 1950), wages aren’t rising but housing prices are going up everywhere. And the same story is repeating in multiple countries all over the world. So clearly, must be supply and demand and not just a speculative bubble, right?

Berlin population 1950: 3,338,000

Berlin population 2021: 3,567,000

Germany birth rate: 9.5

Germany death rate: 11.5

bhelkey3• 5 years ago

I think you have the articles argument twisted.

If you’re going to argue that supply will only go up if you allow price to rise infinitely, you’re getting it backwards- the increase in supply is supposed to make the price go back down, that’s the whole idea. There is supposed to be a balance that develops that holds the price down to an affordable level.

The article argues that the people who construct apartment buildings operate on incentives. Their incentives are the revenue generated by the apartment over, say, 30 years and the cost of constructing the apartment (in materials, regulations, time, ...).

Decreasing the expected rents and/or increasing cost of construction should result in less new apartments (supply increase is slow or nonresistant).

Conversely, increasing the expected rents and/or decreasing cost of construction should result in more new apartments (supply increases quickly).

The article does not suggest: >supply will only go up if you allow price to rise infinitely

but instead: >> The right answer to that shortage would be to increase supply — for instance, by cutting red tape in zoning and construction.

fallingfrog4• 5 years ago

Right, that works in theory, but in the real world it’s not happening. Once supply is increased, the price should go back to a lower equilibrium, right? So why isn’t that happening anywhere in the world? Because it’s a real estate bubble and speculators are buying because the price is high. Real estate prices drive rents not the other way around. They don’t care if the buildings are half vacant as long as they can sell them later for an even higher price. Demand by renters is irrelevant.

el_nahual2• 5 years ago

An issue that many commenters here are missing is that the problem with rent control will manifest more sharply in the future.

Sure, the impact today seems relatively equitable: a windfall for people that rent today coupled with a small drop in supply.

But fast forward 10 or 20 years and the situation looks far worse: everyone who got a windfall today is still living in the same apartment, whereas anyone trying to enter the rental market is utterly SOL. The people that are really getting screwed are 10 years old today: when they try to move out of Mom and Dad's they will enter a market with vastly reduced supply since nobody has any incentive to move.

This is why if you're 19 you can't afford to live in Manhattan: you're either old (and lucky) or rich.

throwaway858583• 5 years ago

not just in 10 or 20 years, more like in 9 months!

The supreme court will probably rule that the Mietendeckel is unconstitutional in November, which will lead to a nasty situation for many renters with old contracts. If the tenants are lucky the landlord will just ask for the money "saved" to be paid back, but the unlucky ones will be evicted, as being in arrears of more than one month is grounds for termination regardless if you pay it back the the debt or not.

germanier4• 5 years ago

It's extremely unlikely that the court will strike down the law in a way that this situation arises. It's not like everybody starts to pretend that a law has never existed if it's ruled unconstitutional. Usually arrangements will be made for those that relied on it. Especially in a case like this, where another basic right is affected.

(It's two months btw)

distances2• 5 years ago

The tenants are not in arrears. In the common case rents were lowered officially by landlords, with a footnote that the difference is due in full if the law is striked down.

Tenoke4• 5 years ago

I have to say - I'm very jealous of my few friends who somehow managed to get a new place in the last few months. Their new contracts are already at the lowered prices so they don't have to fear the backrent like I do (and my reduction is quite big as I was paying way above the average for the area due to having a hard time finding anything in the first place).

vkou4• 5 years ago

Kicking people out of their homes doesn't solve the supply problem, because it doesn't create new housing. It just shuffles around who lives in existing houses.

If you have a housing problem, and you want to solve it, you need to do two things.

1. Not kick people out of housing that they have. (Because it is incredibly disruptive to people's lives.)

2. Build new housing, until demand is met.

Rent control accomplishes #1, proper city planning accomplishes #2. If you're not doing #2, complaining about #1 isn't going to solve the problem.

If you are doing #2, then #1 isn't a problem.

kmeisthax5• 5 years ago

You can't do #2 without doing #1 - most in-demand land is already occupied and unused land is typically not worth developing (or doing so would cause environmental harm).

In an all-owner-occupant suburb, this isn't so much of a problem: you're literally paying people lots of money to accept the disruption of having to move. However, in almost every other kind of housing arrangement, ownership over the building is separate from occupancy, and it's not the occupant's choice to make regarding increasing the housing supply. This is the left-NIMBY trap: any action to increase housing units necessarily displaces the most marginalized parts of society. If your pro-development policy doesn't include a plan to house people who are being displaced without increasing their expenses, then you're likely to make people start protesting the new buildings that need to be built in order to accommodate demand and actually cap rent growth.

Other than that, yes. Make housing printer go brrr.

throwaway129036• 5 years ago

I don't think it's about housing supply. People want to live in the city and in desirable suburbs. These suburbs have existing tenants who could not afford the market rate of rent today. Gentrification basically.

The question is how much should existing tenants be entitled to their apartments just because they lived there for a long time, balanced against the impact on investment in new real-estate because of lack of incentives due to earning caps.

jdxcode2• 5 years ago

The major flaw in your argument is that you can't do #2 with rent control in the picture. From the economist[0]:

Rent controls are a textbook example of a well-intentioned policy that does not work. They deter the supply of good-quality rental housing. With rents capped, building new homes becomes less profitable. Even maintaining existing properties is discouraged because landlords see no return for their investment. Renters stay put in crumbling properties because controls often reset when tenants change. Who occupies housing ends up bearing little relation to who can make best use of it (ie, workers well-suited to local job opportunities). The mismatch reduces economy-wide productivity. The longer a tenant stays put, the bigger the disparity between the market rent and his payments, sharpening the incentive not to move.

[0] https://www.economist.com/leaders/2019/09/19/rent-control-wi...

HotHotLava3• 5 years ago

Even if you put all of your efforts into #2, it will take years from the decision to ramp up the planning and construction efforts until enough houses are actually built to have a noticeable impact on the market. And you still have to do something about the situation in the meantime. That's why the rent freeze in Berlin is limited to 5 years.

anoncake6• 5 years ago

Giving people "incentive to move" – aka forcing them out of their homes – doesn't increase supply. Unless they're "moving" onto the streets in which case you did free up a flat.

jdxcode2• 5 years ago

"I'd like to move out of my rent-controlled apartment in SF because my job is in Mountain View, but I don't want to walk away from this rate."

justapassenger4• 5 years ago

aka forcing them out of their homes

They aren't theirs. They're renters.

908B64B1974• 5 years ago

The beauty of it is it doesn't matter to the bureaucrats: since the 19 years old can't live in the city he also can't vote in the municipal elections!

It also has bad impact on the type of buildings that get built. If you have to build some rent-controlled housing as part of your development project, and some jurisdictions will force developers to do that, it pushes you to build the rest of your building to be as upscale as possible to attract higher paying customers (better margins).

And it also removes the incentives of ever upgrading the rent-controlled buildings more than the minimal legal maintenance. Because any dollar is better spent on the upscale offerings.

thesuitonym• 5 years ago

I don't know how it is in Germany, but in the US, rent controlled buildings can only have the rent increased if the landlord upgrades the building, so it actually incentivizes them to do upgrades, as that's the only way they can increase rent.

anothernewdude• 5 years ago

They'd be SOL anyway. Honestly there is no downside here, because this happens anyway.

fock• 5 years ago

totally agree: here's no rent control but a friend could see trickle-down economics at work from his office with half the condos (10years old building) across the yard being "under renovation" so that owners can just squeeze supply to artifically increase prices without being fined for this antisocial behavior...

asdff8• 5 years ago

If people could move en masse out of cramped expensive rent controlled housing in manhattan, they would. Moving requires upfront capital that a lot of people don't have. Banning rent control doesn't move these working people into more space in some suburb on the outskirts of town, it moves them into a tent under an overpass.

Robotbeat• 5 years ago

Right. Rent control has created a situation where people are stuck in cramped apartments and no one has incentive to fix the problem. And there aren’t any easy outs. Just have to relentlessly attack the housing supply crunch until rent control isn’t needed.

blablabla123• 5 years ago

Either a cheap apartment is hard to find and afterwards it's even harder to move somewhere else.

The alternative - as in other cities - is that it's still hard to find an apartment that has a normal price. Of course this also attracts scammers.

The apartment situation in dense areas is bad, no matter if it's Berlin or not. At least the local government is working on a solution to not end up like Manhattan, both price- and concrete-wise. If they find a sustainable solution, then this would be a game-changer and other cities might adopt that.

e402• 5 years ago

I experienced exactly this in the early 1980's. In Berkeley, CA. Apartments were scarce because of rent control. I had a coworker that lived in his apartment from late 70's until late 90's. He paid less than $300/mo. It was great for him. He saved a ton of money and bought a house in Berkeley in the late 90's. But, as a student I had to live in Oakland and was never able to find an apartment. Every time I went to look at one there were another 99 people there. It was so frustrating.

latchkey4• 5 years ago

Around 1994/5 I wanted to move to Berkeley. I had a very hard time finding a place. I looked at so many attics turned into bedrooms and other crappy places. Eventually, I found an ideal (relatively) place and there was a good 50+ people looking at the same apartment during a showing...

I walked up to the landlord (who was a lawyer in his day job) and said... "I know you can't pick favorites, but I have a good salary and I'm not a student." ... he ended up making his top picks write an essay on why we wanted the apartment. I got the place and stayed there for 10 years.

Interestingly, during the last few years I was there, rent control ended and the landlord really wanted me out because he knew that he could make 2-3x more. He turned into a slumlord and refused to make any improvements and the ones he made were all half assed. The storage locker in the carport under the building got broken into as well.

Eventually, I left for SF and sublet the place to some friends illegally because they needed an inexpensive place. He eventually found out about that and I had to let the place go.

I guess my point is that I've seen first hand rent control and no rent control go through both phases. I really don't think there is a good solution. Someone always gets the short end of the stick.

908B64B1974• 5 years ago

He saved a ton of money and bought a house in Berkeley in the late 90's.

That gave him a durable advantage and helped him acquire assets that would further gain in value. Not to mention, as a renter and home owner, he was able to vote against new developments for years, further increasing scarcity and the value of his house.

And then bureaucrats complain about inequalities?

Krasnol• 5 years ago

The only difference to the situation right now that people are able to stay where they are. They wouldn't otherwise.

Xylakant• 5 years ago

A counterexample is Vienna, which utilizes a well balanced system of rent-control and social housing to have incredibly low rents and still a stable supply of flats. One tweak they apply is that rent-control does not apply to new developments, so creating new flats is more lucrative than turning old buildings into luxury developments. The city also acts as a competitor, driving prices down by offering cheap flats. There are definitively problems with rent-control if applied bluntly, but the it's a tool that can be useful.

[1] https://www.immobilienwirtschaft.tu-berlin.de/fileadmin/fg28...

DetroitThrow3• 5 years ago

Very interesting approach, it's almost as if developers get a "patent" on creating useful housing stock.

dionidium2• 5 years ago

One tweak they apply is that rent-control does not apply to new developments, so creating new flats is more lucrative than turning old buildings into luxury developments.

Typical YIMBY broken record here, but in the U.S. it's more or less illegal to build new housing on almost every inch of land (especially in the most expensive cities). We don't need to develop baroque incentives for developers to create housing; we need to stop making it illegal.

imtringued10• 5 years ago

Rent control only exists for one reason: to keep tenants in their apartments. It's not a tool that is solving a shortage of housing but lots of politicians will insist that new housing isn't needed. You just need to manipulate the useful fiction that is the market and fake everything. At least that's what the politicians think. Even if it means that the market is no longer useful.

ForHackernews• 5 years ago

According to the article, this is the same system enacted in Berlin. The supply of new-build developments in Berlin has increased at a greater rate than in other German cities, just not fast enough for this Bloomberg writer's tastes.

FDSGSG• 5 years ago

This also means that there are almost no nice flats in Vienna, so you probably wouldn't want to live there unless you are poor.

freyir• 5 years ago

San Francisco also applies rent control only to older buildings. The effect is that developers only build top-of-market “luxury” housing (often cheaply constructed it rented at luxury rates). This helps them recover their development costs, which they couldn’t recoup on affordable housing.

elihu2• 5 years ago

Are new buildings exempted from rent control permanently, or just for a limited time?

The latter seems like it would be a workable system: incentivize new buildings by allowing the owners to charge whatever rents the market will bear for the first 10 or 20 years or so, then eventually they revert to rent control (presumably after the original construction costs have been repaid and then some).

TedShiller2• 5 years ago

FYI, rents in Vienna are not "incredibly low". From someone who has rented there.

jboog11• 5 years ago

This is interesting and we can definitely learn something from the Vienna model but it isn't a super dense city so what works there might not translate as well to other cities.

Manhattan for example is about 7x as dense as Vienna. There just isn't the space for the government to be churning out cheap flats for the amount of people that want to live there.

SF is not nearly as dense and there is absolutely a lot of space to build there but unfortunately the zoning there is an absolute nightmare that doesn't seem to be getting better any time soon.

Gimpei• 5 years ago

This is interesting but doesn't appear to be evidence. Any studies with a plausible identifying strategy? It could be, for example, that rents wouldn't have gone up much regardless.

ChuckNorris897• 5 years ago

A counterexample is Vienna, which utilizes a well balanced system of rent-control and social housing to have incredibly low rents

I beg your pardon? You can't possibly call rent prices in Vienna incredibly low and still keep a straight face. Maybe for the lucky Viennese that got grandfathered in some rent controlled flats, but last time I looked (pre-covid), rents there for new comers were insane compared to the next "biggest" cities like Graz or Linz, while Viennese working class wages were not much higher than those other two cities, if you exclude fancy lawyers, bankers, UN, IAEA and other diplomats.

Maybe rent prices have come down a bit recently due to covid disrupting AirBnBs but even telling Austrians that rents in Vienna are incredibly low is a guaranteed way of getting a few laughs out of them.

ivan1783• 5 years ago

Really? I just looked on immowelt and the prices are higher than here where I live (Stuttgart, DE) which is already incredibly high.

aserafini• 5 years ago

That is not a tweak: Berlin did exactly the same thing, the rent controls did not apply to new apartments.

bobthepanda• 5 years ago

Vienna has experienced total population decline from 1910 to 1990 and is still well below peak population.

This strategy wouldn’t work out for a much faster growing city.

JPKab• 5 years ago

There is plenty of scientific denialism on the right.

Along with anti nuclear, the belief that rent control is a remotely good idea is an example of scientific denialism on the left. There are some decent arguments to be made against nuclear but rent control has always always caused more harm than good everywhere it's been tried.

dragonwriter2• 5 years ago

Along with anti nuclear, the belief that rent control is a remotely good idea is an example of scientific denialism on the left.

No, because “good idea” isn't an objective claim within the domain of science , it's a subjective value claim outside of the domain of science.

Now, it's possible that in some cases this belief could be supported by belief in an objective claim that is itself an example of science denialism, but it could just be that people who believe that rent control is an good idea have different values than you do.

vitno• 5 years ago

calling this "scientific denialism" seems like a huge stretch to me. It's not a science, it's housing policy.

nullserver• 5 years ago

Parents city decided to rent control all the mobile home parks. They changed there mind after thousands of people received eviction notices.

Owners would rather let the land sit empty then deal with the nightmare it would create.

toast0• 5 years ago

I think the key thing with rent control is to have reasonable limits. If you limit rent increases to something between 5% and 10% annually, it provides stability without causing a significant distortion except when prices are rapidly climbing for several years in a row.

This is the same issue with Prop 13. The idea isn't bad; it's useful for people to have bounded future expenses. The problem is the bound is too low, and it distorts the market.

lutoma• 5 years ago

Proponents of nuclear power labelling everyone who does not unequivocally support it "science deniers" is such infuriating populism.

Nuclear power obviously has immense benefits, but there are also undeniable risks associated with it. It's entirely possible to be in favor or against it while considering the exact same scientific facts depending on which of these you consider more important, no "scientific denialism" required.

I also don't see how nuclear power is supposed to be related to the economic left/right spectrum.

neaanopri• 5 years ago

100%

Rent control in crises makes sense. Rent control was applied in WW2 in NYC for example.

Just like rationing is a good response in a crisis, but not in "peacetime".

bosswipe• 5 years ago

Rent control is not scientific denialism. Economics is not a science because nobody ever does controlled experiments. There are also disagreements about what end goal you're trying to optimize for.

Economics is just a bunch of biased political arguments using different priors for assumptions. This is evident when you about different "schools" of economic thought. There are no irreconcilable "schools" of thought in the hard sciences with whole universities dedicated to only one school or another.

justnotworthit• 5 years ago

Any biology forum that was 50/50 anti-evolution; or a physics forum that often argued newton is good enough and the rest we can control; etc etc, would be some kind of fringe, excluded place.

Deny supply and demand? Always popular. We're 100 years past the marginal revolution, yet, both the practictioners of the discipline and outsiders (marxist sociologists) think this can be controlled.

cbmuser2• 5 years ago

That's correct and can be observed in Stockholm, for example:

https://www.bbc.com/worklife/article/20160517-this-is-one-ci...

rags2riches• 5 years ago

It's very nice for homeowners that have built a small fortune over decades, thanks to rising house prices, to have a way to exit the market and move into a rent controlled apartment in the best part of town.

It's not as nice for young people or other newcomers without capital and a couple of decades in the apartment queue. They still have to pay market prices to rent, but have to make do with second or third hand renting where they have no protection and can be forced to move on a very short notice. Meanwhile, the difference in rents is pocketed by someone that is probably using it to pay down a mortgage on their actual home.

tehjoker3• 5 years ago

I think you're missing a larger point: why should people be forced to move? There's no natural law that says people should be ceaselessly pushed around by market forces.

Negitivefrags• 5 years ago

If you define natural laws as the things that happen when you remove actual laws, then I would say people being forced to move would be exactly what happens.

gameman1443• 5 years ago

One could just as easily say that you're missing the opposite point: why should policy prevent new people from moving in? In either scenario, policy will disadvantage one group and advantage another. Any policies that aim to give stability to long-term tenants is liable to disadvantage new and shorter-term tenants. There's no natural law dictating that people should be forced to move out, but there's also no natural law dictating that newcomers should be forced away.

perryizgr8• 5 years ago

why should people be forced to move?

I am not privy to all the complications involved in this scheme, but how would anybody be forced to move?

mancerayder• 5 years ago

This is why if you're 19 you can't afford to live in Manhattan: you're either old (and lucky) or rich.

Or a real estate broker who knows building owners willing to rent out the stabilized units (50 pct are stabilized, 50 free market more or less). Or you paid a broker fee to this broker. Or you sublet from a rent stabilized tenant who charges market rent..

No one talks about how easy corruption happens in these situations. The bifurcated market in NYC sucks - it should be all stabilized or all free market.

Kalium6• 5 years ago

SF famously has a black market in rent controlled sublets. In theory the amount a master tenant can charge for a room is a question of proportionate space and overall rent. In practice, they charge a lot more, and it's exceptionally rarely challenged.

statstutor2• 5 years ago

everyone... is still living in the same apartment

I don't think this is a function of rent control. The people who were renting 10-20 years ago will still need somewhere to live.

If there isn't sufficient new housing available, then this increases competition for existing housing, but kicking people out of their homes doesn't seem like a good solution either.

cm2187• 5 years ago

Also 10-20y down the line, the incentives to invest into and maintain a rent controlled unit being very small, they will be in a really poor state.

lm28469• 5 years ago

This is already the case... Renovated ones are squeezing us to the last euro but even insalubrious flats are asking for crazy rents.

skohan7• 5 years ago

The thing is, what's the alternative?

I live in Berlin, and my neighbours are in their 70's. Should they be forced to find a new flat way outside the city because the rent triples over the course of a few years so young tech workers relocating from London can have a place in the cool part of town?

The rental market is different in Germany than it is in other countries: less people own their homes, and getting a housing contract feels a lot more like a permanent thing than when I was living in the US. You pay 3 months rent up front as the security deposit, and most flats don't come with a fitted kitchen so you have to take care of it yourself.

throwaway67343• 5 years ago

build more housing

porb1214• 5 years ago

Should they be forced to find a new flat way outside the city because the rent triples over the course of a few years so young tech workers relocating from London can have a place in the cool part of town?

yes

why should they get to stay in berlin and have their housing subsidized?

tamrix• 5 years ago

Exactly, this is to increase rent prices by shorting supply, not to protect the people.

ClumsyPilot• 5 years ago

I feel the discussion about rent misses the forest for the trees: most houses are sold, not let out by developers. Price of house is affected by the interest rate much more than it is affected by the rent: i.e. if interest rates fall by half, and rents fall by half, house prices go up.

If you could buy a house with zero percent interest rate, then any rent, no matter how tiny, is building you equity.

Then you have to conisder thay mant houses are bough as 'investment' and many owners literally dont bother renting them out, they just wait for price of the house to go up. This is a serious problem in london

Spooky23• 5 years ago

Manhattan has been unchanged for 100 years. You’re either rich or poor to live there. It’s kinda bizarre that you see the ability of people to live in their home for 20 years as a problem.

Frankly it goes to show the hypocrisy of many of the cheerleaders for higher density housing, pushing for a future where as an individual you get discarded and banished to the hinterlands when your value declines.

jpambrun• 5 years ago

Rent are controlled in Quebec since as far as I can remember. Rent are affordable in Montreal and supply is not a problem.

lotsofpulp4• 5 years ago

It’s because there’s isn’t that many people that want to live on Montreal.

The root issue in Berlin and SF and NYC is the demand far outstrips the supply. The only solution is to create more Berlins, but that’s not going to happen for myriad reasons.

asdff8• 5 years ago

Where would that person in that rent controlled apartment be otherwise? Chances are, on the street. Moving requires upfront capital. It requires promise of a job at the other end. If you are in a high cost of living area like NYC or CA, you might have to quit your job if you want to find a more affordable apartment; there might be absolutely nothing affordable within a three hour drive of your job of cleaning up a downtown office or working a bar, and there may be absolutely no jobs in areas that are affordable. Throw in multiple earners, as is the case of many working poor in overcrowded rent controlled apartments, and you've complicated the problem further and make it even more difficult to wind down your life in one location and wind up in another.

And let's be reasonable here, rent control is not some handout. It's not a subsidy or a tax. The price you pay on your first year in a rent controlled apartment is market rate. Rent control simply says rents cannot go up say, beyond 4% a year. Perfectly reasonable in a world where wages for the working poor rarely go up beyond 4% a year. If landlords want to make more rental income per year, they should instead lobby their city council members to allow them to build more units per parcel, rather than lobby to artificially constrain housing supply with zoning and/or red tape in effort to raise real estate values.

rayiner5• 5 years ago

Where would that person in that rent controlled apartment be otherwise?

Or, you know, New Jersey. Or some suburb. The same place younger people have to go because rent control destroyed the housing market in the city.

skedaddle• 5 years ago

Everyone gets rent control, whether they'd be "on the street" otherwise or not. My brother lived in SF and drove down the peninsula to Google (an hours long commute) while living in a rent controlled apartment for 10+ years while rent was shooting through the roof. He's not the only one. There's obviously a lot of people living on the street in sf -- rent control has failed to stop that.

junon2• 5 years ago

I live in Berlin. What you're describing in "10 or 20 years" is already the case. That's why these actions are being taken now.

I waited 6 months for an apartment here when I first moved. Pretty much everyone who doesn't want to spend insane prices on a unit has to.

And even then, I'm still paying 500-600 more than I should be. It's insanity.

The main problem is that there are immigrants (primarily from one country in particular, but that's less important) coming in and buying up all of the "houses" here (note that "House" in Berlin means a large apartment-complex-like house, not a single American Style, white picket fence house) and then increasing the prices slightly.

I'm not anti-immigration, clearly, but there are still concrete economic effects that haven't been solved yet. I don't think anyone knows what these measures will lead to, but at least it's something.

mtrovo2• 5 years ago

You don't need the slightly racist comment, biggest problem imho is that house ownership is very low in berlin (last time I read about it was around only 15% of people live on their owned houses) and really hard to change that. You have to think that everytime you're looking at buying a place you're competing with Blackrock, Deutsche Wohne and other not so nice funds with much more room for negotiation than you. That's why even if you and your partner makes top 10% salary you're probably not rich enough to own a house.

And on top of that germany has very strict laws about transparency of home ownership so there's no clear way to know the distribution of home ownership or who are the biggest landlords and where they got their money from. Which is bad because there's a lot of shady people buying whole complexes, but it's also working as intended as a lot of politicians are also big landlords.

boruto• 5 years ago

Genuinely curious, which country? I don't see that to be the case in Berlin for any country.

zpeti• 5 years ago

But politicians need votes within 4-5 years. So who really cares. At least the young people getting apartments now are getting a good deal. Who cares about the future??

fallingfrog4• 5 years ago

Let me get this straight: the population of Berlin has been stagnant since 1950, wages aren’t rising, but the reason real estate prices are rising is because of demand from renters?

Sorry folks, the correct answer is: it’s a real estate bubble. And deregulation is not going to help with that.

We all lived through 2008, didn’t we? We’ve seen this before. It shouldn’t be a big mystery. Speculation drives real estate prices, real estate prices drive rents. Government intervention is necessary to break the cycle.

briffle• 5 years ago

In Oregon, they passed a statewide rent control. They pointed out repeatedly at how rent had gone up 30% over five years.

The solution, is that now landlords can only increase rent 7% (plus inflation) per year. This year, its something like 9%.

Apparently, someone forgot to figure out what >7% per year for 5 years is..... Its 40%, before the inflation numbers are added in.

droopyEyelids• 5 years ago

I don't quite understand how you're framing this.

Oregon figured out a level of increase that would be too disruptive for its appetite, and had the legislature cap the rate to below that level.

On average over the past five years, that cap would not have been reached, though it may have been reached in any one of those years.

Is this a self own or mistake of some kind? Are you inferring that landlords will now raise rents more than they would have in the uncapped situation?

WalterBright7• 5 years ago

If rent increases are capped at 7% per year, landlords will have an incentive to increase it at the max, because that gives them more flexibility the next year.

For example, let's say the free market would raise rents 5% this year, and 8% next year. A cap of 7% means the rent will rise 7% this year, as the landlord won't want to have caps permanently reduce future rents.

pessimizer• 5 years ago

They're implying that the problem of rents going up 30% in 5 years was not solved by limiting rent increases to 7% a year.

wfhpw• 5 years ago

I think the parent's point is that since price increases are capped, landlords cannot increase beyond a certain point in a single bumper year. To compensate, they may increase rents beyond what they would otherwise to be able to maintain a similar average increase. Citation is needed, of course.

medium_burrito• 5 years ago

No, what grandparent is saying is state politicians and most Americans in general are unable to do simple math. Compound interest? Forget about it!

vmception• 5 years ago

More likely, someone did figure it out and convinced the legislature and public because they know they will react with emotion instead of math

In my experience, people don't have experience outside of their local bubble, so you can easily recycle policies from another city or slightly tweak them

Thats what they really mean by land of opportunity

Wohlf• 5 years ago

I don't mind this as 7% per year seems like a reasonable safety measure to me. The issue is they need to make it much easier, cheaper, and faster to build more housing along with it. Portland is probably particularly bad about this, as I see plenty of new apartments and rowhouses going up in Hillsboro and Beaverton. Still, these units aren't what I'd consider affordable.

I think we need to seriously reconsider the effect some building requirements and property taxes have on housing prices. It may not be ideal but very small apartments with shared commons and no parking for a few hundred dollars a month would be better than living in an RV or on the streets. This is a pretty common setup in Japan, not to mention college and military dorms. This isn't even that different from having roommates.

Schiendelman2• 5 years ago

For the most part, our high housing prices are purely a matter of supply and demand. If you own a piece of land, and you want to build housing, you're not allowed to build as much as you want. NEARLY EVERY building proposed builds to the maximum currently allowed on that land.

The market wants to supply more housing. We don't let it, based on laws that originally were created to keep black people out of neighborhoods. Those laws continue to be very effective at that goal.

jetrink• 5 years ago

Potential math illiteracy aside, is this such a terrible policy? This seems to me like a nice compromise that provides some stability to the renter while still allowing the landlord to raise the rent substantially over several years.

Downsides that come to mind (but that don't seem too serious):

* It incentivizes landlords to keep empty apartments on the market longer before lowering rents to the true market price.

* It might encourage landlords to regularly raise prices more than they otherwise would, lest they forego the limited opportunity.

I'm normally much more free-market oriented, but I ask with the understanding of how much work and expense is involved in suddenly needing to find a new apartment. Just patching the holes in the drywall can take a full day. Then there's credit check fees, truck rental fees, pet fees, admin fees, move-in fees, new couch because the old one doesn't fit in the new living room fees...

chii4• 5 years ago

encourage landlords to regularly raise prices more than they otherwise would, lest they forego the limited opportunity.

if they raise the price too much, they will not get tenants as long as there's competition between landlords. So all this is basically just another way of saying there's not enough supply for the demand. So policies should target the supply problem directly, such as subsidies for new buildings, or tax incentives, etc.

gscott• 5 years ago

When something is baked into the law like that landlords will raise the rent. Renting in San Diego my last two places never had a rent increase (I lived in each for about 4 years per).

iav• 5 years ago

Those policies often work through gradual tightening, rather than a sudden change. So it might start with a 7% + CPI cap, then a few years later they'll change it to 5%, then remove the CPI, and so on. Sometimes the cap is allowed to be changed by a simple committee vote or determined by a "Rent Board," which is easier than passing a new law. That way the initial law can get passed without too much opposition.

w-m• 5 years ago

There were limits like this already in place in Germany. Rent could only be increased every 12 months, and for Berlin, I believe, no more than 15% total in 3 years.

It didn’t help much. Landlords could circumvent it in many ways: by offering contracts to new renters that automatically increase each year, which then isn’t bound to the limits. For existing tenants they could do bullshit renovations that trigger a modernization clause, also killing the limit. Or put an Ikea couch in the apartment, then renting it as furnished, again circumventing some of the rent limits. Sure you could sue, but in many cases people were just happy to finally find something and ate up the higher prices.

Although I’m positively affected by the latest rent control laws in Berlin, I’m also not totally sure what to make of it. But I wanted to let you know that this is by far not the first law that was passed to try to curb price increase.

CydeWeys5• 5 years ago

There are market dynamics at play in both places. If the rents are increasing by double digit percentages within a couple years then that means that demand is rapidly outstripping supply. There's really only two options here: Reduce demand by banning people from moving to the city, or increase supply by building a lot more housing. #1 is illegal in the US and likely illegal in Germany too, so #2 it has to be.

kingkawn• 5 years ago

Bloomberg op-eds on economic redistribution issues are like asking oil companies to comment on environmental protections

chx• 5 years ago

Thanks, I was searching comments whether anyone had klaxons going off in their head reading this drivel:

If populism on the political right corrupts democracies, populism on the left ruins economies.

Might as well stamp "this article is written by a conservative fanatic, proceed with caution". Looking at the author his short bio says worked for Handelsblatt -- I peeked at wikipedia, why am I not at all surprised to find they printed a fake vaccine story recently?

throwaway129036• 5 years ago

I moved to Berlin with partner in late 2019. We were looking for 3 rooms for < 1800 in East (Pberg/Xberg/Friedrichshain).

After long, tiring search of 20+ places with 100+ people at each, through a friend of friend we got a place for 1400 because we were the only ones that looked at it. Then rent control happens and now we pay 1000.

And we would have paid 2000+...

---

If you find something you like, it doesn't matter because there would be 20 other people applying. Landlords want to rent for a long time, so they prefer Germans over foreigners/expats, and people with long-term stable jobs (government, teachers, etc.) instead of startup people, so we were at the back of the queue.

When we found a place we liked, we would have been prepared to pay way more than the asking rent, and put down multiple years of rent in advance just to get it - like happens in NYC for example. But no landlord/agent is interested in this in Berlin. I guess this is an example how well-paid tech ppl are driving rents up. Even though "well-paid tech" in Berlin is not that much.

Only at rent levels of 2200+ do you start to find places you really like in good areas, but there are lots of places advertised at ~1500 that were even more ideal but unattainable due to demand, which is frustrating.

I really don't know how anyone can get an apartment in Berlin now after rent-control.

When we move out, we will most certainly find a friend to hand over to.

---

Re: Rent control

Before it was impossible to find a place, now it must be insane. For existing tenants though, it's like an unexpected yearly bonus - but for us, completely unnecessary. It's like a middle-class handout.

colinmhayes• 5 years ago

Do you not think this was the entire point of the policy? Rent control doesn't exist to lower rent for everyone, it exists to reward the long term residents who voted for it at the expense of newcomers. Berliners essentially voted themselves a handout.

throwaway129036• 5 years ago

Gentrification is real though. And a lot of Berlin's culture is built by people who don't earn that much.

I'd be interested to know for how many people it actually helps at the margins and how many its just a handout for.

But yeh - I can imagine a lot of middle-class folks saw its as virtue signalling and free money at the same time.

plumeria• 5 years ago

Would be interesting to see a longer term analysis for Copenhagen where rent-controlled buildings exist since longer ago.

jimnotgym• 5 years ago

I found this article to be rather unbalanced, like the free market always knows best. For example, cutting red tape may increase housing supply, but red tape is not the only thing holding back building. I used to commute through miles of ex industrial wasteland, zoned for housing that was not being built on, because it was being landbanked because tax rules in the UK help large land owners store weath that way. So it seems to me that a right wing policy is damaging the market, the community and the economy. Perhaps the article would be more balanced if it acknowledged that better policy from both wings is needed?

mrcartmenez• 5 years ago

I’m amazed that the writer can spin this as bad. Low housing-costs are both fantastic for residents and fantastic for the economy due to increased disposable income. Only a Rentier Capitalist would want the opposite.

naebother• 5 years ago

Agreed, rent control newer buildings too.

jariel4• 5 years ago

In Ontario and Quebec the entire economies are rent controlled to some extent - rents can only rise by a certain amount. It seems to work.

Also, with Berlin, perhaps it's an issue of splitting the areas that's bad, and also perhaps the excessive nature of the controls.

Finally, this may be related to an issue of low interest rates.

Low interest rates give much leverage to landed/owners so rents to up even if all other economic issues don't change.

Meaning that there is a kind of 'hidden inflation' which simply favours one class (owners) over the other.

Here are the Ontario regs [1]

[1] https://www.ontario.ca/page/residential-rent-increases

timdaub• 5 years ago

I live in Berlin. I've found a regulated appartment for rent last year.

The author clearly exposes his sentiment in their choice of words. There's lots of buzzwords thrown around and not much reporting from here. Was the author even in Berlin before writing?

Anyways, in Berlin it will now get even "worse" as an initiative is now starting to collect signatures to disown "Deutsche Wohnen" of hundrets of thousands of flats they own.

I can see that the market is "bad" from that article. My experience with renting a flat was different:

The law allowed me to reduce my rent to a price I indeed find reasonable. It's roughly 100€ less. I'm happy with that. And in case our supreme court overthrows the Berlin ruling, I've gotten read and saved the "shadow rent".

ipnon• 5 years ago

American and European urbanites need to become comfortable with Chinese and Japanese style mega cities or their urban areas will always be unaffordable. Chinese and Japanese cities are affordable for everyone because they build! They build as much as they need to in order to fit everyone into the city. We don't do that here so cities are for rich people.

u678u5• 5 years ago

Chinese and Japanese cities are affordable

uh Chinese apartments are super expensive and you dont even get to own the land. Japan was super expensive but is now affordable since the bubble popped and the population started shrinking.

Berlin's population is growing quickly so doesn't have much to do with Japan.

csomar2• 5 years ago

If the judges nix the legislation, lots of tenants in the formerly regulated sector could get hit by huge and even retroactive increases in their rents.

Am I reading this correctly? So, these tenants might find themselves in thousands (maybe dozen of thousands) of euros of debt to their landlord. And I assume they'll be required to pay it up overnight? In this case, the politicians really screwed these "poor" people in the most unimaginable way.

Tenoke4• 5 years ago

Yes. It even said so in the letter you get when the price was lowered. My rent was fairly 'overpriced' for the area so if it gets overturned I'll owe around 500e per month for every month that the law was in effect. Needless to say, most who lost their jobs and even many who didn't won't have the 5k or whatever it is in their case to give up suddenly.

I guess if many of us find ourselves in debt here and can't rent because the debt means we cant ever pass the Schufa which every place checks then possibly that'll ironically help solve the housing crisis..

csomar2• 5 years ago

Is it me, or it is just irresponsible to push this through before it gets legally cleared. You basically endangered the finances of most renters in the city.

mxfh3• 5 years ago

This applies to both sides, the so called shadow contracts might also be not enforcable in a lot of cases, be it for legal reason or private persons declaring bankruptcy. This uncertainty is the way bigger driver for the current situation, coming to conclussions from this about the effects of rent control is premature at best. This current situation of legal limbo is a phenomenon on it's own. Not even mentioning COVID.

nickpp• 5 years ago

Rent control, minimum wage, compulsory employee classification, "free" healthcare, "free" education. All sounding good on paper, but every time the unforeseen side effects rear their ugly heads.

Every time we try to "improve" on the market "failures", we screw up. Because there is an universal law it seems: you f.ck with the free market, the free market f.cks with you.

anigbrowl• 5 years ago

Land Value Tax. That's the whole comment.

mastazi• 5 years ago

This reminds me of that time the Italian Government decided to regulate the price of face masks (about a year ago, in response to the COVID pandemic).

The result was that (my relatives in Italy told me) it suddenly became impossible to find masks anywhere.

Most producers decided to keep stock unsold hoping that the regulations would change in the future, and some smaller producer actually stopped production altogether or went out of business because it was no longer viable (source, in Italian) https://www.ilsole24ore.com/art/mascherine-primi-espulsi-mer...

islandlordingok• 5 years ago

One thing I've always wondered is why we as a society even let real estate be a thing that people can buy a lot of. Why does an individual get to buy, say, 10 buildings and rent them? The title "land lord" even seems like a holdover from some feudal time.

Not that I think you completely outlaw the practice, but why not start taxing after, I don't know, you own 20 units or something. Just figure out some sort of scheme that disincentivizes people from hoarding a resource required for life. I'd much rather rent from someone that lived in the building and actually cared for the place than some random LLC in Florida I mail checks to that can't be bothered with anything.

openfuture• 5 years ago

Read up on Georgism, this is not a new idea.

Rent seeking is hard to eliminate, there has to be some way for lazy aristocrats to feel safe in their complacency. Try to remove it and the sleeping dragon gets very angry.

ryan_j_naughton2• 5 years ago

There is no reason why housing cannot be much much cheaper than it is now -- so cheap that it is nearly free. Larry Page, in an interview in 2014 discussed how. "Rather than exceeding $1m, there’s no reason why the median home in Palo Alto, in the heart of Silicon Valley, shouldn’t cost $50,000" [1] and attributed this entirely to a policy problem.

The answer is continuously increasing supply in a manner that outpaces population growth dramatically.

If we reorganized the market such that there were incentives to massively build new housing, this would be a solved problem. The price of housing could effectively be the marginal cost of construction as opposed to the market power driven pricing derived from scarcity.

Couple that with remote work and efficient high speed transit both within cities, to the suburbs, and to other cities, and we should be able to enable the demand to spread out (enabling more diverse supply to compete) and to add significantly more supply everywhere.

It is infuriating that a simple problem of supply and demand has not been able to be solved by developed governments. I recognize that it isn't as simple of a market problem as say a true commodity because location matters -- causing heterogeneity in the goods. But that location difference is alleviated by the increasing supply in high demand areas and by empowering more competition across areas through transit and remote work.

This honestly doesn't have to be that hard.

[1] https://www.ft.com/content/3173f19e-5fbc-11e4-8c27-00144feab...

konjin2• 5 years ago

Housing can at most grow as l^3, population can grow as e^n. If you want to be withing t hours of place x then you need transport systems that travel at l/t km/h.

Until people have two children or less population will always outpace housing. Anything else is wishful thinking.

chii4• 5 years ago

that's funny because many cities have a replacement rate less than 2, not counting immigration.

And even with population growth at e^n, the constants matter in the analysis. l^3 growth may be enough until humans reach space faring.

ryan_j_naughton2• 5 years ago

population can grow as e^n

Population growth is slowing worldwide and is below replacement in all major developed countries. Thus, your e^n is only applicable if n is between 0 and 1!

Sure, desirable cities can grow faster than the overall average, so let's put that at somewhere between linear and quadratic -- heavily towards the linear.

Even so, the ability to build at I^3 can easily outstrip that demand with the right policies.

Furthermore, remote work can spread out demand. We are seeing that right now with the pandemic. I believe that the pandemic will be one of the greatest accelerators of globalization due to it's enabling remote work.

As further proof of the slow pace of population growth in developed countries eventually causing an impact on the housing market, look at Japan.

"Government statistics as of 2018 consider 13.6 percent of properties in the country to be ghost houses. Put another way: By 2040, the total size of abandoned properties in Japan is estimated to equal the land size of Austria." [1]

[1] https://www.atlasobscura.com/articles/japanese-ghost-houses

u678u5• 5 years ago

shouldn’t cost $50,000

To me that makes no sense. Cheaper than the midwest? The whole world would want to move there.

postalrat• 5 years ago

How do you get a house built for 50k? Free labor and 600 square feet?

elihu2• 5 years ago

$50,000 for a house in Palo Alto sounds implausible, simply because there are a lot of people who want to live there and not enough land to satisfy demand. But, I agree that houses can and should be a lot cheaper. We could just build houses in the middle of nowhere, but without jobs and infrastructure it's not attractive to most people. Desirable cities exploit network effects. People want to live there because other people they want to be around also want to live there. We need more of these desirable cities.

Sometimes I wonder if one possible solution would be a sort of kickstarter-type deal for bootstrapping new cities. In other words, find a large plot of cheap rural land big enough for a few tens of thousands of people that's close enough to another town to have access to basic necessities but not where it's going to become a suburb of some other city. Get a bunch of people who want to live there to put down an up-front deposit. Create a non-profit to manage the deposits and handle the logistics of buying the land, installing roads and utilities, creating lots, and so on. The people who put down deposits are given lots that they can build on. Leftover lots are sold over time to finance more infrastructure development. The non-profit is replaced by a city government once there's a sustainable population.

My assumption is that if you can buy rural land cheap (like a few thousand dollars an acre or something) and then convert it into residential lots that are still cheap by urban housing standards for a few tens of thousands per lot, maybe 3 or 4 per acre, that generates the necessary funds that can then pay for the infrastructure needed to turn that rural lot into a buildable city lot. Another assumption is that this is being done purely as a non-profit venture; I don't think it would work as a real-estate get rich quick scheme because the temptation to not put enough money back into the town would be too high.

Another necessary component is having at least a few employers who are willing to set up shop in this new city. (Perhaps a branch campus of a major university would be ideal.)

thrower123• 5 years ago

Huh, funny how this always happens...

Something about those who refuse to study history are doomed to repeat it.

u678u5• 5 years ago

Surely this is good. The long term inhabitants get to stay at a cheap rate, the newcomers have to pay a premium. NYC works in a similar way.

The only difference is new construction, are new buildings controlled as well or free to charge whatever?

mxfh3• 5 years ago

As a tenant living in Berlin, the lede is buried in the last paragraph.

To complicate Berlin’s situation further, Germany’s constitutional court is expected in the coming months to decide whether these rent controls are even legal. If the judges nix the legislation, lots of tenants in the formerly regulated sector could get hit by huge and even retroactive increases in their rents. That would create yet more chaos.

The current Berlin housing market Situation has little definite insights on the effects of rent control, but all about risk aversion and maximization of profits.

The current shortage of supply is all about landlords withholding their vacant listings until that final court order. Or they are cashing out by selling them after fantastic interest rates averging above 10% year over the last decades.

If you feel you have like a 60% chance of getting double the rent, you avoid it at literally at all costs, below that threshold, to rent out on unlimited terms, if you can affor it in any way possible.

Where you're stuck on the long established mandated single digit rent increments, if the current pratice of shadow contracts should prove to be not enforcable.

There simply is just so much more uncertainty than actual rent control happening for the time being.

shuckles9• 5 years ago

Can you point me to some evidence that vacancies are a problem in the rental market?

mxfh3• 5 years ago

My immediate neigborhood, with quite a few empty appartments?! Even the service workers asked to install the mandated smoke detectors were commenting about this, since they can't access quite a few of appartments even during COVID's stay at home policies.

There is no offical data on this, since it's illegal to keep them vacant for more than 3 months. So they are under "maintenance" or the like.

https://web.de/magazine/politik/schattenmieten-leerstand-ber...

https://www.zeit.de/2020/37/mietendeckel-berlin-immobilienma...

busterarm• 5 years ago

Ahh, once again the single most divisive topic on Hacker News. Where contempt for the rich and contempt for the poor battle with the same points of view.

You think we'd learn.

cycomanic2• 5 years ago

It's somewhat interesting that in the "most damning" two graphs related to the listing of apartments nothing actually happened. The listing of old apartments were on a downward trend well before the policy was a enacted (and considering the noise on the limited data, I'm doubtful that there is a significant increase in slope) and the article even admits that there is not much effect that can be made for new developments.

alg0s• 5 years ago

At least they have tried something. In some other areas, like Sydney or Melbourne (Australia), everyone who matters (landlords + politicians) owns homes. So nobody is doing anything about it.

Economic benefits are probably the biggest reason for being stuck in those unlivable cities. However the downside might outweigh the upside: higher cost, long commute and lots of worries.

yc-kraln• 5 years ago

Lots of points missing in this article, clearly written by someone looking from the outside and not someone actually familiar with the rental market in Berlin.

Even without these specific rent controls, most rental contracts have either "staffelmiete" or "indexmiete", that is, fixed points at which the rent will increase or an index against which rent is pegged. There are very strong laws supporting renters.

I live in a somewhat newer apartment, so it's not subject to the discussed changes. My rent increases were agreed with the landlord when we moved in, they are fixed in my contract, and after the built in increases are done, the rent won't go up anymore.

The issue with housing and prices is Berlin is not the same as other places in the world. For years Berlin was an economic wasteland. Just now it's become desirable to live here, and there are jobs and an economy to support it. The rent in Berlin is, despite increasing 5-10% per year every year for the past decade, still less than that in Munich or Hamburg. This isn't a case of a speculative bubble or outlier system, just a historically depressed economy returning to the mean, and fast.

Yes, it's unfortunate, that people cannot afford to live in Berlin as they did in 1996. But Berlin is not the city it was in 1996. To alleviate this price pressure, more housing needs to be built than demanded, and that has not been the case for a long time now; place is limited.

draklor40• 5 years ago

Indian living in Berlin. Can confirm. Finding a new apartment is almost impossible and the rents on unregulated apartments is now through the roof. An apartment that would cost ~800 EUR for rent is now atleast 1100-1200 (even for a good developer salary, this is insane).

Berlin is the SF of Europe at the moment. Unless you want to spend 6 months at a minimum hunting apartments I would avoid this city.

Once I get comfortable with German, I am thinking of moving to cheaper, smaller cities , probably in the south and working full time remote.

dfgdghdf• 5 years ago

Rent controls provide a strong disincentive for people to move, which prevents people taking jobs they might otherwise have taken. It's hard to estimate the overall economic cost of this, since the effect is diffuse, but it is likely significant.

iamsaitam• 5 years ago

This article is a joke, starting with "If populism on the political right corrupts democracies, populism on the left ruins economies.". It really sets the tone and bias.. Maybe someone should introduce to Bloomberg the concept of gentrification.. The only difference between the rent cap and no rent cap is that now there are affordable places.. the prices were already ridiculous pre-rent cap.

chris123• 5 years ago

Socialism destroys everything it touches, eventually.

Rent controls have split housing in Berlin into two distinct markets

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