German constitutional court strikes down Berlin rent cap

https://www.politico.eu/article/court-strikes-down-berlin-rent-cap/

by zajio1am • 5 years ago

86 87 5 years ago

I feel bad for the renters, but rent control isn't a solution to high rents and exacerbates the underlying housing shortage. Hopefully this increases support for long-term solutions like upzoning and massively increasing the housing supply, public or private.

BadInformatics• 5 years ago

Is there a clear consensus that this is the case? I had much the same understanding as you after reading all the debates on rent control on HN, but was recently pointed to [1] which offers a very contrarian perspective (including an analysis of a study done on rent control in SF). As a non-economist, it feels like this topic deserves a great deal more empirical study so we're not stuck arguing with anecdotes and hypotheticals.

[1] https://jwmason.org/slackwire/considerations-on-rent-control...

Causality1• 5 years ago

His sources clearly say that rent control reduces the supply of rental housing as well as making people rent smaller and smaller units.

I would posit, however, that it isn't rent control having a major effect on housing supply but rather regulations on new housing. Zoning difficulties, permit difficulties, requirements to accommodate personal vehicles, etc.

dasil003• 5 years ago

That article raises a lot of good points, and I agree San Francisco's housing problem is more with zoning than rent control, but there's definitely some spin and assumptions.

The idea that rent control doesn't reduce available housing stock sounds true enough in the sense that people enjoying rent controls are less likely to move, and they count just as much as a new resident that might have displaced them, but from the perspective of the new resident the available supply is definitely suppressed and thus the price forced up for all non-rent-controlled apartments.

The other one is the unequivocal statement that long-term tenancy is better for the fabric of a neighborhood. In principal I agree with that, but I've known a lot of people in SF that would like to move but can't simply because they are priced out of the current market rate rentals. In these cases, it's not clear whether the benefit of having a controlled rent is worth the inability to move, especially if overall market rates could still be within reach sans rent control.

standardUser• 5 years ago

In addition to needing a better ratio of data to assumptions, the conversation on rent stabilization needs to accept that all laws on not created equally. While it may be easy to show that extremely aggressive rent control measures in hyper-competitive markets can cause problems, there are a lot of alternative approaches that allows for the influence of market forces and provide a sense of stability to working families that are deeply invested in the communities they live in.

gruez• 5 years ago

According to this survey of economists, the consensus seems to be "rent control is bad". https://www.igmchicago.org/surveys/rent-control/

totetsu• 5 years ago

But the "I knew a guy once who did the thing" type of evidence is most salient in most peoples opinions about things

AnthonyMouse• 5 years ago

This article doesn't start off well:

Among economists, rent regulation seems be in similar situation as the minimum wage was 20 years ago. At that time, most economists took it for granted that raising the minimum wage would reduce employment. Textbooks said that it was simple supply and demand — if you raise the price of something, people will buy less of it. But as more state and local governments raised minimum wages, it turned out to be very hard to find any negative effect on employment.

The reason it's hard is that they're not doing controlled experiments. They're not starting in a place with no minimum wage and instituting a significant one. They're starting in a place that already has a minimum wage and enacting a minor increase in the amount.

The existing minimum wage would have already done most of the damage you're trying to measure, but you're folding that into the baseline and ignoring it. All you get is the amount from the increase, which for a modest increase may not rise to the level of statistical significance.

Meanwhile they have biased data, because the state legislatures, if they have any sense of self-preservation, aren't going to enact a minimum wage large enough to damage the local economy. So you have selection bias in the sample, and even at the raised amount, only a low single digit percentage of people are making the minimum wage.

These all make it hard to measure any macro-scale effect because you're making a change to a fraction of a fraction of a fraction of the economy.

But he goes from that to a conclusory assumption:

Today, it is clear that minimum wages do not reduce employment.

Which is facially ridiculous as an absolute declaration. No one can seriously claim that raising minimum wage to a million dollars an hour wouldn't severely reduce employment.

This is a bad sign, and it only continues from there:

They also found that eliminating rent control also raised rents in homes in the same area that were never subject to the controls, reinforcing the idea that rent control contributes to neighborhood stability.

Plausibly because landlords have little incentive to make improvements to rent controlled properties, which then decompose and negatively impact the quality of the neighborhood, and removing rent control removes that perverse incentive. It's like arguing that maintaining a tire fire on every street corner would reduce rents in the area. Possibly true; still a terrible idea.

Notably this also implies restrictions on new construction, because higher prices should make new construction profitable until prices fall back to the level where it isn't, absent some (e.g. regulatory) constraints.

The main conclusions from this literature are, first, that rent regulation is effective in limiting rent increases

This is kind of ridiculous. Yes, a law against rent increases will prevent rent increases, by law. The question is, at what cost? And what are the alternatives (e.g. policies to increase housing supply) to achieve the same result without it?

The absence of rent regulation may also create political obstacles to efforts to increase housing supply, attract new employers, or otherwise improve urban areas, since current residents correctly perceive that the result of any improvement may be higher rents and displacement.

Wait, so people will create obstacles to efforts to increase the housing supply (which should reduce rents) because "current residents correctly perceive" that the result is higher rents?

Meanwhile rent control causes non-improvement of urban areas, because landlords lack the incentive to make improvements if the improvements can't yield higher returns.

There is an obvious contradiction between wanting improvements and not wanting the improvements to increase housing costs, which, all else equal, they would. The way to square the circle is to increase housing supply, so that quality can increase without higher demand bidding up the price of a finite supply.

So this is where we come to the crux of it:

Fourth, in many high-cost areas, housing supply is relatively fixed. The reason that existing homes in many large cities cost multiple times more than the costs of construction, is that the ability to add new housing in these areas is very limited, by some mix of regulatory barriers like zoning, and physical or economic barriers. In economists’ terms, the supply of housing in these areas is inelastic – it doesn’t respond very much to changes in price.

The conclusion that rent control will do something good is based on the assumption of inelastic housing supply due to regulatory barriers. But that's the real problem that has to be solved, and fixing that relegates rent control back to the dustbin where we found it.

dataflow• 5 years ago

Another link on the topic suggesting rent control backfires in the long term: https://www.brookings.edu/research/what-does-economic-eviden...

JamesBarney4• 5 years ago

The evidence on increasing minimum wage is mixed. With half finding no effect, and half finding a small negative effect. But one side has a very clear concise mechanism and the other is kind of handwavy. And almost all economists believe increasing minimum wage will decrease employment, the question is how much and how do you weight this decrease in employment against increase take home pay.

JW Mason's blog he quotes a lot of studies to "support" his post but here is a list of the studies he quotes. What you'll find are all the ones that even address the question find "rent control decreases rental housing, decreases rental quality, definitely decreases rent in the short term (maybe increases maybe decreases long term), and increases tenant lifespan". These are all the same things an econ 101 class would tell you. He's definitely using these studies for support and not illumination.

Here's a list of all the papers he quoted and what they said.

2007 study by David Sims

The sudden end of rent control in Massachusetts in 1995 provides a natural experiment to study the effects of rent control. My results indicate that the intuition presented in simple microeconomic models is correct. Rent control decreases the quantity of rental units supplied, as well as rent and unit maintenance. It also lengthens renter stays. In addition, some evidence suggests that rent control produces small spillover effects that decrease the rent of uncontrolled units in controlled areas

2014 study by Autor, Palmer, and Pathak

Doesn't really look at his question at all.

We measure the capitalization of housing market externalities into residential housing values by studying the unanticipated elimination of stringent rent controls in Cambridge, Massachusetts, in 1995. Pooling data on the universe of assessed values and transacted prices of Cambridge residential properties between 1988 and 2005, we find that rent decontrol generated substantial, robust price appreciation at decontrolled units and nearby never-controlled units, accounting for a quarter of the $7.8 billion in Cambridge residential property appreciation during this period. The majority of this contribution stems from induced appreciation of never-controlled properties. Residential investment explains only a small fraction of the total

2007 study by Gilderbloom and Ye

In general, conventional generalizations about rent control do not distinguish between moderate and restrictive controls in the housing market. There has been a great deal of change in the last few decades as rent controls have moved from being restrictive to more moderate forms. This article examined a moderate form of rent control, looking at 76 regulated cities in New Jersey. Moderate rent control in New Jersey stands as symbolic rather than distributional reform. Our research suggests that the pressure of real estate groups, government, and the courts has made modern-day rent control laws toothless in terms of their impact on rents. A similar finding has been found in southern California (Heskin et al., 2000). About the only measurable impact is that landlords may have cleverly reduced the size of rental units to create more units and profit in rent control cities. At best, it appears that most rent control ordinances have only succeeded in preventing rent increases that are excessive. These ordinances have also provided protection against arbitrary evictions, incentives for maintenance of rentals, and knowledge to tenants about the level of rent increases to expect in the future. Certainly, this is a small improvement for tenants who have had none of these protections in the unfettered market. Our study shows that, as a moderate type of rent control, the rent regulations in New Jersey may have avoided some of the negativity of the conventional regulations

2015 study by Ambrosius, Glderbloom and coauthors

This study replicates, using 2010 Census data, and extends past work on moderately rent-controlled municipalities in New Jersey, which began policies to stabilize rents while allowing landlords modest returns in the 1970s. Our approach compares controlled and non-controlled communities over 10,000 persons; and regresses rental housing characteristics (rent and quality/quantity) on two measures of rent control: nominal (1/0) and ordinal (an index of policy diversity/strength). Because the decade 2000–2010 was unique due to the housing bubble and recession, we expand previous analyses by introducing two additional dependent variables: changes in property values, which may be affected by restrictions on rents; and foreclosure rates, a problem affecting investors and a proxy for abandonment. We find that these 40-year-old policies do not exert any statistically-significant effects on their communities’ housing markets once other factors are controlled—a finding which has implications for affordable housing and advocacy in New Jersey and beyond.

Diamond McQuade, and Qian in 2018

Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals' migration, we nd rent control limits renters' mobility by 20% and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15% by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.

MeinBlutIstBlau• 5 years ago

In berlin you apply for housing like online dating in the US...as an ugly male looking for a 10 woman. It's that atrocious. Like you need flawless credit, long history, and can front some serious cash and be the first through the door. Otherwise good luck. Might as well just start brushing up on your polish and move to krakow. It'd save you some time.

sampo3• 5 years ago

Is there a clear consensus that this is the case?

There is a consensus in economics, that rent control is bad idea. Inasmuch as economics can be considered a science, supporting rent control is an anti-science position.

https://en.wikipedia.org/wiki/Rent_regulation

https://freakonomics.com/podcast/rent-control/

https://www.econlib.org/library/Enc/RentControl.html

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

conanbatt• 5 years ago

They, may, however, reduce the supply of rental housing if it is easy for landlords to convert apartments to condominiums or other non-rental uses. This suggests that limitations on these kinds of conversions may be worth exploring

Classic central planning thinking. This would work as long as we ban the agents from doing otherwise.

oh_sigh• 5 years ago

Rent control just picks a few lottery winners and lets everyone else pay for their housing. It is inherently not a scalable solution, and in some cases is a double-edged sword for the lottery winners. One of my first neighbors in NYC was an agoraphobic pensioner. He hated the city, but literally couldn't move because he could only afford his 2BR in the UES for $400/mo (for reference, I was paying $1600/mo for a studio across the hall from him).

eru9• 5 years ago

It's even worse.

If you win an actual lottery, you can transfer your winnings.

If you win the rent control lottery, you are forced to sit in the house. Use-it-yourself or lose-it.

Thus, as you say, people stay in the old place even after it no longer makes sense for them.

eru9• 5 years ago

Why feel bad for the renters?

rasz2• 5 years ago

No amount of building will stop people parking their capital in real estate and extracting high rents.

unmole• 5 years ago

Why won't increase in housing supply reduce the ability of landlords to extract high rent?

neuronic• 5 years ago

If there is one apartment to choose yes, if I can just go somewhere else and tell that bloke and his stupid high rent to flip off then yes, it would absolutely stop people from extracting high rents. They can obviously still charge them but a far lower number of people would actually pay them since there are alternatives.

NicoJuicy• 5 years ago

I have the feeling that increasing public housing, increases private prices too. Making the problem worse

( There's a public housing requirement of 20% in Belgium)

Vinnl4• 5 years ago

rent control ... exacerbates the underlying housing shortage.

I don't understand this. Shouldn't there always be incentive to build new houses as long as demand exceeds supply?

brazzy• 5 years ago

Only if it's profitable. Not if you have regulation that increases the costs and arbitrarily caps the revenue.

brodock• 5 years ago

Many cities artificially block that citing things like "will modify the current architecture/aspects of the city" etc. Basically the argument is that cities shouldn't evolve from what they were in early last century, ignoring the major influx of new residents.

ramblerman• 5 years ago

Incentive comes from profit, not just there being a 'problem'.

If rent was allowed to naturally increase due to an increase in demand, investors would quickly be there to build more appartments. But with rent control, you have little opportunity to offer something unique. It's also harder to compete with appartments that are already close to the center, as they are artifically cheapened.

Of course it's made more complex by additional regulation enforcing you can't build up, more than n stories in most european cities.

vecplane• 5 years ago

Pricing freedom is mandatory for a properly functioning market.

seiferteric• 5 years ago

Government should subsidize rent if they want to help people, not just stick it to landlords.

partiallypro• 5 years ago

and...just make zoning laws not so dictated by real estate investors that benefit from rising property values and to allow more building of housing. Real estate brokers have so much power on local levels it makes Washington look clean.

eru9• 5 years ago

That's not a great idea either.

Just hand them money without strings attached.

(Though, the German government does subsidies poor people's rent already. It's called Wohngeld.)

est31• 5 years ago

The government already heavily skews the market by telling land/house owners they may not build on the land they own. Often it's landlords behind this as this keeps supply low, but there are plenty of landlords who would love to invest into new constructions but can't because of the captured government's monopoly on violence. The result can hardly be called a free market. Personally I don't think that restricting rents is a good solution to the problem though. Just allow more construction of affordable housing to happen.

misja111• 5 years ago

Well yes, but it's not the only requirement. More important is that the market is competitive, i.e. that there is enough supply. And that is the dominating problem in most big cities, there are just not enough houses available.

Given a non properly functioning market due to lack of houses, it might be a good idea to introduce regulation to shift the consequences of the imbalance to those who can bear it the easiest.

JAlexoid9• 5 years ago

No way! The same people who demand rent controls, then turn around and demand that no new housing is built in their area. Then they moan about low salaries, because Google's and Amazon's aren't bringing in the high paying talent to their cities.

People like that are architects of their own demise.

Out of personal experience - rent control, development ban and anti-gentrification advocates are xenophobes that just hate the world changing around them. I've been on the receiving end of these policies, as I moved around EU from Lithuania. These people just hate anyone messing with their vibe.

tdingman• 5 years ago

If you live in NYC and worry about failed housing policies like Berlin's making inroads here, join us at https://opennewyork.city/

hutattedonmyarm• 5 years ago

Keep in mind, that it wasn’t shutdown because of the cap itself, but because of a formal issue. The rent cap needs to be on a federal level, a city can’t just waltz in and mess with federal laws. This has nothing to do with the rent cap itself

foepys• 5 years ago

Berlin is a state, not just a city. Same issue though.

Semaphor• 5 years ago

Keep in mind that this judgement was not about the content of the law at all. It was purely about the state not having the right to make this law as it’s already regulated on a federal level.

detaro• 5 years ago

previously https://news.ycombinator.com/item?id=26817517

ChrisArchitect• 5 years ago

[dupe]

Discussion over here: https://news.ycombinator.com/item?id=26817517

marenkay2• 5 years ago

Why don't we just couple rent and also house value increases to regular maintenance and improvements?

No value increase unless you keep at least original state and improve on it. Apply to any house older than 20 years, and a giant bubble bursts.

chalst5• 5 years ago

Legally enforced gentrification?

marenkay2• 5 years ago

That's not gentrification, see any dictionary. That's just enforcing existing laws in many countries. Many countries have laws that state that owned properties have to be maintained. It's just not enforced, so you can increase rent without providing a better place.

(And I am saying that as a property owner)

German constitutional court strikes down Berlin rent cap

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