As a person born and raised in Soviet Union, I strongly believe that whoever thinks that a proper economic response to raising prices is literally to order them to stop raising, is a lunatic.
They've also introduced laws to stop people from buying up apartments to rent out via Airbnb.
Considering even with the law that limits how much they can raise their prices, they're just doing unneeded renovations to get around that law and increase the rent 40%.
This law in combination with the housing construction going on throughout the city and the Airbnb law I think it's the right direction.
I love this idea. My friend currently lives in a building in Brooklyn where a person rents out rooms in his apartment on AirBnB and it's been nothing but an annoyance since day one. I'm glad NYC has put some restrictions on AirBnB .
I'm _extremely_ grateful that my current lease, as well as the upcoming one that I hope to sign if my application is approved, explicitly spells out the penalties for renting out apartments on Airbnb as a fee equivalent to 2 months rent immediately applied to the tenant.
It's been a massive improvement to not have to deal with the externalities that come from sharing a building with Airbnb guests.
You can argue that the regulation of hotel-style Airbnb use is too lenient, or the regulation on real hotels is too onerous, but I don't know of any good argument that they should be treated differently.
Sorting this out would either lead to reduced demand for apartments to use with Airbnb as it becomes less attractive to large-scale landlords, or lead to greater demand of land for hotel usage.
Then the protections and regulations need to be adjusted to apply to businesses that operate like hotels, regardless of what they're called.
There's fundamentally no reason such a hotel shouldn't be able to list their rooms on Airbnb - as long as customers aren't deceived, and the law is complied with.
This may be all well and true, but cities have no obligation to accommodate such demand. For residents, short-term visitors are annoying, since they rarely stay long enough for their behavior to warrant more than a warning from the police, they have no interest in maintaining the neighborhood during their stay, and their economic power is mostly used on things that local residents have no interest in or actively dislike.
You could "solve" this problem by providing more short-term rentals, but unlike housing I find it hard to believe that city residents actually want it resolved that way.
By regulating the hotel industry and restricting the supply of short-term housing, local governments favor long-term residents over visitors. AirBnB is great for travelers, but long-term residents pay the price.
> it just indicates there is existing unsatisfied demand for short term rentals
Yes, but allowing the market to satisfy that demand is not necessarily a good idea. This isn't a case where the unrestrained market will solve all problems. It will solve a problem for travelers, but create problems for long-term residents.
Is there any data on AirBnB affecting the prices?
The city probably simply got more popular, which leads to rising prices.
That's not true at all. The number of building permits granted has actually dropped and when new developments are granted, the number of apartments build will always be negotiated down from the original proposal.
It's insane. The dense Gründerzeit quarters are the ones that are most popular, yet we are unable to build anything alike.
Ok. But the real statistic to disprove the statement is the percentage of building permits granted based on building permit applications. Has that dropped? Or is that still rather high? Also, I think you're not mentioning the fact that major parts of Berlin are against gentrification so while the local government want something, the people don't, because that gentrification allowed them to bypass the rent rise law.
Realistically, to say they aren't building a ton of new housing at a rather fast rate would be a lie. As fast as possible, maybe hyperbolic but that is all.
> It nonetheless imposes some pretty firm conditions on vacation rentals and makes the penalties for ignoring them far more stringent. All landlords seeking to rent out their home will only be allowed to do so if they get a general permit from their borough, even if they intend only to rent their property out for occasional short stays. While landlords applying for a permit at their primary residency will likely be approved, second home owners may face a more rigorous process. Landlords who leave an apartment untenanted, meanwhile, will need a special permit from the borough to do so after three months of vacancy without having a permanent tenant registered, cutting the current vacancy grace period in half. Most strikingly, the maximum penalty for breaking the rules has been multiplied by five, to a potential fine of €500,000 ($617,000).
Sadly, the examples of economies of Soviet Union, and Cuba, and Venezuela, and North Korea etc. are somehow not sufficient enough for people to realize the danger of such control.
Perhaps it is better than nothing, however, living in Soviet Union's surrealistic "economy" was not worth that.
I agree, but the same applied for buying a car and other rare goods as well. The whole system was unsustainable. The almost comical dysfunction of it is probably hard to believe if you didn't experience it first hand. 10 years after the wall came down my dad came into the kitchen announcing that today we could have picked up our first car, which was one of those [1], in the late 90s.
That's because a lot of people want to live in cities like Berlin. But don't worry, the Soviet Union had a solution for that, too!
You would get assigned a job by the central committee, based on grades, people you know, who you're married to, things like that. So a lot of people would get assigned to very undesirable places, such as villages or very small cities, thus solving the problem of too many people in large metros. Do you think that's an acceptable tradeoff?
That being said I'm sure there are some anti competitive laws/regulations creating problems but the solution is not more bad regulations.
Seems like this law is only going to make things worse: the rent freeze will make renting even less appealing to owners, only increasing their desire to run their property as a hotel. No?
Rent freeze will limit available housing and lower the quality of it.
If it is attractive to investors to run illegal hotels now, it will only become more attractive to do so once they are unable to raise rents on normal tenants.
They have already done it and recovered less than 3000 flats. Again, illegal hotels are not a real problem in this city.
Berlin receives 30.000+ new people every year and builds only ~1/3 of the necessary flats. It just cannot work this way.
Did you know that in the late 90 the housing was good and affordable?
And that a big chunk was owned by the city or state?
That these things were then sold for pennies, to companies who only want to exploit people?
Did you know that after there were laws passed against raising the rent exorbitant, many companies cheated?
They raised the cost that you have to pay for the house services which are included, without doing that services or charging way to high
edit: fixed formatting
Obviously, affordable is subjective. People in cities have demanded ever-expanding services. Better sanitation, better public transit, electricity, everything new has to be super safe, everything new has to have 16 handi-capable toilets per 1 handi-capable user, subsidized housing for the poor, free education, free higher education, free healthcare, higher taxes on businesses, higher regulation of existing businesses.
Some of those things are probably necessary. Some are probably really nice to have. Everything has a price. Rent control is a great way to make slums. There's no market incentive to make your placer any nicer than someone else's because you're competing for a set amount of $$. The good landlords will exit the business, and you'll only have slums.
goverment build housing
Berlin's NIMBY population is also to blame, they voted against developing former Tempelhof airport [1]. It would have been easy to erect dwellings for > 10k people there.
The rent-freeze is populist political action to cover up government inability, and redirect anger away from the root cause of the problem (Berlin's government) towards scapegoats. Freezing rent will not create a single new dwelling, indeed it will reduce incentives from building property.
[1] https://de.wikipedia.org/wiki/Volksentscheid_zum_Tempelhofer...
Why do something equally retarded in the other direction?
Reasonable regulation is the only way we can hope to achieve a decent balance in a social democracy.
Something that arguably works pretty well here in parts of the west.
Since I was downvoted for stating things that are factually observed:
https://web.stanford.edu/~diamondr/DMQ.pdf
https://www.bloomberg.com/opinion/articles/2018-01-18/yup-re...
https://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent...
https://www.economist.com/the-economist-explains/2015/08/30/...
http://iea.org.uk/sites/default/files/publications/files/Ver...
No, it's not. Rent stabilization is, purportedly, about ensuring that poor or low-income residents specifically aren't pushed out of neighborhoods or New York City entirely due to gentrification and rising rents.
In terms of making housing affordable for those people, rent stabilization is incredibly ineffective.
Their intent has always been to protect existing residents.
Not poor or low income, necessarily, in fact for the most part the original idea was to protect the middle class, not so much the poor. Which should be unsurprising if you have any basic concept of who wields political power in cities.
The key distinction is between people who are already there and people who aren't. Your assumption is a very common one but it's a misconception, and the difference is pretty crucial. It's not that hard to figure out: having massive rent increases possible upon vacancy, as well as almost no means testing (only in one special case) are two of the several obvious tells.
I'm well aware of the history of rent regulation in New York City, and this is flat-out incorrect.
> Not poor or low income, necessarily, in fact for the most part the original idea was to protect the middle class, not so much the poor. Which should be unsurprising if you have any basic concept of who wields political power in cities.
Rent stabilization, in its current form, is a handout to the upper-middle class, couched in rhetoric about helping the "poor" and "working class".
> It's not that hard to figure out: having massive rent increases possible upon vacancy, as well as almost no means testing (only in one special case) are two of the several obvious tells.
This is... not how the rent stabilization law in New York City works.
Or said another way, if you have strong ties to the city and/or are a longtime resident of the neighborhood you win, if you don't you lose.
This has literally nothing to do with who ends up in a rent stabilized apartment.
In fact, new residents are more likely to end up in rent stabilized apartments than existing residents, so rent stabilization has the exact opposite effect of what you're describing it does.
Citation needed on that one.
It’s effective at that until landlords abuse the loopholes, which you have to keep closing through legislative whack-a-mole.
This is absolutely false. They just understand, by economics, and history, that it has failed. The best way to decrease rents is to make housing more affordable through supply. Unfortunately it sometimes takes time for supply to catch-up and you get price surges...but you also have special interests, especially in the US (aka real estate firms) that lobby zoning boards to limit development and drive up prices for their own benefit.
This is not even a partisan issue, economists on both ends of the spectrum are in near complete agreement that rent controls are damaging.
To whom?
Rent controls redistribute the value capture from gentrifying neighborhoods away from landlords and towards longtime residents. That's what they're intended to do, and they do that.
What seems to always end up happening is that new residents subsidize the rent controlled ones, which creates this weird lock-in dynamic because people can't afford to move into equivalent housing literally next door. Rent control also gives landlords an incentive to encourage older residents to move. Sometimes they do this with big payouts to people that are willing to leave (I know someone that got offered $10k to leave his current place, but I've heard of payments as high as $50k). Less scrupulous landlords try to accomplish the same thing by letting the living conditions deteriorate to the bare minimum level that code enforcement will tolerate (or lower than the bare minimum, because they know that certain groups of people such as undocumented immigrants are reluctant to contact the authorities).
Not really.
It's landlords that subsidize rent controlled tenants.
The system is redistributive. The value that would have gone to landlords in an increasing rent environment goes to the tenant instead.
Theoretically it can distort the market, provide disincentives to building housing, etc etc. But those are second order effects, and situational, and often very arguable.
In economics terms the subsidy flows from property owner to tenant.
Are there any studies showing the extent to which that is true? I would be curious to see what fraction of the rent control is paid for by landlords vs new tenants. My intuition would be that rent control reduces the supply of market-value housing, which would lead to prices increasing even more (even before you take into account a landlord wanting to compensate for the money they're not making from rent controlled apartments).
There are actually plenty of studies that show that it's not true. Some of them are linked elsewhere in this thread. Your intuition is, in fact, correct and supported by a vast body of empirical research.
This is one of the least-controversial topics among economists. It's very difficult to find a topic on which there's more academic consensus than rent control and its effects. But people dig their heels in and refuse to acknowledge it, even when there's copious research behind it.
As Paul Krugman put it, "So now you know why [people say] economists are useless: when they actually do understand something, people don't want to hear about it."
Consensus changes. Right now many neoliberal market-fundamentalist theories are not holding up well in the context of history.
Several things that are taken as gospel by economists, such as free trade is always good, or that low unemployment is too dangerous because it causes inflation, appear now in retrospect to have caused a lot of misery for the middle and lower classes.
So do I.
> Consensus changes.
Sometimes, it does. In this case, it hasn't. The consensus on this topic is strong.
The fact that it hurts people who might want to move into the neighborhood, or from a rent-control/rent-stabilized apartment to a different one in the same neighborhood or the same building, is not really a goal that rent control is targeting.
Does it work at housing everyone? No, which is why we say it hurts the macro goal of providing affordable housing for all. Does it work at locking people into the apartments that they have, at prices they can afford, so that they won't be forced to move? Yes. Rent control has never really pretended to be anything else.
You could also phrase that as making it hard for people to move in, making it hard for young families to stay in their neighborhood when their housing needs increase, making it hard for older people to downsize. It's really benefitting the residents who are lucky enough to already be in an apartment of the size they need, at the cost of everybody else.
It has utterly failed in actually dealing with housing
Like it's just "proven" not to work, as if there's some kind of objective science that exists independently of values and assumptions.
Rent stabilization is intended to keep permanent residents of the apartments in question from being forced to move by rent increases. It does exactly that thing.
https://web.stanford.edu/~diamondr/DMQ.pdf
https://www.economist.com/the-economist-explains/2015/08/30/...
and plenty more throughout.
That's not correct. It's a redistribution from landlords to tenants.
It's at least possible that there are also dynamic effects on the larger market, of course, but it's intentionally misleading to act like the "tax" is on people that aren't a party to the transaction. The cost/money that would have been captured by the landlord is instead captured by the tenant. The core of the mechanic is pretty straightforward.
The landlords are taxed; you're not wrong. But they're not the ones most hurt by these policies.
Luxury apartments tend to be more attractive to builders not simply because they can make more money, but because the increased profit result in lower risk.
This freeze actually exempts new construction, so the whole problem is mood. But it's still interesting to think it through, and the result is different than simple economics may make you think:
Housing is different than bread, or cars, or mobile phones. It doesn't actually cost meaningfully more to build a new house in the middle of Berlin than to do so in some empty village in the countryside: the costs of material are the same, and for the most part so is labor.
The only difference is the cost of land.
The effect, according to the basic supply/demand scheme of economics you are invoking should be to depress land value, with no effect on the amount of housing units being built. That's true as long as the rent it is possible to charge is high enough to cover the costs of construction. One can take a guess at the actual value by looking for the cheapest rents in newly constructed housing, which for Germany is about half of Berlin's average. In the limit, land value would tend toward zero, although that's rather theoretical because at some point owners just wouldn't care about selling.
This hints at some additional factors that may have minor impact: maybe there is an expectation that land value will rise again after those five years, and the actual discount in the market is therefore smaller, etc. But even then, it's only land value that would be affected.
You seem to be asserting that the land value is arbitrary simply because it's located in a different area. The value is higher because the land is a lot more useful/productive / accessible/developed. You can't just wipe all that value away.
_This_ freeze excepts new construction, but it exposes the risk of a future freeze. Now, being a landlord in Berlin means being prepared for a rent freeze being applied in the future. That must be taken into account for projections of future income, and will either reduce your projected profit, or require raising rents on new construction to keep your projected profit.
That is, "something has to be done" while the capacity is being built, and it cannot be built fast enough.
Surely price control will result in various shortages, lines, increased corruption, etc. OTOH this may be, at least in the politicians' reasoning, not as bad as rapidly pricing out their constituencies out of the houses where they live. And if not directly their constituencies, this applies to all low-wage workers needed by the city economy; raising their wages abruptly would raise other prices abruptly, which may be politically undesirable.
So, as a temporary throttling measure this may be not so nonsensical, with emphasis on "temporary".
edits: grammar
[Edit] To clarify, they seem to be "artificial" price hikes because they don't in any way necessary to cover costs. People realize they can charge more and get more money, so they simply do. That's inherently avaricious and unethical. Sure, maybe prices work themselves out, so that price goes down when supply goes up, but this seems to only be because suppliers can no longer get away with a higher price, because their competition is now selling it at a lower price. So I think it's far more ethical for a government to limit those kind of price hikes, which mainly just hurt the consumer, than to allow these abuses to continue in the name of "freedom".
https://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent...
Make other places more attractive or increase the supply available in this location.
Greed is bad in this situation because you can make more money of luxury apartments than those suitable for people who are somewhere between the poverty line and upper middle class. Hence new apartments in major cities tend to be more and more expensive to satisfy the demand of wealthier people. Greed is also bad when existing apartments are made much more expensive, thereby forcing senior citizens who have been living there for decades and who are barely able to afford the rent to basically leave town, family and friends.
Think of this like a domino effect: those earning $10M per year buy luxury residence, leaving their old house for those earning $1M, who in turn leave their own houses to those earning $500K, who leave their apartments for those earning $200k, and so on, and so on.
In the end everybody benefits from new housing being built, even if it's only luxury housing.
Also, increasing supply keeps prices down, thus decreasing profitability of buying houses as investment, causing larger share of apartments to be bought by people who actually plan to live in them.
EDIT: yes, this effect might not work as described if is limited to just one city, because there might be a lot of people wanting to move from elswhere. Or more precisely: it will work, eventually, but it would require much more housing to be built to meet the demand.
So what that leaves you with is disproportionate increase of demand and prices for smaller cheaper units.
Building luxury housing doesn't push prices lower on the bottom half of the housing spectrum, it just makes the top end higher. "Trickle down" housing takes way too long to be realized, while subsidized housing has a much stronger and immediate impact[0]
[0]https://www.urbandisplacement.org/sites/default/files/images...
This assumes that a) rents don't increase for the new residents (which is false) and b) people only move within a city and there's no high demand from people outside to move into the city (which is false too).
One way to think about prices is as a signal. When greedy landlords raise prices, they send two signals: (1) To other landlords and wanna-be-landlords, saying it's an attractive market which would justify new construction or cleaning up your spare bedroom and putting it on the market, both increasing supply, and (2) to current and future renters, making it more economical for them to move elsewhere and thus save on their rent, thus reducing demand.
good point in that it undermines constructive argument
I have not met anybody so far who thinks wealthy foreigners should be able to use real estate to launder money, store value, hide wealth, or otherwise not use real estate for what it is meant for, that is to say as places for people to live, play, or work.
In Berlin only 1.7% of housing is empty, of which 41% is because of ongoing modernisation, 31% because of renter currently changing and 12% because of mold or other damages.
So only approx. 0.27% of housing is empty in hope of higher prices or because of other reasons. [1]
The demand is real. No living space is created by this policy. Much will not be build because of it.
[1] https://www.morgenpost.de/berlin/article214572349/Nur-1-7-Pr...
1. Demand is increasing faster than supply can keep up
2. Supply is shrinking faster than demand falls
For housing in large cities, it's usually (1) above.
Easy money policies stoke artificial demand by making money cheaper (lower interest rates). That makes speculation in housing easier than it otherwise should be. Don't blame "speculators." They are simply responding to conditions created by central banks and the fiat money system.
Of course, questions as to how one ended up in a bad situation have to be asked. Underlying issues should be fixed.
But when things get out of hand, when extraordinary action is deemed necessary to adjust for an untenable situation, it is not only right but paramount to take action.
As is with all issues, people will disagree with any specific course of action. By all means, vote to that effect.
That rationale is also how wars get started.
Not that I disagree with you, per se: lethal "cures" and excessive pollution were killing people in the early 20th century in the US and government intervention was required. But the Korean and Vietnam wars were also the result of people thinking that the spread of communism was also untenable.
In a complicated world things will correlate. I hope this neither makes a generalised case against physics nor government intervention.
That’s a simplistic view of the problem (simplistic as in introductory-economics-textbook-simplistic), and you have no idea what you’re talking about. Demand is obviously a factor (duh), but the main reason for the terrible, pathologic inflation of the real estate prices in Berlin is called speculation, together with government incompetence and, in some cases, blatant corruption. This rent cap is an emergency measure meant to stop evictions and give people around here a break. Of course it’s not going to solve the problem in the long run. No one is expecting that.
I'm not aware of either of these things happening in any modern city. (well, the latter happens whenever the local economy tanks)
For example, if tons of foreigners are buying homes, this might be a problem. Regulate it.
If tons of people are buying 2-3 homes and renting, thereby driving a wedge between home-owners/non-home-owners, regulate that.
If the issue is low interest rates, which are necessary for the regular economy, consider building in housing prices into the inflationary index, because it's a real thing that people have to pay for. This might affect how rate are set. That said, it's ECB and not really Germany anymore. FYI this should hint at the incredibly serious problems of Euro-area countries losing monetary policy by joining the Eurozone ...
If it's really just supply/demand build more homes.
It could be a function of older, crappier areas finally getting caught up in the modern world, in which case this might be an existential change that Berlin will have to deal with. The 'downtown' spots will eventually be paid for by people with decent jobs. Some pretty harsh and weird rules would have to be put in place to stop this.
Zone some areas for affordable housing.
My bet is the answer is mostly to build, but also that it's a 'neighbourhood' issue i.e. Kreuzebeurg (sorry, forget the spelling) is becoming gentrified and that's going to be a tough nut to alter.
case in point: Los Angeles requires that new construction include parking for a certain number of cars per housing unit. usually this means placing the new building on top of a subterranean parking structure, which costs a lot more than a building on a normal foundation.
and new construction must also include a certain amount of outdoor space per unit which also reduces the number of units which can be built into a given lot.
all of this overhead is passed along to new tenants/buyers.
One symptom is that current tenants are subject to arbitrarily high rent increases, masquaraded as "market rate"
But when they finally evict, the landlord has to actually change the rent to something different until someone bites. Often times it is much lower or has some other concession.
If there were some way to regulate this behavior without easy ways to get around it, it could alleviate some pressure.
No, it's going to become higher than a rent increase would allow (those have a limit by law, new contracts don't (yet)), that's the problem.
As long as you stay put you're mostly fine but if you have to move.. urgh.
Yes I get that
But there are ALSO circumstances where a landlord TRIES to have a much higher increase as new contracts don't have a limit, but they go way above what actual participants in the market would bite at.
There are also circumstances where EXISTING tenants don't have a limit on increases
This observation is not just about Berlin.
I guess you do have the right to wander into the forest and build yourself a fortress out of pine cones and moss, but if you want to live in a modern house with modern amenities, there's going to be a profit incentive behind it. It's basic economics.
Is there anywhere where this would be legal? Certainly not in Germany.
NYC? No, it's not a full blown free market by the very fact they have rent control.
Yes, I'm sure that you volunteer your services to build new housing all the time.
And please do not twist the words of OP. The whole point of a democratic government / social contract (at least on paper) is to have a communal entity deal with this stuff when there are not enough volunteers.
People do need to profit from something to do it in a capitalist society.
Our children will look back upon a time when there were 6 (SIX!) empty homes for every homeless person in the United States and weep. Obviously those homes aren't all where the homeless people are, but that's another problem itself: Why on earth are developers building homes in the middle of nowhere, why are they building luxury condos, and who the hell is buying them?
The fact that we can't solve homelessness "just" by giving everyone easy access to affordable housing isn't an argument against affordable housing. It's an argument for better mental health services and a wider safety net.
Source: http://allhomekc.org/wp-content/uploads/2019/05/2019-Report_..., Methodology Section, point 3, saying they include those living in shelters.
Social workers and detox programs help, but there is no easy fix (other than "finance their life") for people who can't kick a drug habit, or are mentally incapable of holding down a job.
Have you never spent time with homeless people? You are delusional.
What I want to say is that houses are different and there are places where everybody wants to live and where nobody wants, and that is why the housing prices can be so high. Maybe instead of asking for a fixed rent people should consider a cheaper place to live? Everybody cannot live within 5 minutes from a subway station.
Can you explain? Even if I were to build my own house, I would myself profit because the enjoyment I got out of the new house would be greater than the enjoyment I'd have had without it, thus my 'profit' is the cost of the enjoyment of my new shelter.