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Comment by awillen | Hacker News Reader

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.

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This is not how it works. Without the possibility to rent out or consolidate homeownership, the inflationary pressure on home prices collapses.

You create an insane level amount of supply for homeownership on this market. An absolutely insane level.

Indeed, the vast majority of increase in housing prices is because rents are so high that 7% YoY returns are possible. Without these returns, then there is no way to justify inflation in housing prices for simple homeowners.

If somehow millions of people do buy houses in Berlin, then you build public housing to undercut the price of housing.

The idea that your scenario will happen is not really rooted in fact. To me, it seems like a way to rationalize the principle that rent control must always fail - whereas in the real world it doesn't, see Vienna.

Homeownership in Berlin is very low, at 17% or so. The absolute majority of the housing market is based on renting out units. Before saturation of homeownership happens, a gulf remains.

>This is not how it works. Without the possibility to rent out or consolidate homeownership, the inflationary pressure on home prices collapses.

No, as we seen in north america that's not really true. Homes can go up on speculation alone.

>You create an insane level amount of supply for homeownership on this market. An absolutely insane level.

Is homeownership a necessary component of this? Creating a insane level of supply for apartment rental achieves the same thing. If there are more units then there are renters, prices have to fall to meet demand.

> If there are more units then there are renters, prices have to fall to meet demand.

Not if it's so cheap to keep empty apartments around that you would rather not make money now, in the hope that you will be able to make more money in the future.

It's not exactly the same, but around here there is a huge oversupply of spaces for shops/restaurants. Owners prefer to keep them empty rather than have someone give them money.

EDIT: Well, maybe it's not actually oversupply. There might actually be a lot of demand, but not at the excessive prices landlords demand.

>Not if it's so cheap to keep empty apartments around that you would rather not make money now, in the hope that you will be able to make more money in the future.

Ironically rent control laws that cause this. Accepting a lower rent now would mean locking in a lower monthly rate for the future, whereas if you left it empty you can hope that the rental market will recover and charge high rents in the future.

If only the state could heavily tax empty apartments and cap resell price to counter that. But wait, it actually can.

Pushing renters and speculators out of the housing markets in favor of people who actually want to settle in the city is probably the best you can do as a municipality.

I must absolutely thank you. I derive personal enjoyment from broken systems and the mass suffering that they produce. Everyone is happy. Isn't that nice?

My personal enjoyment is watching people argue against measures which have demonstrably been effective in cities around the world (Vienna, Toronto) based on purely theoritical and ideological reasons while failing to address both their poor understanding a subject underpining their ideology and the fact that the current situation is actually broken.

Commercial spaces aren't rent controlled here, and many of them are empty. Many apartments are rent controlled, and I've never heard of them being empty for any appreciable amount of time.

>Commercial spaces aren't rent controlled here, and many of them are empty

AFAIK that's not due to government regulations, but due to how banks handle valuations. Leaving a property empty doesn't affect the valuation, but accepting a lower rent does. This has effects on the landlords, such as making it harder for them to get new loans, or triggering covenants on existing loans.

You do what Vancouver does, and impose a 1% per month vacancy tax.

That being said, I live in a rent controlled city, and occupancy rates are upwards of 90%, so that doesn't check out.

This is exactly the BS that happens with houses in foreclosure / bank owned. The solution should be to raise taxes on units that are not presently being used or actively being refurbished / litigated / etc.

There is still legal uncertainty. The German Constitutional Court hasn’t settled this matter yet. I would assume that that’s causing most uncertainty and people waiting. A temporary effect until legal certainty exists.

I'm not speculating at all. The article has the data to back the facts : house prices went down in Berlin.

Yes, homes can go up on speculation alone, but this is a bubble that will pop. In North America, rising rents act as a backstop that prevent the bubble from popping, because of guaranteed rental incomes that protect you.

It's not possible to create an insane level of supply for appartment rentals. There's two reasons for this. Firstly, there's the obvious limit to how much you can build within a reasonable commute time with reasonable infrastructure at a good quality of life. Secondly, studies have shown that 10% increases in supply lead to 1% decreases in price, more or less. Coupled with 4% rent increases over inflation every year, it's just not feasible to rely on additional supply.

In the real world, free markets lead to rent increasing right up until the level where too many people are in poverty due to high rent. That's because the natural increase in rent is simply too high to be counterbalanced by supply.

That's why from the worst planned cities to the very densest like Hong Kong, housing stays more or less as expensive as it can be without people moving out due to poverty.

The only solution is to make real estate a barely profitable or depreciating asset. This is done here by aggressive rent control. As renting stops being so affordable, apartments are sold, homeownership increases, and renting becomes something you do to prevent depreciation, not to make profit.

Crucially though, here, building more apartments stays profitable, because they can go to homeowners or to people who buy housing as a stable asset (and then rent it out). Coupled with public housing, you can get the best possible trade-off.

> I'm not speculating at all. The article has the data to back the facts : house prices went down in Berlin.

but supply has dropped as well. Freezing food prices would also drop food prices, but won't stop bread lines.

>Yes, homes can go up on speculation alone, but this is a bubble that will pop. In North America, rising rents act as a backstop that prevent the bubble from popping, because of guaranteed rental incomes that protect you.

Not exactly. Price-to-rent ratios are above 30 in major north american cities, reaching as high as 50 in SF. While future cashflows might provide some backstop in terms of your investment, that's really not much of a consolation when you can be doubling your money roughly every 20 years with stocks.

>In the real world, free markets lead to rent increasing right up until the level where too many people are in poverty due to high rent. That's because the natural increase in rent is simply too high to be counterbalanced by supply.

>The only solution is to make real estate a barely profitable or depreciating asset. This is done here by aggressive rent control. As renting stops being so affordable, apartments are sold, homeownership increases, and renting becomes something you do to prevent depreciation, not to make profit.

I'm not sure how rent control fixes this. If you have 1M families but only 100,000 plots of land, they're going bid up the price until enough people can't afford it. This dynamic is in play regardless of whether there are landlords or not.

> when you can be doubling your money roughly every 20 years with stocks.

With housing, a poorly-capitalised speculator can get a mortgage to buy property, and pay it off using rental income, with a deposit of maybe 15-20% of the value of the property. This lets them capture the price increase on a multiple of their deposit.

It is much harder to do something similar with the stock market and loans. Amount loaned would be lower and interest rates higher.

Nowhere does it say that supply has dropped. If renting is less profitable, then supply of houses to be sold will actually go up.

The ability to rent is not the primary driver of speculation. But it drastically lowers downside risk, which gives less incentive for anyone to pop the bubble.

>I'm not sure how rent control fixes this. If you have 1M families but only 100,000 plots of land, they're going bid up the price until enough people can't afford it. This dynamic is in play regardless of whether there are landlords or not.

Well, empirically, it does fix it, doesn't it?

"If renting is less profitable, then supply of houses to be sold will actually go up."

You wrongly assume that the landlord gets to make this choice. In this situation, the landlord does not - the tenant does. If renting is made more attractive by rent control, then fewer renters move out and supply is thus lessened.

You could try the Japanese solution of treating houses like cars, with strict inspections and tearing down/rebuilding essentially buying a new one every 10-20 years. (Obviously they can't export the used houses so it's not a complete analogy)

>Secondly, studies have shown that 10% increases in supply lead to 1% decreases in price, more or less.

Source?

This also hand waves the fact that a 1% decrease is still great in the face of say, a 4% increase, totaling a 5% spread — even more if factoring in inflation.

Sounds like increasing supply is still one of the best ways to keep prices in check.

I don't have the time to dig up the study, but it already factored in inflation.

Even with a 5% spread, to hold off real rent increases for ten years, you'd need to increase housing by 116%. Which is completely unrealistic. This rent control policy had the same effect as reversing 12 years of rent increases, which would require you to multiply supply by 2.5 over those twelve years.

Needless to say, this is not possible.

Increasing supply is assuredly important and necessary for keeping prices in check. But it will have a much smaller impact than rent control. The main purpose it will serve is to make sure mobility is still good.

The affordability crisis many cities are facing are not caused by the fact that rent increases exist, it's that they're increasing faster than wage increases.

One does not need to hold off rent increases for an arbitrary amount of time, they just have to stay inline with wages to remain affordable. With that in mind, it is certainly not impossible to build enough to keep up with job/wage growth.

I agree that no single policy can fix everything, but the current status quo of pitting the haves (rent control) vs. have-nots (newcomers/movers) is not working.

https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...

The average hourly US wage has not increased or barely so.

Therefore, the inflation adjustment done above corrects for it.

If you want rent increases to stay in line with wages, they will need to be held off entirely.

Nobody was talking about nationwide averages, because the housing crunch is local, not an average of what's going on throughout the country.

Wages in [U.S.] metropolitan areas have increased much more than what was referenced in your source [1], while housing in many of those areas has not kept up with that growth.

Just look at the wage growth at top metros, many of which have grown a lot recently, but have failed to increase housing supply to correspond with that growth.

Affordability crisis in these metros are the result of restrictive zoning policies that greatly restrict supply. The ones holding the bag are those that need to move, or had the unfortunate timing of being born more recently and are stuck paying recent market rates.

Rent control adds even more fuel to the fire by artificially constraining supply even further through reduced liquidity. People will stay longer than they otherwise would in their rent controlled unit because moving to a new one means paying market-rate on a different unit.

This is playing out similarly in Berlin.

[1] https://www.garnereconomics.com/images/reports/Metro_and_Non...

Are we reading the same study? Because the link you just posted indicated that US Metro wages grew 1% faster than the average over a 10 year span.

As far as I understand then, your entire argument is unfounded and contrary to the data.

FYI, the US urbanization rate is 86.4%.

No, throughout this entire thread I have been specific about:

- Cities/metros, not the entire US.

- I was also specific about cities/metros that are experiencing a housing crisis, and not making an argument that all metros are in a housing crisis.

- I then cited my sources, and once again was specific about wage growth in top metros and how many have failed to grow their housing supply along with wages. That 86% of the U.S. is urbanized and growing 1% faster than average is not the issue here, it's that where growth is happening, supply is not keeping up.

- I then argued that restrictive policies are constraining supply. In the case of this article pertaining to Berlin, it's rent control. Metros in the U.S. with supply constrains (Like the SF Bay) also use rent control and limit supply.

Despite being specific, you keep conflating my arguments, or steering away from my core argument: Constrained housing supply is not keeping up with demand. I'm also arguing that it isn't impossible to build enough supply to keep up with demand.

The idea that if half of all housing in a city were sitting empty (which is what doubling housing supply means) would only cause prices to decrease by a couple percent is completely ridiculous on its face.

Go look at SF housing prices lately to see how the moderate increase in supply, from people moving out of the city lately, has caused an absolutely huge rent drop of around 30% .

Based on what I've seen elsewhere in Germany, Berlin will start seeing lots of empty apartments now that it is too much of a gamble whether you'll earn profit renting (since Germany's laws protect the renter more than the landlord, which you can combat with a portfolio of properties that earn a certain level of rent to cover the non-paying tenant that you can't evict), and because there isn't much of a good reason to sell (maybe in a few years things improve, or maybe the apartment is useful for family, or one's own future retirement home).

> It's not possible to create an insane level of supply for appartment rentals

This is technically true, but not for the reasons you list, and it isn't the case here.

You can always build up. 150 floor buildings are not possible - if rent goes high enough they are worth building. Nobody is going to build that if they don't expect a return on investment though.

It isn't a problem in reality because jobs face the same pressures. eventually some company will decide rent in those dense neighborhoods (sometimes cities as well) are too high, and move. That moves some housing demand with it.

Secondly, studies have shown that 10% increases in supply lead to 1% decreases in price, more or less. Coupled with 4% rent increases over inflation every year, it's just not feasible to rely on additional supply.

That doesn't follow. To build more supply the question how much it costs to build vs how much you can rent for. A a landlord the total profit in rent for the city isn't my concern it is my marginal profit that matters. Even if we double the supply of apartments in the city, my building 100 more isn't going to make much a difference in that, but I get a larger share of that 10% decrease in price and so my profit is still higher building 100 apartments than zero.

I don't know what is going on in Berlin (I can guess). I know in San Francisco the city has for many years refused to allow building at anywhere close to demand. Thus more people want to live in the city than actually can get an apartment there. Plenty of builders are willing to build more supply, but they are not allowed to under reasonable terms so they don't. (as a result of this there is a lack of experienced people in construction and so even if SF allowed unlimited building in practice there would only be a gradual uptick in building over 10 years while the industry gets experienced people back)

You are assuming that the only reason anyone would build is to rent things out. This ridiculous. A great many constructions are for people that own their houses. That alone solves the conundrum.

It doesn't in SF, because the problem there is that they can't reasonably build anything. Whether it's a house or an apartment building, it's not really getting built. And building a new house to replace an existing house (which is happening), doesn't increase housing stock. It just makes it newer.

Well sure, fixing that is prerequisite to fixing the issue. It's not sufficient, though.

>Secondly, studies have shown that 10% increases in supply lead to 1% decreases in price, more or less.

That's more than enough to justify building an infinite amount of housing.

Is that a joke? You... can't build an infinite amount of housing. That's the reason why land is a separate asset class.

That's not the only solution. Georgist policies do the same thing without disincentivising developmemt.

You assume prices were merely driven by greedy landlords. That is of course untrue. Prices were driven up by the popularity of the city, with people seeking a place to rent outbidding each other and bidding prices up.

That demand will not simply go away, but newcomers will have to buy instead to rent. Or, there will be a huge black market. I've read an article about Stockholm were that seems to be what has happened.

A big irony is that the left who created the law has hurt some of their staunchest supporters, who did subsist by subletting their flats, which they had rented at old, low prices. That income is now also going away - it is not just "greedy rich speculators", but also transgender artists getting by on minimum income from subletting their flats whom they have hurt.

It is of course possible to lower prices by making the city less attractive. Socialism has succeeded in doing that already once, that is why Berlin was so cheap in the 90ies.

"You create an insane level amount of supply for homeownership on this market. An absolutely insane level."

You're completely ignoring the fact that homeownership, even if prices aren't incredibly high, requires a large down payment that many people don't have, which is why they rent. Those people still can't afford to buy and are pushed out, and they're the ones you're supposed to be helping.

"If somehow millions of people do buy houses in Berlin, then you build public housing to undercut the price of housing."

This is where your argument totally loses steam. You can't just handwave and say you'll build public housing... that is an incredibly expensive and politically difficult thing to do. When your theoretical solution to the problem is something that is very much not guaranteed (or even likely), and you pretend it'll just be no problem at all, you're ignoring reality and not presenting a useful solution.

Public housing is neither incredibly expensive nor politically difficult as long as you have a competent government and laws that don't artificially make it more expensive (see: US).

The economics are very simple. The price of housing if it's not profitable to rent and even less profitable to hold will drop until occupancy is high. Those that can't put down a down payment will rent, the others will buy. If not, the price will just continue to go down.

This argument isn't theoretical. It's an actual process that has been done and works.

Where abouts does it work currently and do you have any data to support this? I'm genuinely curious.

Also don't forget about renters keeping tennancies vacant temporarily, to avoid losing their locked in rent control rate. I have heard many stories of affluent people keeping a "cheap" apartment in New York vacant for years on end.

> This is where your argument totally loses steam. You can't just handwave and say you'll build public housing... that is an incredibly expensive and politically difficult thing to do. When your theoretical solution to the problem is something that is very much not guaranteed (or even likely), and you pretend it'll just be no problem at all, you're ignoring reality and not presenting a useful solution.

Just issue municipal bonds, and use that money to build. Investors pay the German government to hold their money. Building is not expensive at all.

> Indeed, the vast majority of increase in housing prices is because rents are so high that 7% YoY returns are possible. Without these returns, then there is no way to justify inflation in housing prices for simple homeowners.

The market is constrained by supply, which is constrained by regulation. If you want to see how this works without any rental market, look at Oslo. The prices are truly something else.

If there are 1000 units and they are being rented out then people are more willing to move to a residence that suits their needs better. When it makes sense people move away.

Once you add rent control people might stay simply because of the low rent, even if they are fully capable of paying market rate rent. They might have to commute to the edge of town and it still is a better deal for them. You get a stagnant housing market where people rarely move. The vacancy rate goes down and instead of renters always being able to at least visit an apartment with the fair chance of competing with say 5 people at most you now have dozens of renters all looking at the same apartment. This gives the land lord more power to charge higher prices and since he has to cancel out the losses from existing rent controlled apartments he might not even have a choice and simply increases the rates when possible.

The problem is that the land lord is being put under more pressure to perform and thus he becomes more selective and only gets the "best" tenants which favors the wealthy.

Of course, all those people getting paying dirt cheap rent are happy since they benefit personally from an externality.

The inflationary pressure on Berlin housing prices has definitely not collapsed at any time in the last 10 years.

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

Or its more appropriate alternative, "sore outta luck".

Edit: Not to criticize the profanity version, I prefer it, just offering an alternative that doesn't need to be censored.

>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.

>So you are replacing landlords with people who actually live there.

...who are now saddled with decades of mortgage payments, and have a high percentage of their net worth being tied up in a not very well diversified asset class.

But you are buying an asset instead of just paying rent.

That's the point. People are forced concentrating their wealth into a single asset.

Which can be good or bad.

If land prices are increasing faster than inflation it is bad unless they can get out before the bubble pops. Obviously if they bought too high that is a bad investment. Lets ignore this and assume a sane market where values mostly are similar to inflation.

While property increases with inflation are not nearly as good an investment as investments that do better than inflation, it isn't as bad as it sounds. The whole point of buying property in this case is a place to live. So in 30 years you no longer have a rent payment at all, and in between your rent never goes up. This payment situation needs to be factored in to the calculation since you will be living someplace no matter what. (unless you would normally live in a cardboard box) As a result people who invest in property to live in need to invest a much smaller portion of their total portfolio into something else. And since this is a place to live it doesn't matter how well it performs overall since you are not selling (at least not until you go to a nursing home which you can/should insure for).

Let me point out that rent doesn't increase when you own property. So if you invest just the difference between market rent and your rent over the years you will have more money to invest. Now that money doesn't have as long to grow (since it isn't front loaded as much), but owning is still a good part of a long term portfolio.

Note that the above makes some assumptions that may not be true, or that could be true but you don't want to for lifestyle reasons. That is perfectly fine - there is no one size fits all. Every situation is different, you need to make your own decisions as best you can. The first assumption above is you live there for the rest of your life (some amount of trading is allowed, but be careful as each trade is costly), the second is you pay off the dwelling.

Technically, for many owners their carrying costs do increase year over year. Property taxes, HOA, maintenance, etc all tend to increase over time. Depending on where you live, these non-mortgage costs can be thousands of dollars per month and they don't go away when the mortgage is paid off.

If you look at it in terms of portfolio construction, you would never want more than 10-20% of your net worth in your home, much less the 50+% many people have in practice. Owning your home is a pretty mixed bag, financially, and made worse in practice because people have far too much of their net worth in it. They'd benefit from renting much longer and buying much less home if it was a financial argument.

I've owned my current home for several years, and go back and forth between renting and owning. Even though I live in a "hot" property market and benefited from appreciation, I actually lost money versus renting the equivalent and investing the difference, and I do keep track.

Carrying costs are important to this consideration. They shouldn't be significant compared to rent or the payment, but in some areas they are.

I fully agree that 50% of net worth in a home is too much. Though I doubt that the people you are thinking of actually have that much net worth in a house - the house might be worth that much, but odds are they only own 5-10% of it, and the rest is net worth of the bank. By the time your house is 50% yours you should have seen enough decrease in carrying costs - compared to inflation - that you have more investments elsewhere to pay it off.

The analysis of lost money vs investing needs to compared over a lifetime not a shorter span. Your payoff comes at the end when you need much less invested in the first place to pay for the rent you no longer owe at all. If God hasn't told you the future in detail you can't know: how much will inflation be, when will you die, and other such things that affect how your lifetime investments play out.

That last also gets into life goals. if your plan is to live cheap and work for the rest of your life to leave a large sum of money to your heirs that means a different investment strategy vs someone who wants to retire early and leave nothing behind when they die. For the latter there is a difference between someone who wants to retire and spend all their time in the shop building something vs someone who wants to retire and travel the world.

Only you know your life goals today (and you don't know how they might change in the future!) so you need to make the right decisions for your. Renting and buying a dwelling both have pros and cons so there is no right decision for everyone.

If the other option is just handing it to the landlord how is this better.

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