Rent controls have split housing in Berlin into two distinct markets(bloomberg.com)
bloomberg.com
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
708 comments
"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.
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.
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.
This happened all the while time Berlin changed from being viewed as a forgotten backyard in Germany with few companies and high unemployment to the capital city of the dominant and richest country in Europe. Especially the great financial crisis accelerated this change of perception.
Consequently, many people moved to Berlin. For many years 100k people per year moved into a city of 4m. Stated in terms of economics, supply of apartments was very steady, and demand jumped up.
The sound response of a market is to signal that through price hikes. That should encourage investment in residential building. When this is being suppressed nothing can even get better. Only longtime renters are favored. People with already cheap and large apartments benefit. Losers are those young couples expecting a baby.
A solution that could potentially work would be to accept temporary pains from high prices, remove regulatory obstacles from new construction and let the industry find a new balance. Maybe accelerate the process by governmental subsidies, if you like that sort of policy.
But the current policy can't work in theory, it doesn't work in practice. And it only benefits old established interests who are privileged already.
I 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...
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...
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.
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.
>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.
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.
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+...
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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.
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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.
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.
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...
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...
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.
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.
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%.
Remember that rents did increase ~300% or so over the last 15 years, but income maybe only 10 or 20%.
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.
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.
> 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.
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.
> 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.
This is the key statement to refute if you want to argue for rent control.
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.
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.
This is an opinion piece in bloomberg, a pro-business, pro-wealthy publication. Is there any surprise that they dislike rent controls?
Yes why build an apartment in Berlin if they will just inevitably move the date for rent controlled buildings forward eventually.
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".
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".
> 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.
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.
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.
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.
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...
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...
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.
If I'm reading the graphs right, price controls in Berlin have slashed rent price growth by nearly 60% for almost all of the city's apartment stock.
Meanwhile, rent for the remainder, those apartments built since 2014, is only growing 10% faster than the baseline.
So if we're gonna do the math: [lots of apartments * -60% inflation], against [fewer apartments * +10% inflation], equals a presumed windfall for renters, versus the alternative history where this rent control policy doesn't get enacted.
The 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.
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.
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.
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.
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)
- 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)
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.
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.
Bloomberg op-eds on economic redistribution issues are like asking oil companies to comment on environmental protections
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.
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.
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.
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.