10 ms·

Symptom: rents are too high Cause: insufficient housing supply Solution: disincentivize new construction?

by usefulcat 7y ago

tmalsburg2 7y ago
Nope. New buildings are exempt.
- andy_ppp 7y ago
  So living in new buildings becomes undesirable even further because they are more expensive to live in than the rest of the city!
  - iagooar 7y ago
    No, new buildings are desirable because they're new and will always find buyers, especially if built in a nice neighborhood.
    - andy_ppp 7y ago
      Let's just thing this through: I have the option to buy a rental property in Berlin, I can either buy an old rental property and not be allowed to increase rents for 5 years. Or I can buy a new build rental property (which already sell for above market value in most places), and can charge more rent but I will be less able to find renters as they are looking to lock in 5 years worth of zero rent increase. I really don't get how either situation encourages me to become a landlord.
      - iagooar 7y ago
        Berlin doesn't need landlords. It needs homes for people.
        username444 7y ago
        This. Cities don't want or need more landlords. It needs more landOWNER residents.
        max_hoffmann 7y ago
        What’s so good about owning? Renting is way better, if it’s affordable: - I can move out when my life circumstances change. - I can move out when the district changes. - I don’t need to take a credit just for living somewhere. - I don’t need to worry about people renting my apartments. - I don’t need to worry about maintenance. If you have the money to buy fine, but for most people renting is way better.
        username444 7y ago
        It's a completely separate argument than what I was responding to. I personally agree with you, but thats my specific lifestyle, and I put my money into other investments. But generally, owning a house is a good place to park your assets if you live a "typical" life. One of the biggest reasons I want more landOWNER residents? So that my neighbours actually care what's happening in the neighborhood+condo, and do something about. I'm renting from a Chinese investor. He doesn't speak English and doesn't have a clue what's going on around here, and doesn't care to get involved with helping things run better. I can communicate my issues with the real estate agent who handles the unit for him, but he's just going to shoot off a short email and move on with his day. Over 50% of this building is this way. The board of directors has a huge accountability issue because of this, and residents and owners are suffering for it. If you rent, you care what happens locally, but you have no say.
      - Vinnl 7y ago
        Can't you (as a hypothetical landlord) simply ask the same rent for the new housing as you'd ask without this measure? Then it should be about as easy as it is now to find renters (as this measure does not affect supply), and just as attractive to become a landlord as it is now. (Granted, demand for existing housing should increase if they are cheaper, but presumably supply will decrease as well as fewer people living there will move out - so I guess it shouldn't affect the pricing of new housing much?)
    - codedokode 7y ago
      I doubt that. In old cities like Berlin the best places are in the center because everything is there and there is good public transport access. And new houses are probably built somewhere in suburbs where there is no good transport, no subway, no train stations, nothing except for houses.
      - ido 7y ago
        have you ever been to berlin? plenty of new construction in central areas. either by razzing older, lower-rise, buildings or by filling in unbuilt or blighted areas (fewer of those as time goes on but there were vast areas where the walls & no-mans zones used to occupy).
        llampx 7y ago
        As others have said, a lot of new construction is hotels, shopping centers, and office space.
        andy_ppp 7y ago
        Berlin is a weird city isn’t it; when I was there Mitte really wasn’t great because of the wall and there being effectively a West and East German centre to the city or rather it felt like every region had its own charm say.
  - perennate 7y ago
    If low rent-controlled prices leads to increased demand, then new buildings may become more desirable to build because their rent prices could be even higher than they otherwise would be.
  - tmalsburg2 7y ago
    If there is more demand than supply, no.
    - andy_ppp 7y ago
      No because the developer will just charge more for the new properties and old property prices will be worth less.
- JanSt 7y ago
  Would you use your savings to build property in a city with policies like this? How long will new property be exempt? 5 years? What then? Nearly no one will build anything anymore.
  - tmalsburg2 7y ago
    I would absolutely consider building in a city that has so much demand and that is so deperate to slow down the development of the real estate market.
  - icebraining 7y ago
    This is essentially a tax. People still buy and sell things that have taxes levied on them. Yes, too big a tax could spell very real trouble (I've seen it happen in my city), but as long as rents are allowed to rise with inflation, construction should remain profitable.
- cperciva 7y ago
  ... for now. But there's a funny thing about investors: They look at what governments have done in the past to judge the risk of things happening in the future. Set a precedent that you'll meddle in the market for political reasons, and every potential real estate investor will be worried that you'll do it again in the future -- even if you're not doing it to them yet.
chmod775 7y ago
This would only be true if rent wasn't already (relatively) way above the cost of new construction and if the freeze applied to new buildings too.
- Roritharr 7y ago
  Why aren't you asking why cost of new construction is this inflated? Why aren't we trying to fix the supply problems, instead of trying to... what are we trying? I don't understand the whole ideology that sees any reasoning that could lead to this.
- andy_ppp 7y ago
  Land values rise to make the margins developers work within very small. Land is a problem everywhere and someone owns it and will always try to extract the best price if you have planning permission for it. So maybe capping land prices and forcing sales for desirable schemes would work better. It will of course never happen as ownership is fundamental to our thinking in the west. I actually find the idea of the government forcing me to sell land I own at below market value quite offensive. I understand that is irrational. Maybe this problem is quite complicated?
  - closetohome 7y ago
    The problem isn't developers at all - they make only a small margin. The people who are abusing the system are equity investors who demand a return on their investment within as little as 2-3 years, leading to unrealistically high rents. All rent control is doing in this case is forcing investors to take a longer period of return.
    - Roritharr 7y ago
      Did nobody think that to invest, you need to have liquidity? It's called LIQUID for a reason. If another place has better investment opportunities, the investment will simply cease. Why would anyone take their LIQUID assets and put it into real estate (in german it's called IMMOBILIEN, meaning immovables to make it clear) in a place that actively discourages return on invest?
deleted 7y ago
[deleted]
sonnyblarney 7y ago
There can be many causes to this problem, not just an apparent lack of supply. You could just as well say 'too much demand' is 'the problem'. Aside from regular market issues, there could be a number of external factors (i.e. non-berliner ownership) that might be exacerbating the problem.
aaronbrethorst 7y ago
The same argument is happening in Seattle now, too. It seems absurd.
codedokode 7y ago
It might be not so simple. The prices are high in some places (like city center or places with good transportation access) because everyone wants to live there. You can build new houses in other places with poor transportation, but nobody will want to live there.
lm28469 7y ago
> disincentivize new construction? Oh but half the city is under construction work right now, they're building shopping centers, offices and hotels (I can count at least 6 10+ storey buildings being constructed in a 600m radius from my place, only one is for flats) Investors want to max out how much money they make, tourists bring way more money than the general population, especially in Berlin
- pkaye 7y ago
  So tax the shopping center, offices and hotels more to balance them out.
  - zanny 7y ago
    The shopping centers, offices, and hotels have political clout and organized professional influence on the government. Average joes, especially those who want to live in the city but cannot afford it, do not get a seat at the table.
    - pkaye 7y ago
      Looks like the average joes have more clout than the residential landlords given the 5-year rent freeze.
- CydeWeys 7y ago
  Yeah, it sounds like shopping centers, offices, and hotels are being built because they will be profitable, since there's no artificial limits on their profits. Housing isn't profitable, so it's not being built. And more and longer rent freezes will worsen the problem. The developers are being very rational here in what they're choosing to build.
asdff 7y ago
Rent control does not disincentivize new construction.
odiroot 7y ago
Yes, this is how Berlin government operates, more or less. The same logic applies to planning new underground lines and keeping the city airport functional. Don't expect rational decisions from this city.
blub 7y ago
The truism of supply and demand seems to be very popular in this topic. The devil is in the details behind the supply and demand and what is influencing both. In Berlin there's many cases of people being pushed out of their homes because of rent increases, people having to do apartment tours with 50+ other people and having spill all details about their private lives to have a chance at being chosen, etc. The situation's crappy already. Even if the current tenants will be protected, that's already a small victory.
deleted 7y ago
[deleted]
anoncake 7y ago
The German construction industry doesn't have any spare capacity as is.
- gwright 7y ago
  High prices are exactly how the free market attracts additional resources to solve capacity problems. Legislative efforts to limit prices pretty much guarantees that additional capacity will not be forthcoming and that shortages and high prices will continue.
  - anoncake 7y ago
    That's how you get an overbuilt construction industry and (even more) unemployed construction workers during the next recession. The "free" market is adequate for allocating resources to consumer goods but not for allocating them to entire industries.
    - gwright 7y ago
      I gather you are asserting that real estate developers are incapable of determining when they are too late to the party and are constructing extra space that will never be occupied. Presumably you also believe that government bureaucrats are somehow better able to ascertain exactly when to stop issuing building permits so as to avoid "overbuilt" construction. And of course they will know when to resume issuing building permits also to ensure there are no shortages. How is it that these government bureaucrats are better able to predict demand and arrange for supply than market mechanisms and the free economic choices of individuals? You are making an argument for a planned economy over a free market, for limiting the freedom of individuals to invest as they see fit with their own resources in favor of giving power to government employees to block or to subsidize their favored economic activity. The historical track record for central planning is overwhelmingly negative. I don't understand why people continue to advocate for it.
      - anoncake 7y ago
        > Presumably you also believe that government bureaucrats are somehow better able to ascertain exactly when to stop issuing building permits so as to avoid "overbuilt" construction. Strawman. That is not the question here.

Symptom: rents are too high Cause: insufficient housing supply Solution: disincentivize new construction?

tmalsburg2 7y ago

Nope. New buildings are exempt.

andy_ppp 7y ago
So living in new buildings becomes undesirable even further because they are more expensive to live in than the rest of the city!
- iagooar 7y ago
  No, new buildings are desirable because they're new and will always find buyers, especially if built in a nice neighborhood.
  - andy_ppp 7y ago
    Let's just thing this through: I have the option to buy a rental property in Berlin, I can either buy an old rental property and not be allowed to increase rents for 5 years. Or I can buy a new build rental property (which already sell for above market value in most places), and can charge more rent but I will be less able to find renters as they are looking to lock in 5 years worth of zero rent increase. I really don't get how either situation encourages me to become a landlord.
    - iagooar 7y ago
      Berlin doesn't need landlords. It needs homes for people.
      - username444 7y ago
        This. Cities don't want or need more landlords. It needs more landOWNER residents.
        max_hoffmann 7y ago
        What’s so good about owning? Renting is way better, if it’s affordable: - I can move out when my life circumstances change. - I can move out when the district changes. - I don’t need to take a credit just for living somewhere. - I don’t need to worry about people renting my apartments. - I don’t need to worry about maintenance. If you have the money to buy fine, but for most people renting is way better.
        username444 7y ago
        It's a completely separate argument than what I was responding to. I personally agree with you, but thats my specific lifestyle, and I put my money into other investments. But generally, owning a house is a good place to park your assets if you live a "typical" life. One of the biggest reasons I want more landOWNER residents? So that my neighbours actually care what's happening in the neighborhood+condo, and do something about. I'm renting from a Chinese investor. He doesn't speak English and doesn't have a clue what's going on around here, and doesn't care to get involved with helping things run better. I can communicate my issues with the real estate agent who handles the unit for him, but he's just going to shoot off a short email and move on with his day. Over 50% of this building is this way. The board of directors has a huge accountability issue because of this, and residents and owners are suffering for it. If you rent, you care what happens locally, but you have no say.
    - Vinnl 7y ago
      Can't you (as a hypothetical landlord) simply ask the same rent for the new housing as you'd ask without this measure? Then it should be about as easy as it is now to find renters (as this measure does not affect supply), and just as attractive to become a landlord as it is now. (Granted, demand for existing housing should increase if they are cheaper, but presumably supply will decrease as well as fewer people living there will move out - so I guess it shouldn't affect the pricing of new housing much?)
  - codedokode 7y ago
    I doubt that. In old cities like Berlin the best places are in the center because everything is there and there is good public transport access. And new houses are probably built somewhere in suburbs where there is no good transport, no subway, no train stations, nothing except for houses.
    - ido 7y ago
      have you ever been to berlin? plenty of new construction in central areas. either by razzing older, lower-rise, buildings or by filling in unbuilt or blighted areas (fewer of those as time goes on but there were vast areas where the walls & no-mans zones used to occupy).
      - llampx 7y ago
        As others have said, a lot of new construction is hotels, shopping centers, and office space.
      - andy_ppp 7y ago
        Berlin is a weird city isn’t it; when I was there Mitte really wasn’t great because of the wall and there being effectively a West and East German centre to the city or rather it felt like every region had its own charm say.
- perennate 7y ago
  If low rent-controlled prices leads to increased demand, then new buildings may become more desirable to build because their rent prices could be even higher than they otherwise would be.
- tmalsburg2 7y ago
  If there is more demand than supply, no.
  - andy_ppp 7y ago
    No because the developer will just charge more for the new properties and old property prices will be worth less.
JanSt 7y ago
Would you use your savings to build property in a city with policies like this? How long will new property be exempt? 5 years? What then? Nearly no one will build anything anymore.
- tmalsburg2 7y ago
  I would absolutely consider building in a city that has so much demand and that is so deperate to slow down the development of the real estate market.
- icebraining 7y ago
  This is essentially a tax. People still buy and sell things that have taxes levied on them. Yes, too big a tax could spell very real trouble (I've seen it happen in my city), but as long as rents are allowed to rise with inflation, construction should remain profitable.
cperciva 7y ago
... for now. But there's a funny thing about investors: They look at what governments have done in the past to judge the risk of things happening in the future. Set a precedent that you'll meddle in the market for political reasons, and every potential real estate investor will be worried that you'll do it again in the future -- even if you're not doing it to them yet.

chmod775 7y ago

This would only be true if rent wasn't already (relatively) way above the cost of new construction and if the freeze applied to new buildings too.

Roritharr 7y ago
Why aren't you asking why cost of new construction is this inflated? Why aren't we trying to fix the supply problems, instead of trying to... what are we trying? I don't understand the whole ideology that sees any reasoning that could lead to this.
andy_ppp 7y ago
Land values rise to make the margins developers work within very small. Land is a problem everywhere and someone owns it and will always try to extract the best price if you have planning permission for it. So maybe capping land prices and forcing sales for desirable schemes would work better. It will of course never happen as ownership is fundamental to our thinking in the west. I actually find the idea of the government forcing me to sell land I own at below market value quite offensive. I understand that is irrational. Maybe this problem is quite complicated?
- closetohome 7y ago
  The problem isn't developers at all - they make only a small margin. The people who are abusing the system are equity investors who demand a return on their investment within as little as 2-3 years, leading to unrealistically high rents. All rent control is doing in this case is forcing investors to take a longer period of return.
  - Roritharr 7y ago
    Did nobody think that to invest, you need to have liquidity? It's called LIQUID for a reason. If another place has better investment opportunities, the investment will simply cease. Why would anyone take their LIQUID assets and put it into real estate (in german it's called IMMOBILIEN, meaning immovables to make it clear) in a place that actively discourages return on invest?

deleted 7y ago

[deleted]

sonnyblarney 7y ago

There can be many causes to this problem, not just an apparent lack of supply. You could just as well say 'too much demand' is 'the problem'. Aside from regular market issues, there could be a number of external factors (i.e. non-berliner ownership) that might be exacerbating the problem.

aaronbrethorst 7y ago

The same argument is happening in Seattle now, too. It seems absurd.

codedokode 7y ago

It might be not so simple. The prices are high in some places (like city center or places with good transportation access) because everyone wants to live there. You can build new houses in other places with poor transportation, but nobody will want to live there.

lm28469 7y ago

> disincentivize new construction? Oh but half the city is under construction work right now, they're building shopping centers, offices and hotels (I can count at least 6 10+ storey buildings being constructed in a 600m radius from my place, only one is for flats) Investors want to max out how much money they make, tourists bring way more money than the general population, especially in Berlin

pkaye 7y ago
So tax the shopping center, offices and hotels more to balance them out.
- zanny 7y ago
  The shopping centers, offices, and hotels have political clout and organized professional influence on the government. Average joes, especially those who want to live in the city but cannot afford it, do not get a seat at the table.
  - pkaye 7y ago
    Looks like the average joes have more clout than the residential landlords given the 5-year rent freeze.
CydeWeys 7y ago
Yeah, it sounds like shopping centers, offices, and hotels are being built because they will be profitable, since there's no artificial limits on their profits. Housing isn't profitable, so it's not being built. And more and longer rent freezes will worsen the problem. The developers are being very rational here in what they're choosing to build.

asdff 7y ago

Rent control does not disincentivize new construction.

odiroot 7y ago

Yes, this is how Berlin government operates, more or less. The same logic applies to planning new underground lines and keeping the city airport functional. Don't expect rational decisions from this city.

blub 7y ago

The truism of supply and demand seems to be very popular in this topic. The devil is in the details behind the supply and demand and what is influencing both. In Berlin there's many cases of people being pushed out of their homes because of rent increases, people having to do apartment tours with 50+ other people and having spill all details about their private lives to have a chance at being chosen, etc. The situation's crappy already. Even if the current tenants will be protected, that's already a small victory.

deleted 7y ago

[deleted]

anoncake 7y ago

The German construction industry doesn't have any spare capacity as is.

gwright 7y ago
High prices are exactly how the free market attracts additional resources to solve capacity problems. Legislative efforts to limit prices pretty much guarantees that additional capacity will not be forthcoming and that shortages and high prices will continue.
- anoncake 7y ago
  That's how you get an overbuilt construction industry and (even more) unemployed construction workers during the next recession. The "free" market is adequate for allocating resources to consumer goods but not for allocating them to entire industries.
  - gwright 7y ago
    I gather you are asserting that real estate developers are incapable of determining when they are too late to the party and are constructing extra space that will never be occupied. Presumably you also believe that government bureaucrats are somehow better able to ascertain exactly when to stop issuing building permits so as to avoid "overbuilt" construction. And of course they will know when to resume issuing building permits also to ensure there are no shortages. How is it that these government bureaucrats are better able to predict demand and arrange for supply than market mechanisms and the free economic choices of individuals? You are making an argument for a planned economy over a free market, for limiting the freedom of individuals to invest as they see fit with their own resources in favor of giving power to government employees to block or to subsidize their favored economic activity. The historical track record for central planning is overwhelmingly negative. I don't understand why people continue to advocate for it.
    - anoncake 7y ago
      > Presumably you also believe that government bureaucrats are somehow better able to ascertain exactly when to stop issuing building permits so as to avoid "overbuilt" construction. Strawman. That is not the question here.