8 ms·

Berlin becomes first German city to make rent cap a reality

50 points by givan 11y ago

m0llusk 11y ago
Wage and price controls have a history of toxic failure. It might make more sense to focus on increasing supply to meet demand.
neokya 11y ago
I think something like this is needed because `rent control` for existing tenants is already there i.e you are not allowed to increase rent with existing tenant. In Berlin, there is interesting issue now. A friend lives in a apartment for 12 years, pays only 250 €. He says rent was increased by only € 1 during those years. If he moves to some new place, he will have to pay between 900 - 1000 € for same type of apartment cause rents are raising fast. So either they should allow to increase rent to existing tenant or control how much landlord can raise for new tenant. Otherwise, I will be paying 900 € whereas my neighbour next door will only be 250 € for same apartment cause she is living there for years.
- cyphunk 11y ago
  The language I've seen for the rule is increase 10% of local market rates, not the base rate of the house itself. So your neighbors rent would increase by more than %10 of their base. Or did I miss something?
  - neokya 11y ago
    I am not sure what you talking, but if you meant current rate, I think local market rate means current rate (not rate which existing tenants pay) I rented apartment last year and they increased rent by more than 40%.
    - allendoerfer 11y ago
      An older, existing rule regulates in what way you can increase the rent for existing tenants based on the rent they currently pay. (You mostly cannot unless you modernize the building.) This new rule states that you cannot set the rent above 10% of the local market average for any tenant. So for existing tenants, most likely the first rule applies (because new tenants rise the average), for new tenants the second applies.
kaolinite 11y ago
Something that has always annoyed me in my local area is that, when renting, the cost of an apartment is relative to its size, not to its quality. So you could have an apartment that is twice the cost, twice the size, but still has the same crappy washing machine and no dishwasher. I would happily pay double the rent for a similar sized apartment but one with lots of nice touches, such as luxury appliances and such. I've often thought that if I ever rent out a property, I'd fill it with nice things and then charge more - high end coffee machines, in-wall speaker systems, nice furniture, etc. Perhaps there's a reason that landlords don't do that, though.
- neokya 11y ago
  Actually `furnished` is not really norm. I understand your point though.
- Dwolb 11y ago
  That doesn't sound right. Size is usually a rule of thumb and typically above or below average amenities either raise or lower the price, respectively. My buddy is working on increasing this transparency though. They're in the Seattle area and looking to provide home buyers market rates for a given feature. e.g. this house should be $X cheaper because the windows are Brand Y
  - kaolinite 11y ago
    I'm only talking about renting, not sure what it's like when buying, so I'm talking about quality of appliances, care taken when painting (often places have obvious paint marks where scuffs have been painted over) and the overall decor - not the actual quality of the building, windows, etc. This is all just anecdotal, of course, and just something I've noticed locally - perhaps other places are much better. After my partner started working, we started looking at places roughly double the rent of our previous place, but in the same area - and we found that these places were pretty much the exact same, just a lot bigger.
- germanier 11y ago
  The averages in Germany (Mietspiegel) are always calculated taking different factors beyond the size into account: location, proximity of public transport, noise level, age, interior quality (windows, floor, etc.), energy consumption, and similar. Oh, and the law doesn't apply to the (rare) furnished flats at all.
cyphunk 11y ago
One typical arguments I see against rent cap is that it makes the housing availability situation worse, forcing people out of the city. But if say 40k new people move to Berlin in a year I see no reason why any form of market system wouldn't want to at least have some scarcity and keep things to 40k-1 max. What Berlin has seen over the past few years within a non-capped market is exactly this. 40k per year with only half that amount in new housing created [1]. My argument for cap is that if the market cannot make for sustainable living I think there is reason to consider cap, despite it meaning a bias on seniority in city. http://www.inspiration-asia.com/wp-content/uploads/2013/08/Berlin-housing-demand-495x400.png http://www.inspiration-asia.com/wp-content/uploads/2013/08/B...
- icebraining 11y ago
  That argument is incomplete. Why isn't the market providing enough new housing?
  - pgeorgi 11y ago
    There are already 10k people per square mile (incl. forests, recreation areas and water ways that are hard to get rid of without making Berlin completely uninhabitable). Per square mile of settlement area it's 24k people. (state statistics office) Berlin sits right in the middle of a swamp (one explanation for its name is that it's derived from a slavic word for swamp), so there are limitations to how high you can build without things falling over. If at all possible, the manhattan approach of going vertical is at least crazy expensive. There were 8744 new units built in 2014 (state statistics office). There are (according to the article) 40k new residents per year - assuming that on average 2 people share a unit, that's an annual requirement for 20k new units. My guess is that Berlin simply doesn't scale.
  - cyphunk 11y ago
    I agree my argument is incomplete. to go further supposedly Chicago which has little to no renter protection appears to have one an average % of income for rent indexes for the US, and one of the highest availability indexes [1]. I do not have a complete picture of the circumstances in Chicago. 1. http://www.bloomberg.com/news/articles/2015-03-27/why-the-most-popular-cities-are-out-of-reach-for-young-professionals http://www.bloomberg.com/news/articles/2015-03-27/why-the-mo...
pmontra 11y ago
Let's assess the pure mathematical effectiveness of this cap with an example: there are 3 landlords renting for 11, 10 and 9 fictional units (to keep numbers simple). The average is 10. 11 is legal but can't increase, if 9 is lowered 11 isn't legal anymore. I'm sure this is taken into account and they'll revise the limit every few months or years. However a fourth landlord can enter with 11, increasing the average to 41/4. If everybody starts renting at the upper limit the average will move up closer and closer to 11. This means that at the next check they'll be able to rent at 11+10% = 12.1, increasing the price by 10% per cycle (or they change the rule). For the tenant this is better than getting a +40% on renewal. For the landlord not much so. I suspect that if the rent price detaches too much from the sale value of the house landlords will start selling instead of renting. Big real estate companies get a chance to build up a large portfolio of houses when that happens.
- eli_gottlieb 11y ago
  Thought experiments are not statistical evidence.
  - tiatia 11y ago
    Tell this Ludwing van Mises. He would call it proof!
    - fwn 11y ago
      Ludwig 'von' Mises would've rejected all inductive arguments.
- abandonliberty 11y ago
  A house is an income generating asset, selling the houses would cause both a drop in house value and increased investment in other sectors. I don't see a downside, other than in hot markets like Vancouver where the capital appreciation of properties is sufficiently high to not require renting them out in order to turn a profit.
cassieramen 11y ago
Rent control has been tried in so many different American cities and by and large is considered a failure in any city it is implemented. I would love to see a city try a radically different tactic. Minneapolis requires a certain amount of low and middle income housing in any suburb. NYC is giving large tax credits for middle class housing and is considering a pied-à-terre tax. Simply expanding rent control seems to just be pushing the problem off farther into the future.
- neokya 11y ago
  Looks like encouraging new construction is part of the package as pointed by a Reddit user here https://www.reddit.com/r/berlin/comments/3871ik/berlin_becomes_first_german_city_to_make_rent_cap/ https://www.reddit.com/r/berlin/comments/3871ik/berlin_becom... That new constructions are excluded from rent control. Thing is I can't really find this in German media. Only British media seems to write gist of this new regulation, which seems quite odd.
  - pgeorgi 11y ago
    http://www.faz.net/aktuell/finanzen/meine-finanzen/mieten-und-wohnen/die-mietpreisbremse-feiert-ihr-debuet-heute-in-berlin-13618860.html http://www.faz.net/aktuell/finanzen/meine-finanzen/mieten-un... mentions it.
- timr 11y ago
  "Rent control has been tried in so many different American cities and by and large is considered a failure in any city it is implemented" [citation needed] I think what you meant to say is that rent control is widely considered a failure by certain rich people who want to maximize their profit-seeking behavior without regard to societal cost, and economists of particular ideologies, who generally are unable prove their claims about real-world rent-control systems. Most other people like it, which is why it sticks around. The people who complain about rent control in San Francisco, for example, have yet to provide evidence that it's doing anything but lowering prices here. There's a lot of heat in this debate, but very little light.
naturalethic 11y ago
Supply and demand go out the window here folks?
tiatia 11y ago
This is an really outstanding idea. I will make a prediction here about the outcome: http://www.bloomberg.com/news/articles/2011-02-03/portugal-crumbles-as-century-old-rent-controls-choke-property-investment http://www.bloomberg.com/news/articles/2011-02-03/portugal-c...
- germanier 11y ago
  Those kinds of rent control (for existing tenants) are already in place in Germany as a whole for decades and we have seen none of such effects.
khuey 11y ago
Because rent control has worked out so well for San Francisco.
- draugadrotten 11y ago
  Stockholm is another shining example of rent control success. http://www.nytimes.com/2014/12/15/technology/stockholms-housing-shortage-threatens-to-stifle-start-ups.html http://www.nytimes.com/2014/12/15/technology/stockholms-hous...
  - legulere 11y ago
    That's mostly a rant that foreign rich people aren't treated better because they're rich like they're used to from at home.
ChuckMcM 11y ago
This is going to lead to problems ... "“The rent ceiling is very important for Berlin because the difference between the rent paid in existing contracts and new contracts is so high,” said Reiner Wild, managing director of the Berlin Tenants’ Association. “The other problem is that we have 40,000 more inhabitants per year. Because of this situation the housing market is very strong.”" The incentive to build new rental housing will evaporate, and people who move there will not be able to find apartments. The problem isn't that your rents are increasing too quickly, the problem is that your economy is unbalanced and you're creating housing demand faster than you can provide it. Correct response? Either increase the number of new apartments being built or slow or stop the number of companies that are allowed to locate in Berlin. This has happened before, will happen again. So take a moment and look at the environment around Berlin for housing now, and wait 10 years. Then look again and ask yourself is housing better or worse in this city?
- Zenst 11y ago
  This is a product of the EU's free movement and with that whilst the German people have a decline in birthrate the migrant population has not and as such any natural rise and organic growth in people has mushroomed. On the flip side were these people move from leaves voids and some area's of the EU have become over-crowded and other parts are becoming ghost towns. Still not everybody can look out the same port window, yet the EU free movement allows it and takes not into account the impacts and disparity of the members countries in the free movement aspect. WIth that the German solution is not a solution, it will just create a privileged group who have a rent controlled place over those who can not get one at all. 10 years down the line for Berlin, it will be worse as they will shuift the price discrimination into one of space and with that, 10 people to a room hotspots and illegal housing will only grow. When you have a supply and demand problem, the outcome is simple, but if you handicap that you just create a backlog of problem that piles up and in this case shifts from cost to supply or lack of and does nothing to address that from any angle. Yes, this is going to be a problem, but will be seen as good by the people in the short term with shortsighted vision.
  - lcswi 11y ago
wesleyd 11y ago
American Economic Orthodoxy insists that rent control can never work, and that price controls are only for home owners, not renters. (Government-supplied, fixed-price mortgages, California's Prop13, etc etc.)
johngalt 11y ago
"If there is one thing economists know, it's how to produce a shortage." https://youtu.be/m_IulzK6b0E https://youtu.be/m_IulzK6b0E
- germanier 11y ago
  That argument doesn't work in this case. He says one has to "set a maximum price below what prevails in the market" to create shortages. Guess what? This law doesn't do that. You are always allowed to charge up to 10% more than the average price.
  - titanomachy 11y ago
    Which "average price" is that benchmarked to? Average in the city? Neighbourhood? Free-market rents can vary a great deal even between adjacent buildings.
    - germanier 11y ago
      A few factors that are usually included: location, proximity to public transport, noise level, age, interior quality (windows, floor, etc.), energy consumption, and similar. Those calculations (Mietspiegel) are already done since a long time without people complaining too much that they don't capture the real market value.
ende 11y ago
Price controls lead to shortages. Economics 101.

50 points by givan 11y ago

Wage and price controls have a history of toxic failure. It might make more sense to focus on increasing supply to meet demand.

neokya 11y ago

I think something like this is needed because `rent control` for existing tenants is already there i.e you are not allowed to increase rent with existing tenant. In Berlin, there is interesting issue now. A friend lives in a apartment for 12 years, pays only 250 €. He says rent was increased by only € 1 during those years. If he moves to some new place, he will have to pay between 900 - 1000 € for same type of apartment cause rents are raising fast. So either they should allow to increase rent to existing tenant or control how much landlord can raise for new tenant. Otherwise, I will be paying 900 € whereas my neighbour next door will only be 250 € for same apartment cause she is living there for years.

cyphunk 11y ago
The language I've seen for the rule is increase 10% of local market rates, not the base rate of the house itself. So your neighbors rent would increase by more than %10 of their base. Or did I miss something?
- neokya 11y ago
  I am not sure what you talking, but if you meant current rate, I think local market rate means current rate (not rate which existing tenants pay) I rented apartment last year and they increased rent by more than 40%.
  - allendoerfer 11y ago
    An older, existing rule regulates in what way you can increase the rent for existing tenants based on the rent they currently pay. (You mostly cannot unless you modernize the building.) This new rule states that you cannot set the rent above 10% of the local market average for any tenant. So for existing tenants, most likely the first rule applies (because new tenants rise the average), for new tenants the second applies.

kaolinite 11y ago

Something that has always annoyed me in my local area is that, when renting, the cost of an apartment is relative to its size, not to its quality. So you could have an apartment that is twice the cost, twice the size, but still has the same crappy washing machine and no dishwasher. I would happily pay double the rent for a similar sized apartment but one with lots of nice touches, such as luxury appliances and such. I've often thought that if I ever rent out a property, I'd fill it with nice things and then charge more - high end coffee machines, in-wall speaker systems, nice furniture, etc. Perhaps there's a reason that landlords don't do that, though.

neokya 11y ago
Actually `furnished` is not really norm. I understand your point though.
Dwolb 11y ago
That doesn't sound right. Size is usually a rule of thumb and typically above or below average amenities either raise or lower the price, respectively. My buddy is working on increasing this transparency though. They're in the Seattle area and looking to provide home buyers market rates for a given feature. e.g. this house should be $X cheaper because the windows are Brand Y
- kaolinite 11y ago
  I'm only talking about renting, not sure what it's like when buying, so I'm talking about quality of appliances, care taken when painting (often places have obvious paint marks where scuffs have been painted over) and the overall decor - not the actual quality of the building, windows, etc. This is all just anecdotal, of course, and just something I've noticed locally - perhaps other places are much better. After my partner started working, we started looking at places roughly double the rent of our previous place, but in the same area - and we found that these places were pretty much the exact same, just a lot bigger.
germanier 11y ago
The averages in Germany (Mietspiegel) are always calculated taking different factors beyond the size into account: location, proximity of public transport, noise level, age, interior quality (windows, floor, etc.), energy consumption, and similar. Oh, and the law doesn't apply to the (rare) furnished flats at all.

cyphunk 11y ago

One typical arguments I see against rent cap is that it makes the housing availability situation worse, forcing people out of the city. But if say 40k new people move to Berlin in a year I see no reason why any form of market system wouldn't want to at least have some scarcity and keep things to 40k-1 max. What Berlin has seen over the past few years within a non-capped market is exactly this. 40k per year with only half that amount in new housing created [1]. My argument for cap is that if the market cannot make for sustainable living I think there is reason to consider cap, despite it meaning a bias on seniority in city. http://www.inspiration-asia.com/wp-content/uploads/2013/08/Berlin-housing-demand-495x400.png http://www.inspiration-asia.com/wp-content/uploads/2013/08/B...

icebraining 11y ago
That argument is incomplete. Why isn't the market providing enough new housing?
- pgeorgi 11y ago
  There are already 10k people per square mile (incl. forests, recreation areas and water ways that are hard to get rid of without making Berlin completely uninhabitable). Per square mile of settlement area it's 24k people. (state statistics office) Berlin sits right in the middle of a swamp (one explanation for its name is that it's derived from a slavic word for swamp), so there are limitations to how high you can build without things falling over. If at all possible, the manhattan approach of going vertical is at least crazy expensive. There were 8744 new units built in 2014 (state statistics office). There are (according to the article) 40k new residents per year - assuming that on average 2 people share a unit, that's an annual requirement for 20k new units. My guess is that Berlin simply doesn't scale.
- cyphunk 11y ago
  I agree my argument is incomplete. to go further supposedly Chicago which has little to no renter protection appears to have one an average % of income for rent indexes for the US, and one of the highest availability indexes [1]. I do not have a complete picture of the circumstances in Chicago. 1. http://www.bloomberg.com/news/articles/2015-03-27/why-the-most-popular-cities-are-out-of-reach-for-young-professionals http://www.bloomberg.com/news/articles/2015-03-27/why-the-mo...

pmontra 11y ago

Let's assess the pure mathematical effectiveness of this cap with an example: there are 3 landlords renting for 11, 10 and 9 fictional units (to keep numbers simple). The average is 10. 11 is legal but can't increase, if 9 is lowered 11 isn't legal anymore. I'm sure this is taken into account and they'll revise the limit every few months or years. However a fourth landlord can enter with 11, increasing the average to 41/4. If everybody starts renting at the upper limit the average will move up closer and closer to 11. This means that at the next check they'll be able to rent at 11+10% = 12.1, increasing the price by 10% per cycle (or they change the rule). For the tenant this is better than getting a +40% on renewal. For the landlord not much so. I suspect that if the rent price detaches too much from the sale value of the house landlords will start selling instead of renting. Big real estate companies get a chance to build up a large portfolio of houses when that happens.

eli_gottlieb 11y ago
Thought experiments are not statistical evidence.
- tiatia 11y ago
  Tell this Ludwing van Mises. He would call it proof!
  - fwn 11y ago
    Ludwig 'von' Mises would've rejected all inductive arguments.
abandonliberty 11y ago
A house is an income generating asset, selling the houses would cause both a drop in house value and increased investment in other sectors. I don't see a downside, other than in hot markets like Vancouver where the capital appreciation of properties is sufficiently high to not require renting them out in order to turn a profit.

cassieramen 11y ago

Rent control has been tried in so many different American cities and by and large is considered a failure in any city it is implemented. I would love to see a city try a radically different tactic. Minneapolis requires a certain amount of low and middle income housing in any suburb. NYC is giving large tax credits for middle class housing and is considering a pied-à-terre tax. Simply expanding rent control seems to just be pushing the problem off farther into the future.

neokya 11y ago
Looks like encouraging new construction is part of the package as pointed by a Reddit user here https://www.reddit.com/r/berlin/comments/3871ik/berlin_becomes_first_german_city_to_make_rent_cap/ https://www.reddit.com/r/berlin/comments/3871ik/berlin_becom... That new constructions are excluded from rent control. Thing is I can't really find this in German media. Only British media seems to write gist of this new regulation, which seems quite odd.
- pgeorgi 11y ago
  http://www.faz.net/aktuell/finanzen/meine-finanzen/mieten-und-wohnen/die-mietpreisbremse-feiert-ihr-debuet-heute-in-berlin-13618860.html http://www.faz.net/aktuell/finanzen/meine-finanzen/mieten-un... mentions it.
timr 11y ago
"Rent control has been tried in so many different American cities and by and large is considered a failure in any city it is implemented" [citation needed] I think what you meant to say is that rent control is widely considered a failure by certain rich people who want to maximize their profit-seeking behavior without regard to societal cost, and economists of particular ideologies, who generally are unable prove their claims about real-world rent-control systems. Most other people like it, which is why it sticks around. The people who complain about rent control in San Francisco, for example, have yet to provide evidence that it's doing anything but lowering prices here. There's a lot of heat in this debate, but very little light.

naturalethic 11y ago

Supply and demand go out the window here folks?

tiatia 11y ago

This is an really outstanding idea. I will make a prediction here about the outcome: http://www.bloomberg.com/news/articles/2011-02-03/portugal-crumbles-as-century-old-rent-controls-choke-property-investment http://www.bloomberg.com/news/articles/2011-02-03/portugal-c...

germanier 11y ago
Those kinds of rent control (for existing tenants) are already in place in Germany as a whole for decades and we have seen none of such effects.

khuey 11y ago

Because rent control has worked out so well for San Francisco.

draugadrotten 11y ago
Stockholm is another shining example of rent control success. http://www.nytimes.com/2014/12/15/technology/stockholms-housing-shortage-threatens-to-stifle-start-ups.html http://www.nytimes.com/2014/12/15/technology/stockholms-hous...
- legulere 11y ago
  That's mostly a rant that foreign rich people aren't treated better because they're rich like they're used to from at home.

ChuckMcM 11y ago

This is going to lead to problems ... "“The rent ceiling is very important for Berlin because the difference between the rent paid in existing contracts and new contracts is so high,” said Reiner Wild, managing director of the Berlin Tenants’ Association. “The other problem is that we have 40,000 more inhabitants per year. Because of this situation the housing market is very strong.”" The incentive to build new rental housing will evaporate, and people who move there will not be able to find apartments. The problem isn't that your rents are increasing too quickly, the problem is that your economy is unbalanced and you're creating housing demand faster than you can provide it. Correct response? Either increase the number of new apartments being built or slow or stop the number of companies that are allowed to locate in Berlin. This has happened before, will happen again. So take a moment and look at the environment around Berlin for housing now, and wait 10 years. Then look again and ask yourself is housing better or worse in this city?

Zenst 11y ago
This is a product of the EU's free movement and with that whilst the German people have a decline in birthrate the migrant population has not and as such any natural rise and organic growth in people has mushroomed. On the flip side were these people move from leaves voids and some area's of the EU have become over-crowded and other parts are becoming ghost towns. Still not everybody can look out the same port window, yet the EU free movement allows it and takes not into account the impacts and disparity of the members countries in the free movement aspect. WIth that the German solution is not a solution, it will just create a privileged group who have a rent controlled place over those who can not get one at all. 10 years down the line for Berlin, it will be worse as they will shuift the price discrimination into one of space and with that, 10 people to a room hotspots and illegal housing will only grow. When you have a supply and demand problem, the outcome is simple, but if you handicap that you just create a backlog of problem that piles up and in this case shifts from cost to supply or lack of and does nothing to address that from any angle. Yes, this is going to be a problem, but will be seen as good by the people in the short term with shortsighted vision.
- lcswi 11y ago

wesleyd 11y ago

American Economic Orthodoxy insists that rent control can never work, and that price controls are only for home owners, not renters. (Government-supplied, fixed-price mortgages, California's Prop13, etc etc.)

johngalt 11y ago

"If there is one thing economists know, it's how to produce a shortage." https://youtu.be/m_IulzK6b0E https://youtu.be/m_IulzK6b0E

germanier 11y ago
That argument doesn't work in this case. He says one has to "set a maximum price below what prevails in the market" to create shortages. Guess what? This law doesn't do that. You are always allowed to charge up to 10% more than the average price.
- titanomachy 11y ago
  Which "average price" is that benchmarked to? Average in the city? Neighbourhood? Free-market rents can vary a great deal even between adjacent buildings.
  - germanier 11y ago
    A few factors that are usually included: location, proximity to public transport, noise level, age, interior quality (windows, floor, etc.), energy consumption, and similar. Those calculations (Mietspiegel) are already done since a long time without people complaining too much that they don't capture the real market value.

ende 11y ago

Price controls lead to shortages. Economics 101.