
Berlin becomes first German city to make rent cap a reality - givan
http://www.theguardian.com/world/2015/jun/01/rent-cap-legislation-in-force-berlin-germany
======
cassieramen
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.

~~~
timr
_" 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.

~~~
tptacek
Well, rich people and economists. Here, let's ask Paul Krugman:

 _The analysis of rent control is among the best-understood issues in all of
economics, and -- among economists, anyway -- one of the least controversial.
In 1992 a poll of the American Economic Association found 93 percent of its
members agreeing that ''a ceiling on rents reduces the quality and quantity of
housing.'' Almost every freshman-level textbook contains a case study on rent
control, using its known adverse side effects to illustrate the principles of
supply and demand. Sky-high rents on uncontrolled apartments, because
desperate renters have nowhere to go -- and the absence of new apartment
construction, despite those high rents, because landlords fear that controls
will be extended? Predictable. Bitter relations between tenants and landlords,
with an arms race between ever-more ingenious strategies to force tenants out
-- what yesterday's article oddly described as ''free-market horror stories''
\-- and constantly proliferating regulations designed to block those
strategies? Predictable._

[http://www.nytimes.com/2000/06/07/opinion/reckonings-a-
rent-...](http://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent-
affair.html)

But, of course: Paul Krugman. Rich dude maximizing profit-seeking behavior.

~~~
timr
That's, as usual, a critique of something _completely unrelated_ to real-world
rent-control. Ignoring the fact that your counter-evidence is a _survey_ , "a
ceiling on rents" doesn't accurately describe any of the existing rent control
schemes, which do allow rents to rise, and attempt to control only the _rate
of growth_.

So this is a straw man. Most economists, when asked about rent control,
default back to the one thing they know: price caps are bad. That's obvious.
They don't agree to nearly the same extent when you ask them about the
policies that _actually exist_. The more ideological economists then try to
assert that all price manipulation is bad...usually without evidence of any
sort.

Krugman's thinking is so sloppy here that it's a joke. He "didn't know
anything" about SF housing until the day before he wrote the article, and it
shows -- how can he _plausibly claim_ that he _knows_ that the rental bubble
of the late 90s was due to rent control, when the region was the historic
center of one of the largest economic bubbles of the 20th century?

He couldn't know, and _didn 't_ know. The tech bubble popped, the money went
away, and the rental crisis ended. This one will end the same way. The high-
order bit here is _the tidal wave of new money_ , not the rent-controlled
tenants that are drowning in the flood.

~~~
tptacek
I'm sorry, I don't follow this comment at all.

You told the commenter upthread that opposition to rent control was based on
the desire of rich people to maximize profits from their real estate.

I simply responded by demonstrating that opposition to rent control is taught
in economics textbooks as a basic illustration of the power of the law of
supply and demand.

I'm not really following what San Francisco has done to repeal the law of
supply and demand.

~~~
timr
I said that his assertion that rent control is _" widely considered a failure
everywhere it has been implemented"_ is wrong. It's "widely considered" a
failure by rich people who seek more rent (duh), and by economists of certain
ideologies. People who _rent_ in rent-controlled cities are largely happy with
the outcome, or rent control wouldn't exist.

You posted a link that says that a whole bunch of polled economists don't like
rent caps. That's unsurprising, but rent caps != rent control. I'm not aware
of any city that has _capped_ rents, because that would be stupid. San
Francisco does not cap rents.

 _" I'm not really following what San Francisco has done to repeal the law of
supply and demand."_

[https://en.wikipedia.org/wiki/Mu_(negative)](https://en.wikipedia.org/wiki/Mu_\(negative\))

~~~
tptacek
If by "certain ideologies" you mean "pretty much all the ideologies", then
yes.

The belief that rent control policies inflict more costs than benefits in the
market for housing is notorious as one of the few conclusions of economics
held across the ideological spectrum, from conservative to liberal, statist to
libertarian, Keynsian to Hayekian. Paul Krugman thinks it doesn't work. Brad
DeLong thinks it doesn't work. Dean Baker thinks it doesn't work. Tyler Cowen
and Russ Robers think it doesn't work. Kenneth Rogoff thinks it doesn't work.

Counterexamples welcome. Can you find a prominent economist speaking out in
favor of it, in any setting, in any real detail?

Here's a starting point for the other side, written by two Nobel-winners:

[http://c457332.r32.cf2.rackcdn.com/pdf/books/Roofs_or_Ceilin...](http://c457332.r32.cf2.rackcdn.com/pdf/books/Roofs_or_Ceilings.pdf)

 _Slightly later:_

This paper is a great read, by the way; as close to a long-form Reddit comment
as you could expect from something written in 1946 --- and about San
Francisco, no less!

Friedman and Stigler take dead aim at the argument that a free market for
housing somehow benefits the rich. The rich can already sidestep rent control:
they simply purchase, instead of renting. Meanwhile, the perverse incentives
of rent control coerce some people who would be better served by renting into
buying, which then commits them to speculative investments in real estate,
further exacerbating the problem.

~~~
timr
No, I meant what I wrote.

 _" belief that rent control policies inflict more costs than benefits in the
market for housing is notorious as one of the few conclusions of economics
held across the ideological spectrum"_

Define your terms. What does "inflict more costs than benefits" mean? What
specific policies are we debating? Stop arguing a straw man ("rent control")
by referring to the authority of "economists agree", and you'll realize that
there _is_ an easy, clear argument for the other side here: social stability.

The only thing that "economists agree" upon, is that price caps lead to
shortages in efficient markets. That's it. They vehemently _disagree_ when you
start asking about policies that don't _cap_ prices, but instead, aim to
control the rate of increase in prices in order to reward long-term occupancy.
Moreover, there are huge differences in circumstance that must be considered
in order to have a productive debate: in a place like Houston, where land is
cheap, the arguments for rent control are far weaker than in San Francisco,
where Global Wealth has suddenly, spastically decided that this tiny,
47-square-mile city is where All the Monies belong, as of ~2010. (Great for
Global Wealth, but bad for the people who lived here before the rich gained a
new investment fetish!)

I'll make this easy for you: your argument is that "rent control" is bad
because economists say it's bad, and
#{STANDARD_FREE_MARKET_ARGUMENT_GOES_HERE}. Fine. Mine is that the real world
is more complicated than economic theory, and that while "the free market" may
be better at _allocating wealth efficiently_ (that is, indeed, all the free
market does), there's a higher value: the _moral right of occupancy_ is worth
some economic inefficiency. We should provide incentives for long-term
tenancy, because such tenancy produces _social stability_ that is better for
all of us in the long run. I don't _automatically_ value the free market
because someone told me that it's good in econ 101 -- in this case, I hold
another value paramount.

~~~
tptacek
No part of the paper I just provided to you relies on efficient market theory.
Which is unsurprising, because the paper predates it by something like 15
years.

You began this subthread with the words "I think what you meant to say is that
rent control is widely considered a failure by certain rich people...",
concluding "there is more light than heat" in the debate.

I responded. No, I pointed out: rent control has been considered extensively
by dispassionate economists, and, across the ideological spectrum, the
conclusion has strongly tended to be that it's a bad idea.

I don't have anything more to contribute to the discussion than that; I wanted
only to rebut the notion that opposition to rent control was a special
pleading by the rich in favor of their own interests. The opposite is, I
think, true.

You may of course yet be able to demonstrate that rent control in some form is
a good idea. But you'll have to do it on the merits. I don't think the
argument that opposition to rent control is a manipulative tool of the wealthy
can survive the evidence.

~~~
timr
I don't think _opposition to rent control_ is a manipulative tool of the
wealthy, but rent-seeking is, factually, a tool of the wealthy that can become
manipulative.

The _renting of property_ has always been on the uncomfortable border of rent-
seeking behavior, and productive economic activity. It isn't really notable to
phrase it the way that I did.

------
ChuckMcM
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?

~~~
chez17
>The incentive to build new rental housing will evaporate

Or the incentive to build cheap apartments that can be profitable with the
caps will increase. If you know you can easily get X amount per apartment, and
can build and manage a building under that total amount, why wouldn't you?
This is often a recurring theme that I see that people seem to do. Since
something can't be as profitable as before, no one will ever try to make a
profit now. I don't get it. There will be developers who will figure the
numbers out and make good money. Of course the numbers may be too strict and
my scenario isn't a possibility, but I would bet you haven't ran the numbers
yet to know it's not.

~~~
ChuckMcM
Generally, but I don't know about Berlin specifically, the cost of building
new apartments has gone up over time. There is also the sunk cost of building
them. So if you imagine the whole transaction from start to present, you get a
big investment (say $10M) and you build a building with 100 units which you
rent out at $1000/month. After say 22 years[1] your apartment building has
recovered its costs and actually returning free cash flow.

What I have seen is that it takes time to get a project started. And the costs
of building can go up faster than rents do, and you get to a point where it is
economically infeasible to build a new building given the maximum possible
rent you could charge to live there. At that point no one builds new housing
because nobody likes to lose money on purpose. So all new housing stops.

There is an interesting 'bubble' here in that with nearly 0% interest rates
you can get away with higher costs, but that won't last.

[1] it is going to depend on interest rates on the building loan, city taxes,
maintenance, etc. Every time I've looked at building an apartment it seems to
flip over to generating cash 20 to 25 years after its built, assuming single
owner etc.

~~~
pgeorgi
About 44% of newly built units in 2014 are privately owned, so the other more-
than-half are not.

I couldn't figure out how much of that is actually publicly managed (versus
some potential third class), but they're already a significant part of the
housing landscape of Berlin - and they have less of an issue with recovering
costs over 25 years than individual house owners.

------
tiatia
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-c...](http://www.bloomberg.com/news/articles/2011-02-03/portugal-
crumbles-as-century-old-rent-controls-choke-property-investment)

~~~
germanier
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.

------
kaolinite
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.

~~~
Dwolb
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
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.

------
neokya
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
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
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
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.

------
johngalt
"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
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
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
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.

------
pmontra
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
Thought experiments are not statistical evidence.

~~~
tiatia
Tell this Ludwing van Mises. He would call it proof!

~~~
fwn
Ludwig 'von' Mises would've rejected all inductive arguments.

------
cyphunk
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/B...](http://www.inspiration-asia.com/wp-
content/uploads/2013/08/Berlin-housing-demand-495x400.png)

~~~
icebraining
That argument is incomplete. _Why_ isn't the market providing enough new
housing?

~~~
pgeorgi
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.

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

~~~
draugadrotten
Stockholm is another shining example of rent control success.

[http://www.nytimes.com/2014/12/15/technology/stockholms-
hous...](http://www.nytimes.com/2014/12/15/technology/stockholms-housing-
shortage-threatens-to-stifle-start-ups.html)

~~~
legulere
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.

------
wesleyd
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.)

------
ende
Price controls lead to shortages. Economics 101.

------
naturalethic
Supply and demand go out the window here folks?

