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Berlin approves 5-year rent freeze (reuters.com)
276 points by ciceryadam on June 18, 2019 | hide | past | favorite | 574 comments

As much as I can sympathise with the predicament, this decision, and the Berlin housing market in general, absolutely baffles me.

When I moved here I was warned of 100 people turning up to a flat viewing, and laughed it off as some hyperbole. Only later did I find out that it actually happens, albeit the maximum viewing I went to was around a meagre 50. Having come from the UK, I found the situation in Berlin to be absolutely ridiculous. There are already strict rental price limitations in place (based on location, size of the property etc.), and although these can be skirted, in general they're clearly very effective.

Again, I sympathise with city housing being very expensive, and don't believe that purely gentrified city centres are likely to be a good thing. Still, economics 101 seems to suggest that merely putting rental freezes in doesn't fix the problem. It just (as is already the case in Berlin), leads to excess demand. The solution is to build houses, but what kind of investor is going to throw their money at Berlin, where their opportunity to make a return on their investment is severely hampered? I just don't understand this stance at all.

Freezing rents is not meant to be a solution for a lack of housing. It’s a solution to the explosive increase of rents of existing ones.

There are lots of people where the rents of their current apartment have increased so much, that they had to move out. This solution is trying to fix that.

Also freezing rents doesn’t mean Berlin will stop building new houses. If there is big demand for housing in a city one needs both:

1. make sure people currently living in the city are able to do so in the future

2. make sure new people coming to the city have available space

Freezing rents is aimed at problem one. These solutions are not exclusive.

Pretty much every western nation has systemically failed to recognize or support the insanely high demand for high density living in the 21st century. That is where the future of economics is, where the future of humanity in general pretty much is, and every democracy is consistently demonstrating the total inability for legislatures to sacrifice the advantage of those lucky enough to inhabit cities as they exist now for the benefit of all those who would grow the economy and future in the cities tomorrow. Largely because those in the cities have the money and influence to buy the politicians.

Because the root cause is not always high demand, it’s also speculation. Real Estate is now cool again (just look at investing forums or subreddits), and foreign investor money is flowing.

Look for example at Portland (OR) how the rent increase correlates with the population increase. The current urban hype alone can not explain these numbers.

Also another example since a few years a lot of high earning people in Paris are actively moving to cities with a better quality of life and climate (like Nantes, Bordeaux), in fact as high than 80% would do it if they could [1]. Yet bizarrely this has absolutely no impact on the market.

[1] https://www.lepoint.fr/dossiers/economie/bac8-saut-secteur-p...

This doesn't make any sense - real estate speculation would increase the purchase price of real estate but cannot directly impact rental rates. Speculation means people are bidding up prices for real estate beyond what's supportable by current demand, based on expected future demand. This generally doesn't make sense in the rental market - as a tenant, you're not entitled to benefit from any future increase in demand and it doesn't make sense to pay more that what the rental is worth to you now. This means rents, in aggregate, are a relatively accurate measure of the current supply and demand, free of speculative intents.

Ironically, certain types of rent control laws could lead to the rental market being influenced by speculation. Rent control laws effectively turn tenants into partial owners - this means, depending on the law, it may make sense to rent at an above-market rate, if that allows you to keep renting the same unit at what would later be a below-market rate. Likewise, from the landlord's perspective, it may not make sense to rent even at a market rate, because to do so may lock you out of getting what would be a higher market rate in the future.

> This doesn't make any sense - real estate speculation would increase the purchase price of real estate but cannot directly impact rental rates.

Not an expert, but seems to me they could indirectly, by reducing supply of rentable apartments:

Consider district X with n rentable apartments located in m buildings.

Now some buildings get vacated and are kept empty by speculators.

The apartments from those houses are not anymore available for rent, however, the demand for rentable apartments stays the same - therefore landlords of the remaining apartments now have leeway to raise rent without being punished by the market.

This doesn't have much to do with speculation - the decision to rent or not is something that every owner can make and the economics of the decision don't depend on whether your investment was based on price speculation.

Generally speaking, wherever you have a strong rental market, vacancy is low - it doesn't make sense to keep units vacant in a strong rental market. Speculators aren't some magical creatures to whom normal rules don't apply - real estate speculators are merely investors who believe that prices will move in their favor in the future. That doesn't mean they are any more incentivized to forego rental income, which generally is a large component of the return on any real estate investment.

Edit: I'll add that if you go by classical economics, you'd predict rent to go down if price speculation is excessive, since builders respond to real estate price and if price is sufficiently above cost of construction, this leads to construction of more units, which increases supply and depresses rent.

My general understanding is that this doesn't necessarily work that way because the fundamental factors behind what makes a location attractive don't change - within reason, if you build more, in the long run, you just become a larger, denser version of what you were, which just attracts more people.

I would give you 10 upvotes if I could. The main reason for rent (and housing prices in general) increases is speculation and investment. There is billions of dollars in rentals and mortgages, and it's in everyone's interest that real estate worth goes up... unless you're trying to rent an apartment or buy a house.

Someone pretty smart once said you can't have both real estate as an infinitely increasing source of wealth _and_ affordable housing at the same time. You only get to pick one.

Agreed. I'm still shocked about how pervasive it is. New York, San Francisco, Denver, Austin, Vancouver, Montreal, London, Paris, Berlin, Warsaw. It seems like a complete binary: cities are either dying or in the midst of a "housing crisis".

>Pretty much every western nation has systemically failed to recognize or support the insanely high demand for high density living in the 21st century.

While I agree that we have an unsolved problem here, isn't a city's government mainly responsible to do good by the people who inhabit that city and make up its electorate? That's how western democracies work, so no surprises there.

I know of many people all over the world who would like to move to the US and still the 'insanely high demand' has not been supported.

It's so strange - the promise of the "information super-highway" in the 90s was that proximity wouldn't matter as much. But if anything it matters more, since every minute spent idle (e.g. travelling to meet someone) has a higher associated cost due to the opportunity cost of lost productivity. So we tend to clump and cluster.

> But if anything it matters more, since every minute spent idle (e.g. travelling to meet someone) has a higher associated cost due to the opportunity cost of lost productivity.

Which sounds like another vote for remote work instead of clumping and clustering. Why care about proximity and the time it takes to travel when everyone you'd want to meet, regardless of location, is a message, call or video conference away and reachable from your home, favorite coffee shop or local office?

And no, I'm not saying that this has to replace all face to face interaction, but I think it should become the default for work environments that are compatible with this approach.

Speaking as a German, a big part of why this decentralization isn't happening is that Germany's internet infrastructure is a fucking joke. I'm sometimes even having trouble with getting consistent 3G coverage in large city centers. When driving around the countryside, it's frequently 2G or no service at all. And it's looking similarly bad for broadband internet access in homes. My parents don't have any broadband service whatsoever. They use a 4G hotspot to go online, and get an average connection speed of 170 KB/s. This is par for the course in rural Germany.

As a fellow german, I'm aware. In fact I'm living in a quiet, rural place about 45 minutes from a very large city. My only broadband option is LTE, which thankfully has very good coverage here (steady 50 Mbit) and features an unlimited plan (Telekom Magenta Hybrid), but up until a few years ago everyone around here was limited to 1 Mbit DSL.

Of course the problem goes deeper than raw infrastructure - the mindset for a digital life isn't there yet. This appleis to businesses and particularly to official government bodies. Think about your interactions with the government, simple errands like renewing your ID or registering your car - there are awfully complicated and outdated processes everywhere. I've said it before but I look with envy to competent, easy to navigate portals like https://www.gov.uk/.

I totally agree. I'm just trying to get my head around why it seems that our promised decentralisation never came to be. Maybe old habits just die hard.

It is decentralized, just family rather than work.

I don't buy any of this. Growing up everyone around me saw the city as somewhere you begrudgingly went out of necessity and only lived there if you had no choice, and I'm inclined to agree. In virtually every aspect I find more countryside-ish living much more pleasant.

Consider virtual reality and remote work. I imagine much of the workforce will move to virtual offices in the near to medium-far future when corporations finally come around to realizing they don't have to waste so much money on rent. There's no need for programmers, graphic designers, reporters, and employees of lots of other professions to work in a physical office. So really, as cities become less of a necessity to certain jobs, I expect a moderate exodus to nicer areas, halting growth or even decreasing population in urban centers.

That's odd because it it's pretty much the polar opposite of what I've experienced.

Everyone wants to move to the big cities, especially Berlin, as they provide culture and a sense of freedom. You are able to meet like-minded people and are able to experience culture and infrastructure that simply does not exist in rural areas.

This of course makes makes the situation for the villages worse as many young people move away. Who's left are old people and those who are not qualified to find work or education elsewhere.

The population decline in those regions also means a decline in infrastructure, economy and cultural events, which makes those regions even more unattractive, perpetuating the cycle.

There is a slight trend of dropouts creating alternative living communities in those areas as abandoned houses & property can be had for very cheap. But their isolated nature means that often they will not last as their inhabitants move back to the city were their original peer group is.

The problem with cities is that they have really bad failure modes. Consider Baltimore. The city has been run by a single political party for decades, and run right into the ground. Notice the trend in these population stats:


This is a city right next to DC, in an essentially recession proof area with lots of jobs.

I've known a number of people who were big proponents of living in cities until either (a) they were robbed, or (b) they had kids and realized there was no decent school there, and (c) they had no chance of impacting the government in any way to affect change. They all ended up moving to the burbs.

Are robberies less common in the suburbs?

Are schools in the suburbs better than those in the city?

Why is it easier to affect government in suburbs?

I'm not sure if you're discussing Baltimore in particular or if you are making these points generally. I'm not sure on robberies, but I live in Sydney and I don't think there is a big gap between school quality and government participation in suburbs vs cities.

My experience has been yes to all three of those. I’ve lived for decades in both Orange County (suburbs) and Los Angeles (city).

Young people want to go to Berlin but people with money want to settle away from it.

And IMO that's also a product of rent freezing.

Without rent freezing, rents continue to increase substantially enough that investors either build more housing in/near the urban centers to meet demand OR the price shifts high enough to make the decisions to live in rural areas much more appealing.

Depends on what you want, I suppose. High density humanity simply makes practical and economically viable gatherings, grouping and other activities that just don't work in low-density populations. Classes, meetups, specialist stores, hobbies, clubs, shows, lectures, institutions and just plain bubbling, embryonic interactions; all of it an order of magnitude more intense in a big city. Travel even fifty miles away from a big city and suddenly so much opportunity vanishes, or necessitates a two hour round trip into the city to take advantage of. For the people who want these things, the city is the only option. I don't work in a city because that's where my job is; I work in (the outskirts of) a city because that's where everything else I want is.

I work with people who live in the inner city and commute outwards daily for their job, because their job is just a way to pay for what they actually want, and what they actually want is to be in that city.

Yeah, living in the suburbs of or reasonably close to a large metropolis is where it's at. As soon as you want/need a good or service that goes even slightly outside of the local mainstream, it will almost always be available only in a big city. The bigger the more likely that it will be available.

Almost all that stuff exists just fine outside major cities in my experience. I went over some of the great stuff around where I'm from in NY here: https://news.ycombinator.com/item?id=20218742

15 miles, 2 hours? Hmmm, maybe invest in New roads.

But city living is sad, yeah you can have all the social fun, but none of the quiet, peace, living and hobby space.

I like living 10 miles from the city, lots of space, quiet and green, can drive 20 minutes to the shity anytime.

15 miles, 2 hours? Hmmm, maybe invest in New roads.

Maybe invest in new glasses. I didn't say 15.

A city that has a boundary defined enough that you can reasonably say you live ten miles from it, and that you can drive into in 20 minutes? You're thinking of a town.

>Consider virtual reality and remote work. I imagine much of the workforce will move to virtual offices in the near to medium-far future when corporations finally come around to realizing they don't have to waste so much money on rent. There's no need for programmers, graphic designers, reporters, and employees of lots of other professions to work in a physical office. So really, as cities become less of a necessity to certain jobs, I expect a moderate exodus to nicer areas, halting growth or even decreasing population in urban centers.

People have been saying this for decades. Personally, I'd like nothing more than for it to be true so that I can ditch my expensive Silicon Valley apartment. But it's not. Lately I've even been seeing a lot of pushback from people who feel more productive in an office setting and don't want to work remotely.

I was living in Berlin in 2015/2016 and believe me in no way at all are people coming here begrudgingly. Pretty much everyone between 20 and 35 wants to live here. And I can't blame them. I wanted to go and I still love the city to bits. There is nothing you can't to there. Tons of very interesting people to collaborate on projects with. Extremely good food and cultural attractions. Pretty much the most progressive place I've ever come across. Easily the best nightlife in the world.

This sounds like a love letter I suppose and I realize you were talking about cities in general. But anyway, I can understand why everyone wants go there.

> Pretty much everyone between 20 and 35 wants to live here.

Well, since you were in Berlin, that's probably survivorship bias. I live in Dresden, a city of 500k inhabitants about 200km south of Berlin. To me, Dresden is just the right size. Not as vast as Berlin, where it can easily take over one hour to get to the other side for a meetup, but still large enough to have enough interesting stuff going on in it.

> that's probably survivorship bias.

What? Is every other Berliner dead and can't tell their story?

Survivorship bias can apply to things other than literal survivors.

What I mean is that, since they're in Berlin, they're mostly interacting with other people who live in Berlin. They're not going to hear from people who don't want to live in Berlin, even if those exist.

Where I grew up it was the exact opposite. I lived in a small suburbanish town which was 50% college students and 50% retirees. Almost all of my friends and fellow graduates left for the larger cities where job opportunities were far more abundant and where there was generally a lot more to do and see.

Which also seems to be supported by the general population trends. Rural cities are dying, with the younger generations moving closer to urban centers. Remote work and virtual offices will give you a better choice of city, but people are not likely to move out to places where there's nothing to do, terrible infrastructure and less opportunity in the scenario where you choose to find a new job.

And people have been saying that remote work will cause the trends to reverse any day now. So far that hasn't stopped companies even in SV; instead they just build new offices in other cities.

What do you mean by "nothing to do"? What is there to do only in the city that's supposed to be so attractive, clubs, modern art galleries? I'm genuinely curious because this never resonated with me.

Things to do in the Hudson Valley, the example I have in mind of a non-city area: expansive hiking trails for walking/biking, a river for rafting/skiing/boating/fishing, great family-owned restaurants all over, lots of nice historic sites such as the FDR estate and Vanderbelt mansion, a drive-in (unfortunately a rare institution these days, and obviously there are tons of normal movie theaters around), lots of good thrift/antique stores, hunting, tasting the fresh cider/whatever from local orchards (and getting great meat/produce from farmer's markets along with that), some concert halls around that play orchestras, horseback riding. If you want some stuff like classic theater/art galleries/etc you can find those around too, and a lot of stuff done by colleges. I'm sure I've missed a lot but this should be enough to make my point.

The city has some good stuff like the Museum of Natural History but not enough for me to want to live there.

I think you are missing the kinds of things that city people consider important. For instance, can you walk from your house to the market, and to the theater, and to the hiking trails? I live in an dense city in Asia and I can do this.

Many city dwellers do not drive a car and a significant proportion of those never even learned how. Does your rural area support a dockless shared bike scheme? Can teenagers travel independently or do they need to rely on their parents to drive them around? How much carbon does it cost the average family to get groceries?

On entertainment, and specifically in relation to Berlin: do you have a clubbing scene? Where can people go to dance to electronic music? Can they go out Saturday night after 9pm? Is there still public transport to take them home in the wee hours?

I live alone and everything I own fits in a backpack. Are there single room apartments available for people who choose to live minimal lifestyles? Is it even possible for people to rent? If not, how far away is the trailer park from the cultural center? And how close is that to the nearest Greyhound stop?

Things like walkability, access to rental accommodation, 24 hour entertainment and services... These kinds of things are taken for granted by people who live in cities. Of course this kind of lifestyle is not for everyone, but for those that value it, rural and suburban areas do not even come close.

Most people including me don't mind having to drive places, but there actually are a lot of places where you can walk to businesses if you live there. I'd rather have a more private house surrounded by forest on all sides.

You don't need a bikeshare if you have space to store your own bike. Teenagers can get a license at 16, ride bikes around, walk around, use skateboards, lots of options, but I don't see the big deal about getting rides from their parents sometimes. I don't think carbon use of individuals is much of a concern, with mpg getting better all the time and electric vehicles getting more popular.

I don't know anything about clubbing scenes but there probably are some. There are small cities like Poughkeepsie interspersed with the more suburban and rural areas around there. Quick google search shows some nightclubs exist. I could ask you about the availability of a bunch of things the city might lack too like places like this: https://en.wikipedia.org/wiki/Minnewaska_State_Park_Preserve

Maybe there are single room apartments around, I haven't checked, but there are definitely some small ones with a few rooms that probably cost a lot less than a single-room in a city anyway. Yes it's possible to rent, do you really think people don't rent outside the city? Honestly I think it's a problem, too much real estate is snatched up by people who then rent it out, making homeownership less available.

What do you mean by cultural center? There are bus stops around of various degrees of private or subsidized, with routes either within the city areas of Poughkeepsie etc or farther-reaching.

24 hour services are less than a city but they're still there. Wal Mart, Dunkin Donuts, various liquor stores, lots of stuff is 24 hours out there.

I have lived and traveled a lot outside of the city, in North America, Australia and Europe. Trust me when I say the vast majority of rural areas do not have public transport that is remotely comparable to what people enjoy in large cities. I am talking buses, trains, bikes, scooters, all available within a few minutes to take you anywhere you want to go. There is a whole expanse of North America - notably west of the Missouri - where you can't even get into or out of the small towns because Greyhound doesn't run there any more and Amtrak never did.

I have lived in the country. I don't want that lifestyle. Billions of people around the world do not want that lifestyle. They do not want to own a car. They do not want to own a bicycle. They do not want to own a house. They do not want to maintain a garden or have a forest on all sides. They do not want to go to the one nightclub for miles around. They want to have bars and restaurants and theaters and all those things that you are lucky enough to have in upstate New York, but they want it 5 minutes walk from their front door. And they want to choose from 20 different options. They want to get vegan food or bubble tea or something a little more interesting than Dunkin Donuts at 2am.

I understand that there are people who really appreciate the rural lifestyle, but please also understand there are many people who do not.

That's fine if it works for you. The point here is there's lots to do outside the city, even a lot of exclusive activities. I'm tired of seeing it said that there's "nothing to do" outside the city. Maybe if your only hobbies are nightclubs and getting mugged.

Besides that, people who would prefer to not own any car, rent bicycles instead of owning them if they're a bicyclist, and wouldn't want to own a house if they had the option sound like a niche minority to me.

> Maybe if your only hobbies are nightclubs and getting mugged.

As someone living in and enjoying rural live with lots of space and quiet I really understand your point, but slightly belittling and disregarding comments like these don't help your argument. It's not that hard to see the attraction of big cities as long as you can imagine that someone might have different interests than you. Of course, this applies to city dwellers unable to see the appeal of rural life as well.

> Besides that, people who would prefer to not own any car, rent bicycles instead of owning them if they're a bicyclist, and wouldn't want to own a house if they had the option sound like a niche minority to me.

I wouldn't put the idea of not owning a car in the same category as your other examples. A car is the first thing I'd get rid of if it wasn't required and I have no doubt that a large and increasing number of people feel the same way.

I don't think most people would choose not to own a car if there wasn't a concern of money involved. Car ownership can certainly be less economical than sticking to transit/biking in some areas, but I think most people in such situations would still hypothetically prefer having the option of driving available.

I don't own a car, nor do I ever intend to do so. Cars are expensive, dangerous and overall something I've never needed to get around.

This means almost all of the rural areas in America are off-limits for me, because not only is the public transportation infrastructure abysmal but it also heavily restricts my options if I wanted to get food, travel or do any form of recreation.

Whenever people bring up living in areas far outside of the city, they never factor in car ownership as part of the equation because they assume that's just a given.

Car ownership is not just a given. Instead of owning a car, you could lease a pick-up truck. That would get you around pretty well, especially if you get one with AWD. Fill the back with cooking gear so you can have food. If you want to be real cheap about that, route the exhaust up into a smoker so that the truck heats your food as you drive.

> Billions of people around the world do not want that lifestyle. They do not want to own a car. They do not want to own a bicycle. They do not want to own a house [...] they want it 5 minutes walk from their front door. [...]

You're assuming that essentially the entire world ("billions of people around the world") thinks as you do, just because you think so.

I've lived in cities of different sizes (magnitudes of 10⁴ to 10⁶), and those who don't want any personal mean of transport, not even a bike ("They do not want to own a car. They do not want to own a bicycle."), are a tiny minority.

I guess you must be in your 20s/early 30s, since something that actually happens IRL is that when people start to have children, instead of moving to more dense locations, which are more convient according to the theory you expose, move to more sparse locations (towards the suburbs), which actually require a personal mean of transport (of course, this is part of a variety of reasons).

That all sounds like college, with dorms and a campus shuttle and so on.

IMHO, one is expected to grow out of that. The next phase of life awaits.

Much later, when you are widowed and you move into an assisted living facility, you can once again have high-density living with few belongings and a shared means of transportation.

> IMHO, one is expected to grow out of that. The next phase of life awaits.

As rural living reminds me of elementary school, the same could be said for rural living.

>Growing up everyone around me saw the city as somewhere you begrudgingly went out of necessity and only lived there if you had no choice

I assume you grew up in the United States?

Yes, upstate NY.

Where? I ran screaming from the Albany area first thing I could when I turned 18.

Hudson Valley, somewhere around Hyde Park. I went over some of the features of the area here: https://news.ycombinator.com/item?id=20218742

What's so bad about the Albany area? I haven't been there since I went as a kid for some medical facility.

Cause European cities are so much better? They're not. Overcrowded, overpriced, just for jobs and getting out asap.

Unfortunately everything points to the effect being the opposite. Remote means you don't have to be in Detroit, but can contract a factory in China from New York or run a data center anywhere from the Bay Area.

I've heard this change (the definite shift in desirability from suburbs and small towns to cities, which admittedly you seem to have somewhat blinkered out) attributed to the vast improvements in air quality / waste management / crime / public transport in cities, and that explanation seems reasonable to me.

Country living can be great, but your experience some number of years ago doesn't speak to the current data.

> I don't buy any of this. Growing up everyone around me saw the city as somewhere you begrudgingly went out of necessity and only lived there if you had no choice, and I'm inclined to agree. In virtually every aspect I find more countryside-ish living much more pleasant.

I don't buy any of this. Growing up, everyone around me saw the suburbs as somewhere you begrudgingly went out of necessity and only lived there if you had no choice, and I'm inclined to agree. In virtually every aspect I find more urban living much more pleasant.

Funny how that works.

I'm always wondering... Where do those city dwellers put their heavy machinery? What? You don't have heavy machinery? Well, no hardware projects for you then. Do people seriously lift a half a ton lathe to the 10th floor of their apartment building and then just go at it?

My (small by international standards) city has several locations where you pay a monthly fee to use a shared workshop.

He wasn't talking about suburbs which technically are a part of a city and not of the countryside.

Suburban and rural can be blurry. I'm not sure what I'd call some of the areas I grew up around where there are both farms/orchards and a lot of cul-de-sacs/other houses. When it comes to that odd pattern of development where there are a bunch of cookie cutter houses really close together with little yards, I'm not a fan of that.

That's sort of the opposite of my experience, where everyone couldn't wait to get out of the stultifying small town, where there was no work and no future.

Yes and no. Yes your want to make an offer to those arriving, but you also don't want to destroy a city by letting prices go so high that only a certain caste of people is able to afford it - think SF. Not everyone can be rich enough to afford decent living inside a city. And yet you still want cheap burgers and services, as well as public schools and trash collection and police. None of those can afford big city living if you allow the tech & big business crowd to simply price them out of the market.

Freezing rents to fight increasing costs makes as much sense as limiting the maximum reading on thermometers to fight increasing temperatures.

Prices aren't just arbitrary numbers attributed to goods. They convey information. Information that cannot be captured by any one group alone. That's the point of prices.

Freezing rents will create a lot of unintended consequences, as price controls normally do. I imagine that apartments would be poorly maintained as landlords won't need to attract new tenants. Many people will illegally sublet their homes and capture market rents. Landlords will be suspicious and begin treating their tenants with contempt. Investment in building real estate will reduce considerably. The city would be less vibrant and it will be harder to attract young talent or new businesses.

Freezing rents to fight increasing costs makes as much sense as limiting the maximum reading on thermometers to fight increasing temperatures.

You realize that, logically speaking -- there's no analogy to be made here.


They are necessarily connected. Supply and demand is connected. If rents are frozen, that lowers housing liquidity (because people won’t move if their rent stays “affordable,”) which reduces supply and necessarily creates a shortage. It lowers mobility as well since there is a shortage of available housing which leads to inefficiency— if someone moves to another job in another part of the city, that person would be less likely to be able to move. Then, there’s added stress on transit since people must commute less optimally.

On the issue of new housing, who would risk capital to build new housing when their returns would be subject to the whims of rent caps? What’s the incentive to improve existing housing when the revenue for doing so is limited? Basically, what’s the point of making non-legally required improvements if you can’t raise rent to cover those expenses. That’s going to result in a decline of housing quality over time.

Unless the government is also going to reduce taxes and expenses and inflation for property owners to help offset the lack of revenue growth? Property owner expenses are going down are they? That lack of revenue growth also means less future capital to build more housing.

Rent control benefits a specific group, but ends up costing the whole far more than it saves the few. It’s popular to “protect” the visible because they are visible and typically sympathetic figures. But there is a greater harm being effected that is less noticed because the face of that effect is the “greedy” property owner, but the invisible victim is the overall public.

I agree with some of your points but I think you're misguided on a couple.

>because people won’t move if their rent stays “affordable,”

This is the issue rent control is trying to solve. There will always be rich people that can afford to live in the city, and they basically raise the bar on what developers and landlords think people can afford. They stay comfy while the rest basically pour all their paycheck into rent, forgo savings, and feel stuck. What about the rest of the people that work in the city with median income (or lower) jobs? They get pushed out further and further from city centres. In turn, that creates enormous strain on public transit and traffic congestion becomes unbearable.

That being said I don't believe rent control is the proper solution, but it's the only one most people agree on right now. I'd like to hear about more solutions if there are any.

> This is the issue rent control is trying to solve.

I don't think you fully understand the issue. You focus on one specific case: richer renters displacing poorer renters because they're willing to pay more. But there is so much more to the housing market, and to people moving from one home to another than that.

Maybe I got children, and I want a bigger apartment. Maybe my children moved out, and I now want a smaller one. Maybe I changed jobs, and I want to move to a different part of the city closer to work. Maybe I want to move to a different city where I got offered a job. And so on.

In a "normal" housing market, you can do all of these things. I can get an apartment in any part of the city within a week, because people move around all the time and leave empty apartments. I don't have to be richer than them, I will pay the same price they used to pay. In a normal housing market, people move around, which means other people can also move around. In a housing market that gives special privileges to current renters, people get "entrenched" in their apartment and don't want to leave for any reason. So these apartments never appear on the market.

In my city, there are rent controls for certain apartments (fortunately very small percentage). I know a few people who live in such apartments, and most of them never intend to move for any reason (unless the rent controls are revoked, which might happen). It is not because they consider this apartment the best possible place for them to be. It's because they don't want to lose their privileges. A renter in a rent-controlled home has an extremely strong artificial incentive to stay exactly where they are. This is inefficient, because as a result, people can't move around.

Now you do have a point, in the sense that it might cause people with lower incomes to be "pushed out". I am not familiar with Berlin, I know my city is fully mixed usage and there is not some huge dropoff in rent as you move away from the center (in fact, some parts further away are more expensive than some nearer). Also jobs are not concentrated in the center, so it's not like most people are commuting into the city center every day. There is pretty much everything everywhere.

Rent controls are just a fancy way to say "price caps".

If you artificially depress the price of a commodity, you induce a scarcity. Apartments are slightly less liquid than say apples, but the principle still stands. It should express itself in demand outstripping supply. If supply and demand were in equilibrium, there would be no point in rent control.

I get the argument of less investment into maintenance, but new buildings with higher capacity (instead of higher quality) could still make you more profit than current ones while boosting supply. Sadly new constructions will continue to target the high price market, since the new caps seem to specifically exclude them.

Why must people currently living in a city be able to do so in the future? I think it makes sense to allow people whose skills are more valuable to a city to take the place of those whose skills are ... more valuable elsewhere. Cities evolve. Do I deserve to continue living in a city in perpetuity just because I happened to get to the city before others?

Why should we exclude some people from living in attractive cities?

Being less wealthy doesn’t mean a job is less valuable. Police officers, firefighters, bakers, artists, nurses… currently struggle living in attractive cities because they cannot afford it. This makes these cities less liveable for everyone.

This seems like a problem that is naturally solved by market forces, supply and demand. If some job is sufficiently valued in a city, then businesses and government will pay whatever wage is necessary to hire people to perform that job.

If people who are doing some job cannot afford to live in a city, then they will move away or find a different job. This will cause a shortage of people performing the job.

If there is a shortage of people doing the job, and the results of that job are sufficiently valued, then employers will be forced to raise wages until they can attract the number of employees required.

For example, if a city has a shortage of police offers, then they can solve that shortage by paying police officers a higher wage. If the city cannot recruit police without a higher wage, then the city will need to allocate more funds to police compensation so that they can pay a higher wage. If the city doesn't have the funds, then they may need to take the issue to the voters, who can approve some form of appropriation like a new tax to pay for it.

Alternatively, perhaps the voters will not approve a tax, and the city will not pay a higher wage for police, and there will be a police shortage. That's the voters' decision. The city will experience the consequence of the police shortage, whatever that may be. Later, the voters may change their mind and decide to approve the tax.

My point is that the fact of there being a labor shortage will cause a correction naturally via market forces.

What are you talking about? Nurses, teachers and public sector workers all critical for the functioning of cities are claiming welfare. Some nurses in the NHS are eating patients' left-over food. The logic of the market is to drive wages to the bottom and replace workers when they break. It leads to the destruction of service quality, social cohesion and increased deaths in our hospitals. Please stay off the Ayn Rand methamphetamine.

The argument is that if the voters are not willing to fund those vulnerable workers then it clearly means that the voters have made the concious decision that these workers are not important to their community and therefore they think the workers should leave.

Well, there are two solutions, either make the voters less influential or change the behavior of the voters.

> Nurses, teachers and public sector workers all critical for the functioning of cities

Sure. As a voter, if my region was experiencing a shortage of public sector workers, and that shortage was affecting my quality of life, or the life of people that I care about, then I would certainly be willing to vote in favor of a pay raise.

> The logic of the market is to drive wages to the bottom and replace workers when they break.

No, this is not true. Markets exhibit emergent behavior. They don't have any logic per se, although we can reason about how we expect them to behave. If markets have any "logic", then their logic is to reach an equilibrium price.

This does not necessarily mean that wages are driven to the bottom. What happens to wages is a function of supply and demand. If very few people are capable of performing a job in some area, and that job is in high demand, then the result of supply/demand dynamics will be a very high wage. On the other hand, if lots of people are capable of performing a job, and/or the job is in low demand, then the result might be a low wage.

It is certainly the case that everyone wants to pay the lowest price that they can for acceptable quality goods and services. Who wants to pay more at the grocery store, or the dentist, or the doctor's office? The cost of labor is a dominant cost in the price of all goods and services that we consume. The fact that automation is replacing labor in many industries has directly lead to the phenomenally low prices for many goods in the modern world.

For example, before the Industrial Revolution, clothing was exceptionally expensive. Clothing required a massive amount of human labor, and so a single shirt might have cost the equivalent of $3,500 modern dollars. As a result of this, poor people could afford very little clothing - resulting the trope of peasants wearing rags to tatters. Most of our fabrics and clothing are produced by machines now, and so the cost of clothing has come down by orders of magnitude. The result is now that even fairly poor people across the globe can afford adequate clothing.


Automation in most cases results in an increase of quality, not a reduction in quality. For another perspective on this, examine how the cost of lighting has decreased over time: https://ourworldindata.org/light#price-of-light-over-the-lon...

It is a good thing for everyone that the costs of goods and services comes down over time (or equivalently: the quality of goods and services increases while the price remains steady). This directly leads to a better quality of life for everyone -- this is exactly the way in which economic growth leads to an improved standard of living: the same dollar can buy more than it could before, either a greater amount of goods, or goods of greater quality.

I see no reason why a productive city with a high-earning, tax-paying population won't be able to pay police officers, firefighters, nurses, etc. as much as they need to be paid in order to do their important jobs well. I don't see why artists who do important work e.g. for Apple won't be paid well too.

Rent control never works, but that never dissuades governments from trying it again and again.


It works reasonably well in the rest of Germany.

As for it not working in Berlin, I have a hard time to come up with _anything_ that works there, so my hunch would be that the housing market in Berlin is broken not because of rent control, but because it's Berlin.

It "works" (in that it doesn't cause problems like rationing by other means like queueing, under the table payments, subletting, or any one of the myriad other problems rent control produces) because it actually does nothing - it results in rents which are equal to what the open market price would have been.

Ultimately, if you want to reduce rents AND have a functioning market, you have two options (or a combination of them): (1) reduce demand, (2) increase supply.

You can't build forever anyway.. the demand is going to shrink in the future. Look at those countries where in 80s and 90s built too many houses (Italy, Spain for instance).. most of them are rotting now or are abandoned due to poor economy

> it actually does nothing - it results in rents which are equal to what the open market price would have been.

Lots of people living in rent-controlled apartments around the world would disagree.

With your pithy reply you miss the critical fact that the german version of rent control isn't actually rent control. It just pegs how much rent for any given apartment can increase to how much the rent in that area has recently increased. In practice this means that all rents increase at the same rate as before the "control" was put in place.

And it screws over anyone who wasn’t lucky enough to win that lottery.

The lottery of having already lived there? Only in the same sense as if I have a doll, you're screwed out of having that doll.

Rent control diminishes the incentive to make new housing, and causes rents on remaining housing stock to rise, generally. It privileges the people who have held onto their apartments for a long time at the expense of everyone who has had to move recently, at least as it’s been implemented in American cities.

Doll ownership isn’t a great analogy for housing.

It also nails the feet of the people who live there to the floor, because they know they can't get such a deal again if they move.

This is economically and environmentally inefficient, because it traps people in less desirable jobs due to proximity, and prevents them from moving closer to work.

Ah yeah, another huge problem that I forgot to mention. This really kills the liquidity of the market. You see the same dynamic with sales in CA due to Prop 13 - this makes it so that elderly people can’t afford to downsize, because their property taxes would go up 10-20x for many of them if they moved to an equivalent place, and it’s economical for people to sit on extremely valuable undeveloped land and wait for it to appreciate, because there’s next to no holding cost.

If there weren't for things like rent control or prop 13 those people would just be suffering anyway as rents or property values would increase where they live as well. So I don't see that argument making much sense. Thing like prop 13 is probably damaging because it inflates property values however.

Have you ever noticed the odd fact that children sometimes grow up and wish to rent a home themselves?

They already might live there with their parents, but if they want to move out and stand on their own feet, they would have to pay double or triple compared to their neighbours. Hence they can not move out from mum's basement if they don't want to move away.

Of course this helps resident retirees who don't move and whose children have moved out, even if it is an economically retarded policy -- and retirees vote. Same as California's prop 13, really.

Wait is subletting an actual problem in itself? Am I missing something?

I know if done in excess it could lead to fire code violations, landlords dislike not getting an increased share/concerns about increased maintenance, and would turn controlled rent holders into beneficiaries of a free cash stream over others not privledged but those are either technically separate issues or already in place really for the last one without subletting.

In this context (ie subletting against the terms of the agreement), I'd say it's a direct interference with the property rights of the owner, which to me is a problem, although I accept others might take a different view on that. But it also often comes with all the usual issues with gray markets - subtenants might in practice have very few enforceable rights, tax evasion can be common, etc etc.

It results in rents which are equal to what the open market price would have been.

This is a pretty strong claim to make. Can you provide data to substantiate?

The German Institute for Economic Research (DIW)'s study from June 2016 came to this conclusion:


> It works reasonably well in the rest of Germany.

How? Pretty much all large cities are much more expensive than Berlin, rent-wise (and in most other things).

Because it's a very effective populist policy to get support from the electorate.

It works fairly well in NYC, too.

Not without tradeoffs, mind you. But it does basically work.

So where does "not rent control" work for long term affordable housing in in-demand areas? I don't think I know of any city comparable to Berlin, in at least size and prospects, that hasn't had significant rent increases in the last five years.

My take is that from an "economics 101" perspective, a rental isn't a normal commodity.

When a vacant rental is first advertised, it is essentially "put on the market" and it's price could be determined by supply and demand in a more or less fair way (assuming "gentrification" is just demand).

But signing a lease and renewing it are very different. For the renter, leaving a rental incurs a very real cost (searching for another place, packing, moving, stress, change of habits etc). It's true that there's also a cost to the owner but it's much smaller (adverting, viewings, risk of unknown tenants etc).

So the "rational" thing for the owner to do is to try and take advantage of this by hiking up the price to include the leaving cost of the tenant. If the market is left to it's own accord, it will cause this.

Of course freezing hampers with the fluidity of the market price. A good middle ground is a predetermined max price increase agreed upon in the lease.

I think you underestimate owner costs of turnover. Risking an empty apartment for even a few weeks can erase your yield for the whole year. Landlords, then, are only likely to hike rent aggressively if it's worth that risk, in other words, when the market price is dramatically higher than the current rent rate.

The rental freeze does not apply for new housing.

(Wohnungsneubau wird vom Gesetz gänzlich ausgenommen.)


This time.

When the next freeze takes place, your residential construction won't be "new" anymore.

Freezes have always been possible. Nationalization below market rates have always been possible. Neither discourages construction. That's just FUD.

While it is true, that there are simply not enough apartments the rest of your argument is wrong.

In berlin, the rent limits don't work, because of various reasons, one for example is that companies simply rise the costs that are not rent for appartment, force the people living there out and then raise the rent.

The rent limit is not the only thing that has to be done but it is a step in the right direction.

I always hear the argument about investors and the rent limit, but there are multiple reason why that is a bad argument.

The investors had about 20 years time to fix this issues and make a good living out of it. Instead they raised the rents to exorbitant values and didn't built new appartments.

Investors can still make good money of appartments if they just rent them for a fair amount.

Of course that means they don't get a 200% percent profit, but I don't think that should be the case anyway.

Homes are not up for speculation and profit and they should never have been.

A good chunk of the houses in berlin where owned by the city and state and sold for far too little.

> Homes are not up for speculation and profit and they should never have been.

Amen. Here's a bit by Stewart Lee that I consider more insightful than funny:

> Basically, what's happened is, somewhere along the line, as a society, we confused the notion of home with the possibility of an investment opportunity. What kind of creature wants to live in an investment opportunity? Only man. The fox has his den, the bee has his hive, the stoat has a a stoat hole. But only man, ladies and gentlemen, the worst animal of all, chooses to make his nest in an investment opportunity. Mmm, snuggle down in the lovely credit. All warm in the mortgage payment.

> Mmm! But home is not the same thing as an investment opportunity. Home is a basic requirement of life, like food.

> When a hamster hides hamster food in his hamster cheeks, he doesn't keep it there in the hope that it will rise in value. And when a squirrel hides a nut, he's not trying to play the acorn market. And having eaten the nut, he doesn't keep the shell in the hope of setting up a lucrative sideline making tiny hats for elves. And when a dog buries a bone, he doesn't keep that bone buried until the point where it's reached its maximum market value. He digs it up when he's hungry.

> And if estate agents were dogs burying bones, not only would they leave those bones buried until they'd reached their maximum market value, but they'd run around starting rumours about imminent increases in the price of bones in the hope of driving up the market, and they'd invite loads of boneless dogs to all view the bone at the same time in the hope of giving the impression there was a massive demand for bones. And they would photograph the bone in such a way as to make it look much more juicy than it really was, airbrushing out the maggots and cropping the rotten meat.

Why everyone in Germany fixates with "big investors" and fighting them?

In reality 60+% of rental apartments in Germany are actually rented by private owners, for most of them it's their retirement plan. Around 10% of German households receive some rental income. 75% of landlords have ROI of less than 1% per year, almost one half even 0 or negative.

But hey, evil landlords, evil corporations. Corporations would be just fine, someone managing 100000 apartments is much more efficient than someone managing one or two. Those small guys would be just pushed out of market, and only corporations would just buy them out in next decade or two. Then we'll have real rent problem.

> In berlin, the rent limits don't work, because of various reasons, one for example is that companies simply rise the costs that are not rent for appartment, force the people living there out and then raise the rent.

Do you have examples of this happening? Nebenkosten are controlled by the government or the responsible agencies as well, and you get a detailed invoice of any costs so the landlord can't just bill whatever they want.

Afaik there was a winter service which was billed and nobody ever saw that winterservice happening. Or there were addons built to the house that where not necessary and would force the people out.

> I found the situation in Berlin to be absolutely ridiculous.

I totally agree with this assessment. I've never seen a city where you struggle to get a flat even if you have the money or can pay more.

The market is absolutely broken with literally everyone competing for the same pool of flats.

This is a terse comment with not a lot of context, but I think it is misleading to say the "market is broken" as it suggests that the market mechanism is at fault but in reading these comments it sounds like the government regulations are the source of the problem.

A market can be broken through the actions of private actors too. Monopolies and other anti-competitive organizations, criminals, poorly educated market participants, externalities not properly accounted for, etc can “break” a market. In this case a large number of voters seem to believe that rents should not increase even if demand vastly outstrips supply, forcing the government to create short-sighted policies to try to appease them.

Sure markets can be affected by private actors, but I still think "broken" isn't a helpful way to think about market conditions. High and low prices are examples of the market working exactly as needed by signaling that there is un-met demand (high prices) or mis-allocated resources (low prices).

Sorry for the shortcut. You're correct and that's basically my impression, the market is bludgeoned by illogical policies.

I don't know, there's something utopian about what you describe. If the city doesn't have housing for everyone, why should the rich get it first? Leave capitalism at the door, we're talking about a roof over your head for janitors vs. business executives.

If an 'ideal' free market means the rich get the houses and the poor are on the street, because developers don't have motivation to build, then I'm happy to see everyone compete for the same housing and seeing both the rich and the poor on the street while we figure out a real solution.

The rich, as always, have options that aren’t available to the poor.

In the case of Berlin, it is surrounded by Brandenburg. Brandenburg is extremely cheap, and one could easily live there officially (but in practice only on weekends) and only spend weekdays in the city, perhaps in a hotel (the price difference of weekend home in Brandenburg plus hotel in Berlin vs. anything in SanFran makes this look sane). Or you could live a short walk from Leipzig Hbf. and take the high-speed train to Berlin which is only about one hour and thus similar to my tram/bus/U-Bahn/S-Bahn commute to the the city center from just inside the city limits.

My ideal is not a free market either, but rather government built homes. I may however be rose-tinting the past, as my mental model is what the UK used to call “council houses”.

Edit: also, I’m not actually German, I’ve just lived here for 10 months and am still learning about everything.

Sorry, but comparing prices in Berlin and San Fran without comparing salaries doesn't make any sense. Average "rich" manager in Berlin would make like 40k after taxes which is more comparable to the janitor than a manager in SF.

My friend, this is not about the top-hat/monocle wearing rich.

We're talking here about middle class people, your teachers, pharmacists, taxi drivers, clerks etc.

The opposite of: "only the rich can get a house" is not "everyone gets a fair chance of getting a house", but "not even the rich can get a house".

Think of two families that want to get the same house, both having about the same wealth, but one is desperate to get the house and therefore willing to pay more, say because of health problems, while the second family can wait for another property.

You lose a lot when you "leave capitalism at the door".

By that logic, there would be no way at all for the poor to get a house.

Yes there is. You _build_ more so that prices go down.

It’s baffling how much “adding more housing” is always a non starter solution. Everyone seems to understand that if flood the market with something like diamonds then the prices of diamonds will go down, but when it comes to housing then basic economics go out the window.

Rent control is an incredibly pro-landlord policy. In high growth cities, land owners can simply sit on property, never invest in that property (they don’t have to compete) and simply watch their value skyrocket as they never have to worry about new supply driving the market down.

High price demand is filled before low price demand. In the context of limited space and inability to, say, build high (as in Berlin), what you propose could literally mean that there is no housing for the poor.

>The solution is to build houses, but what kind of investor is going to throw their money at Berlin, where their opportunity to make a return on their investment is severely hampered?

Uh, the state. It's strange to me that someone can honestly ask this question. The free market has failed as is its wont in these matters, this failure always needs to be addressed by the state. Where were you for the last global economic collapse?

What does the last global debt crisis (which was caused by central banks around the world keeping interest rates incredibly low for a long time, which allowed housing debt/speculation to balloon massively, and then tightening suddenly) have to do with the failures of the free market to develop sufficient housing?

And in many major cities, things like zoning are preventing developers from building nearly as much housing as they’d like.

I guess I’m just kind of baffled as to how you’ve reached the conclusions you have. I’d love some clarification.

The last global financial crisis was created by the world's largest Central Bank. It had absolutely nothing to do with the free market when the largest banks were dealing with government-guaranteed securities and were speculating on a government created bubble.

In a free market, all those who poured billions into the bubble would have gone bankrupt and all of their real assets would have been sold off in bankruptcy proceedings to responsible players who are less likely to over leverage themselves and exacerbate the speculatory frenzy in the next bubble.

The only reason the market hasn't solved the housing problem is government interventions like rent control. In places without these interventions and with strong enforcement of private property and contract rights, the market does an absolutely excellent job of providing housing.

The effects of rent control have been observed for a hundred years. In city after city rent control has been observed to cause more harm than good for the population at large.


Kevin Erdmann agrees with you. Here is his blog post about the housing shortage associated with the 2008 bust

> Uh, the state.

This is Berlin, which actually used the slogan "arm aber sexy" (roughly: impovershed, but sexy).

They don´t have the cash to start building flats with no ROI.

> When I moved here I was warned of 100 people turning up to a flat viewing, and laughed it off as some hyperbole. Only later did I find out that it actually happens, albeit the maximum viewing I went to was around a meagre 50.

The Bay Area has a rather efficient solution to this problem: limit the open house to 15 minutes. I wish I was kidding, but I saw multiple open houses that were literally 15 minutes long, and if you arrived 16 minutes after it started, too bad. And, unless you show up with a pre-filled application, credit report, blood sample, and your checkbook, there's no guarantee you'll even have a shot at the place.

Ok, the blood sample is a bit of an exaggeration, but not much. Apartment hunting in the Bay Area is not something I'd wish on anyone. I'm pretty sure Dante wrote about it in the Inferno somewhere.

The problem isn’t the number of people showing up, it’s the number of people who want any given apartment. Limiting viewings to 15 minutes may solve disruption to neighbours, but it doesn’t help with the demand-supply ratio.

It’s an interesting catch 22.

The housing you make margins off are expensive housing in expensive locations.

The reason to keep rents affordable is that it’s generally a good thing in terms of keeping gentrificarion and segregation in check.

Cap on rent can’t be the only policy though.

I see the exact same situation in Stockholm, and there’s a concensus that profit margins are not good enough.

How to solve it?

Either sprinkle lots of tax money in some shape or form or do a quatar fotball world cup kind of setup?

I’m curious, as I see this situation all over, and frankly no one seems to offer a complete solution.

The solution is pretty basic and was proven to work for centuries before extreme zoning intervention by governments happened at the behest of property owners wanting their gentrification.

To fund the program you institute luxury property taxes on units larger than what you want your average citizen to afford and actually property tax businesses (which many cities do not do, because they bribed companies to locate there with agreement they would have substantially reduced taxes). Both should be at progressive rates, the larger companies and homeowners paying more. In any city that has the modern housing price crisis in effect there is plenty of money floating around to pay this and would not "kill" the city to institute because demand is so high already.

Then, with the revenue, you A) invest in public and modernized infrastructure and B) rezone for mixed use or simply dezone your city (the only real valid arguments for zoning nowadays are to avoid overburdening infrastructure and to maintain specific skylines, but policies that prevent vertically entirely are wholly draconian and cannot stand - there needs to be an avenue for vertical growth no matter what).

The infrastructure is ridiculously expensive. Decomissioning streets to build functional bike and walkable space infrastructure, building a comprehensive subway / light rail / tram / trolly network, supporting comprehensive bus service are all major projects. Every city, though, needs to be doing all of these. Private car ownership has to trend towards 0 for anyone living in the city proper, and proper zoning and tax code should incentivize almost anyone within a substantial difference to move towards the city because its cheaper.

Its cheaper to live in a 50 story condo building when you factor in all externalized costs - the lifetime of the building, the heating / cooling efficiency, the infrastructure requirements, the construction efficiency, the materials efficiency, the cost of public services to support the building, the access to productive labor and jobs local to the residence, the climate damaged caused by long commutes from suburbs, the environmental impact of sprawl, the maintenance on infrastructure to support it. People look at how 2500 condos might cost 100 million for the building alone and think that means its inefficient and too expensive... but in practice A) the costs are inflated due to regulatory impedance B) there isn't enough high density demand in most western countries to get economies of scale reducing prices of construction the way they are in Asia and C) even when the building is more expensive everything else is cheaper.

Which probably comes back to the fundamental reason we are in this state in the first place. Externalities are not factored in. Environmental harm, infrastructure & services upkeep, human potential lost, etc all factor in to cost the modern sprawl low density lifestyle and our societies dearly. Cities are actively hurting their responsibility to grow to mitigate this damage, but its also on nations as a whole to stop subsidizing lifestyles that hurt the plant, nations, and people themselves. Cities don't have money to build because money is siphoned to maintain the status quo and that keeps this unnatural unsustainable relationship in place.

Thank you for such a thorough reply and your perspective.

Can you name a capital city that have a non dysfunctional system in place?

I seem to remember reading about Wienna having an interesting model in play.

Tokyo, but that´s mostly because of zoning laws.

This all relies on central planning by the city to implement?

You don't build a city without some kind of central planning. Even in the total absence of zoning someone needs to build the infrastructure to link it all together. That is in large part why "just deregulate zoning" alone isn't an answer - cities in large part are in bureaucratic gridlock on developing infrastructure and wouldn't be able to supply new construction adequately. But as a society we simply cannot have private companies bulldozing blocks or razing roads to build rail or bike lanes.

Additionally in the same way public policy hinders development today it could be reversed to help development. Subsidizing density and mixed use would do a lot of good to jump start the much needed urbanization of most western populations.

If the city wants something the market can't provide the solution is to do it yourself.

Berlin is partially doing that. The "Wohnungsbaugesellschaft Berlin-Mitte" is a housing association owned by the City of Berlin that builds and rents out apartments. They more or less act like other investors, just with more focus on social factors than on high profits.

> just with more focus on social factors than on high profits

Which is basically a political issue, because they will say "some people are more equal than others". Personally, I prefer naked capitalism over this "you need to know somebody in the party to get a good flat"-stuff.

Isn't the black market that occurs a form of naked capitalism?

Here in Stockholm a lot of the public good properties have been sold out which have left precious little for too many to contend.

Prices of labour and land are so expensive that, allegedly, profit margins are not good enough.

The "know somebody" bit goes for plain hard capitalism as well, but is less in effect in a society that actually focus on the social side of things. IMO.

I don't know, I've always liked the "if you have money, you can buy it" part of capitalism. You can make money, but you can't change the fundamentals. In a racist white society, having money will not help you if you're black. In a politicized society, having money will not help you if you don't have the right worldview, or were born into the wrong family. In my home town, having money will not help you get into a (private) housing cooperative if you don't match the social criteria.

What you describe in Stockholm has happened around here too. Still, I prefer it: this way I do have a chance to get a (nice) apartment, even though I was born to a family where nobody was a member of the local ruling party. Sure, I may not get the great flat at the greatest location for a third the market price, but at least I can get one, even if it's more expensive. I'm happy to pay a higher price to be able to actually buy something.

I’m just saying that with capitalism comes politics. Always have, always will. To believe otherwise is a bit naive. Politics can be used to even things out as was done over here from the turn of the century up until, I’d say, 70-80s. The last few decades have been way to market/neoliberal policy wise, and in many ways we’re seeing the effect today.

I just think you’re a bit binary here. I come from a struggling family but have managed to buy a place for my own family in a really attractive location. The problem is that thanks to virtually no regulations on the banks for lending the whole market is inflated, both for property and land. It’s simply not a question about supply and demand - it’s “how much money can I borrow”. A study showed that roughly 25% of people owning housing i Stockholm cannot manage a lowish “normal” interest rate.

Banks love printing money for free!

Capitalism only works when properly regulated by sane policy.

> I’m just saying that with capitalism comes politics.

I don't see that. I'm not with the mainstream politics at all in my country, yet I face very little inconveniences precisely because money determines whether I can buy a phone, not politics.

We might talk about different kind of politics. You want regulation (for example on predatory lending), and I'm fine with that. I don't want "social criteria" (as in "what gender are you?", "what's your political world view?", "are you married?", "did you go to university?" etc) to determine whether I can rent an apartment. I prefer the worst neoliberal unregulated free market system to that, simply because in that terrible market I still have a chance if I'm not part of the "more equal" group. In the other I don't, no matter how hard I work. It's like a feudal society where your class if fixed at birth. I prefer pure capitalism over that.

That's not to say that I prefer pure capitalism over everything, I just believe that even in its shittiest form, it's still more fair than a thoroughly politicized system. Fortunately, we still have a lot of market economy, so we're not anywhere near a place where only politics matter, but whenever somebody asks for "social factors" to play a role in deciding who will get a flat (or a job, or a car, or food), I can't help but see the writing on the wall.

I just don't think that makes much sense. Social criteria like where you went to school is one of the most important things in very capitalist countries. It didn't used to be very important in Sweden 20 years ago. There were also essentially no social housing, university dorms, private kindergartens, minimum wage or employer provided health care. Social criteria are a big thing in capitalist countries where inequality is accepted. Countries like Sweden have less social criteria as most people getting the same deal, so there is less of a need to treat people differently. At the same time the Nordic countries have had the best social mobility in the developed world (at least in terms of income).

> It's like a feudal society where your class if fixed at birth. I prefer pure capitalism over that.


Edit: Nothing in my comment is inaccurate. Just because you hide arguments doesn't make yours any better, in fact it makes them worse. And if you don't revaluate your own opinion when the mob tries to censor those they feel are wrong you can't expect to be smart.

> I don't know, I've always liked the "if you have money, you can buy it" part of capitalism.

I, too, like it when a group a part of gets privileges.

The point is: you can become part of that group. You can't become part of the privileged group if it's some arbitrary criteria like heritage, race, gender, political opinion etc.

Although discriminating against people without talents the market values or with disabilities that reduce their earning power is more useful than racist etc. discrimination, not everyone can become part of the privileged group.

> some people are more equal than others

is what you get in naked or even non-naked capitalism.

> you need to know somebody in the party to get a good flat

The SED dictatorship has been abolished 30 years ago. We don't have much of a corruption problem.

> > some people are more equal than others > is what you get in naked or even non-naked capitalism.

Yeah, but naked capitalism is closer to meritocracy, albeit not nearly there.

> The SED dictatorship has been abolished 30 years ago. We don't have much of a corruption problem.

It's still there, just not to the same extent, and more subtle. The market economy helps because it provides mostly unbiased. You're not required to know people, but it still helps enormously if you do.

> Yeah, but naked capitalism is closer to meritocracy, albeit not nearly there.

But just as far from equality.

> It's still there, just not to the same extent, and more subtle.

"not much of a"

> The market economy helps because it provides mostly unbiased. You're not required to know people, but it still helps enormously if you do.

A market economy is by design biased towards wealthy people. A democratic state with rule of law is mostly unbiased.

Encourage people to buy land and build their own houses?

This measure discourages investors to purchase already existing property, for sure. But this also leaves the opportunity to put the money in construction. The market in Berlin is still very attractive due to very high demand, so lets see how quickly can the local councils allocate land for new housing. Some time ago I’ve also heard the complaints that city has no enough capacity to give building permits quickly. Those could be the real bottlenecks in the city which grows by 200 000 every year. It’s also interesting to compare it with Moscow - nearly the same area, but 4 times smaller population and plenty of badly used space (like Tegel airport). Will it be able to keep growing while maintaining high living standards?

>in general they're clearly very effective.

Oh yeah. Like, it's nearly impossible to find a place to live. Economics 101, true, artificially lowered price is leading to deficit.

I am not sure if building houses is the solution. Wealthy people from around the globe will still buy them to rent them out for a profit or let them just sit there empty to visit for 2 weeks a year. There is even a name for that effect, it is called "induced demand".

See: https://en.wikipedia.org/wiki/Induced_demand

Are you saying that shortages are not reduced by having more of the thing that there is a shortage of?

It is at least clearly like that with roads (see Wikipedia link). With housing I can imagine a similar effect.

So why not actually destroy roads and housing then? Won't that make things better?

With roads it has been done successfully, see again Wikipedia article. As you can see from our discussion, a detailed analysis of what the underlying drivers of the rent crisis is missing.

Without that a solution is difficult to find. Just to give you an example: one major trend is that people live by themselves. Is that a core driver? Another is that there are huge amounts of capital flowing in buying properties. Another could be the that people’s expectations how sqm per household person have increased dramatically. Yet another is that with 1 mio refugees entering the country in 2015/16 the pressure on housing has increased, etc. Is it all of them? Another ones?

I feel that the problem is that too many people want to live in Berlin, the solution is for a large fraction of those people to choose to live elsewhere, and the rising rents would have been a good way to achieve that outcome.

Well, in that case, either the rent lock will actually work - or it will increase the difficulty for everyone to get a flat, which essentially would have the same effect of driving people to the outskirts.

The people who can afford to pay higher rents are generally the most productive. They have important skills that employers are willing to pay high salaries for. They also pay more taxes and spend more money. If I ran a city, I would want more of those highly skilled workers in my city.

> If I ran a city, I would want more of those highly skilled workers in my city.

Why, exactly? Does the person who runs the city with the highest per capita tax receipts get some sort of award? I assume his/her rent would get driven up with the rest.

People with higher capita tax receipts are also less likely to be ill, less likely to indulge in violent crime, less likely to hold extremist views, less likely to litter or cause other trouble.

If you want to manage a liveable city instead of a slum, you want that kind of people.

I like how those kind of views eventually reveal how they are actually just social darwinism.

Do you deny that these effects exist, or is there another level of argument that I don't get in your apparent defensive posture behind a politically loaded term?

So, you're actually in favor of higher rents.

Why not mandate rent increases?

This is silly. Your counter-argument is basically also meddling in the market.

There is no such thing as not meddling in the market, because people that move to cities will work to enact policies to ensure that they can continue to either live in those cities or grow their own property value.

In SF it swung hard in favor of landlords with the outcome of it being unaffordable for tenants and anyone except the ultra rich. Berlin seems to be swinging in the opposite direction and is attempting to fix things for tenants.

And realistically, anyone not taking action to secure their home or investment would be considered an irrational actor by any free market standard.

That is exactly what happened with San Francisco though. Then those fraction of people in Berlin become entrenched in local politics, prevent any further housing or development and the end result is a city that's nigh-unlivable. Last I checked, SF gets a lot of criticism for that reason.

Another way to do it would be to turn new entrants away, unless people who were already there chose to leave. To the people living in Berlin, it's arguably not at all a problem that too many people want to live in Berlin until the rents rise as a result.

Or we could just limit rent rises and allow rent contracts to be limited to 5 years. After all, why does anyone have a higher "right" to live in their preferred place?

> Wealthy people from around the globe will still buy them to rent them out for a profit

Thereby increasing rental supply. People can and should arbitrage differences between purchase and rental prices.

> or let them just sit there empty to visit for 2 weeks a year.

Vancouver figured out how to fix this particular problem — tax vacant houses.

Lacking new construction they'll buy up the larger, older family homes as investments instead. That's what happened to San Francisco with its lack of development. If a foreign investor invested $1 million dollars into real estate, isn't it preferable for it to be a few small units in a highrise rather than a good part of a traditional residential street?

The solution is to build houses,

It's one option among many.

And by itself -- most likely not a sufficient solution (or any kind of a game changer).

I just don't understand this stance at all.

Basically the main reason this "stance" is that the locals know better: that simply allowing newer (unregulated) construction isn't going to bring their rents down -- or that is to say: do something about availability in their income brackets, and not just yours and mine -- anytime soon.

There isn't massive sub letting going on then?

I'm not aware of massive subletting going on but in general if you sublet without letting your landlord know about it you risk losing the apartment entirely, and most landlords won't let you sublet for longer than six months. Of course sometimes it does happen. A couple of friends of mine have been in the same sublet for the better part of a year but they're also looking to move to a more stable place. The renter has basically moved out but is keeping the flat around "just in case"

> but what kind of investor is going to throw their money at Berlin, where their opportunity to make a return on their investment is severely hampered? I just don't understand this stance at all.

This is a deeply American hyper-capitalist stance. I understand you're not American, but it's an insidious American mindset that permeates the world, and must be resisted.

A successful society is not just a rampant pursuit of economics and profits at the expense of everything else.

There are investors who will make their choices about more than just "which decision gives me the most profit at any point in time?"

There are many policies that are pro-business and pro economic stimulation that actually have huge negative externalities on the quality of life of individual people.

And, not to go all granola on you, but PEOPLE is what it's all about. All - society, culture, our reason for existence.

Anytime government regulations are introduced that favour people at the expense of corporations there is screaming of the sky falling and that the economy is going to collapse, etc. I suspect it's frequently not in good faith, and doesn't consider a holistic approach to maximizing human happiness.

Nationalistic and ideological flamewar are not allowed here. Please don't post like this to HN.


Edit: we've had to warn you about this before. Please don't do it again so we don't have to ban you.

>A successful society is not just a rampant pursuit of economics and profits at the expense of everything else.

Right, but people are incentivized by the profit motive and generally do what they can to meet it.

To just say "think of the people" is swimming upstream; you're more likely to succeed by finding a way to modify the system to drive people towards actions that benefit each other.

Unfortunately it is not very human to forgo money, power, fame in exchange for what they think is the right thing to do. That's why we've had to create economic or political systems that saddle the drive for those things and steer it towards things that benefit society.

I'm not American, but I share this opinion. Berlin needs housing - but what they're doing is to make it maximally unattractive to invest in housing. That's just illogical, and even critized by non-profit housing orgs (Baugenossenschaften).

While I don't necessarily disagree with rent controls, portraying this measure as people vs corps is simplistic. As long as the city relies on private investors to build new residences, lower investment also means the PEOPLE who could have lived in Berlin are left out.

(The measure is also typically bourgeois; it throws some crumbs to fix the outcry so the capitalist system can remain in place)

I have a hard time being sympathetic to people wishing to displace.

Its really simple. We should tax property AND rent to the point where it becomes unprofitable to hoard it for purposes of unproductive wealth extraction. Then change all rent contracts into lease-buy contracts.

You would accumulate a good percentage of madly overpriced rentals that no one wants then they go bankrupt one by one. You get those delicious market dynamics we [apparently] crave more than any social convention. Buildings should be hot potatoes that you don't want to hold for to long. With this much demand it wont even affect housing prices but even if it did, who cares?

Gradually, (in stead of rent) people pay tax at market rates. We can keep the large scale wealth extraction and continue to force people into productivity only it would be the government doing it.

The same logic applies as with the teachers, taxi drivers, cleaners, garbage men, restaurant employees etc: If you don't like it you can just leave the city. Get some of that delicious mobility going and gtfo. They can just leave for the sake of efficiency and availability. Its that simple: Just go away.

If you have to chose between [say] 1) a corner store OR 2) a land lord it should be obvious which one to get rid of.

If they are contributing to quality of life by selling food and employing people we should consider giving the store a tax cut. One could also extend the tax cut to the people working there and have cheap stores.

Its hilariously unproductive to have a usury scheme of greedy unproductive rent seekers extracting wealth from every transaction that is some how remotely related to real estate.

I just want to pay for the ice cream, pay the people involved in making the ice cream happen. Why would I pay 80% to someone who doesn't do anything I need?

And who would build new rental properties under those conditions?

They wouldn't, and that's the point. They would build housing for purchase and make their profit on the sale. Pretty simple.

That sounds absolutely awful for anyone who wants to rent.

Under those conditions I think only the state begrudgingly would build large blocks of cookie cutter but pragmatic flats. Something ala eastern block country estate housing.

I don’t think we want that. Although some do want that. S better alternative is Tokyo or Singapore (though they had their state built flats too —which inspired state built flats in Brazil.)

If you tax rent, landlords will pass the tax on to renters. All you are doing is making renting more unaffordable.

But buying will be cheaper than renting, so it seems just fine that rents would go up.

A lot of people cannot afford to buy at any price point.

yes, to the point that [say] 10% of the rentals are empty.

Can you clarify what problem you are trying to solve with this proposal?

No one is obligated to rent a property from someone else. You rent if you believe it's in your interest to rent, instead of buy. Why stop two consenting people from entering into rental agreements, both of whom believe it's in their interest?

Some people prefer to rent: they don't want to be obligated to live somewhere for 10 to 30 years. They prefer to be free of commitments and loans (and/or don't have enough cash to buy). I wanted to live somewhere for a medium period of time (a few years) with no significant commitment or risk, then move on. I had just moved to the city and wasn't sure where I would ultimately want to live long-term. Landlords can also rent properties to people who have far worse credit and far fewer assets than would be required to buy the same property. I was able to rent a property much nicer than I could have afforded to buy at the time, since I had income but little wealth and credit. (The landlord in that case is taking on unsecured risk that I will default on our contract.)

Landlords also provide useful services to their tenants: they are responsible for all upkeep associated with the property. When I rented, I was glad not to have to deal with any of that. Landlord takes care of all the yard, or common spaces in an apartment, and if something breaks I just call the landlord. If you own appliances and real estate yourself, then you are potentially on the hook for significant costs if something breaks. Maybe the refrigerator breaks and you need to buy a new one: the landlord needs to budget or purchase insurance for that, while a renter does not. Landlords also assume liability for their property: if e.g. asbestos is found on the land, they may be responsible for paying for the cleanup.

Property owners are forced to tie up their assets in the real estate. Renters don't have to. Let's say that I have $1 million in cash, and I want to live somewhere. I don't necessarily want to have to invest all of my cash in real estate - not even a down payment on a mortgage. Renting might be a preferable alternative so that I can use my cash for other higher-value investments or to fund a business.

Lastly, landlords assume risk. If they can't find a tenant for their property, then it sits idle and they take a loss. When you own property, you can lose a significant amount of money if the property depreciates, as happened during the last recession. When you're renting, your risk is capped - you owe the rent but that's it.

Renting isn't wealth extraction. Like staying in a hotel, it's commerce, an exchange of money (rent) for services (temporary right to occupy a property). If you want to buy a property from its current owner, instead of renting it from them in a landlord-tenant relationship, then make them an offer, and if you both agree then you can do that instead.

> No one is obligated to rent a property from someone else. You rent if you believe it's in your interest to rent, instead of buy.

Ok, how does this work. In germany, you usually need to pay 20-30% of the full price from your own saved funds when buying property. 100% financing is rare and usually only available for people that have sufficient assets. So people that have a low income basically never have a chance to buy. They don’t choose to rent. Their only alternative is living in the street.

Rents in Berlin have been rising substantially faster than wages for the last decade or so, turning this into a vicious circle that even the middle class cannot escape from.

No one is obligated to rent a property from someone else.

That's a pretty weird statement to make.

Do you really believe that everyone (or even a majority) of people who currently rent are in a position to buy a place to live if they wanted to?

One of the key benefits of renting, that I outlined in my comment above, is that people can typically rent properties that they could not afford to buy. So yes I agree that people could not necessarily afford to buy the same quality and location of property that they might rent. This is a benefit.

Cities have high property prices because they are extremely desirable. Lots of people would like to live there, but there is limited land, and not everyone can afford to live there. There must be a way of determining who has the right to occupy the scarce resource that is land, and the market is the solution to that problem in most countries.

Although not everyone might be able to afford to buy property in the most desirable cities on earth, such as Berlin, most people can certainly afford to buy property somewhere else. For example, a house that costs $1 million in San Francisco might cost $20k-$50k in Detroit. The further you move away from cities, the cheaper property gets.

I think it is reasonable that not everyone can afford to buy property in literally the most desirable, high-demand places in the world, like Berlin or London. People can still afford to buy property elsewhere.

> Cities have high property prices because they are extremely desirable.

There is scarcity which mean those selling can reduce the set of candidates by pumping up the prices. Its a simple mechanic, not a very sophisticated approach...

> There must be a way of determining who has the right to occupy the scarce resource..

yes! exactly! We haven't attempted to examine the question let alone attempt to answer it.

Lets say we have:

1) renters serving small numbers of customers.

2) renters serving large numbers of people.

3) renters rarely serving the same customers.

4) renters regularly serving the same customers.

Lets say (for sake of simplicity) people spend half their income on rent, lets say we can infinitely increase rent as the bill is (inevitably) forwarded to the customer they serve (everything involving labor becomes more expensive) and lets assume perfect scaling.

Then you can (and we do) have a city where wages are low and everything ("produced" locally) is cheap OR you can have a city where everything ("produced" locally) is very expensive and wages are high.

You somewhat increase productivity by forcing out people who can only do manual labor but it doesn't scale nicely. Eventually the buildings only serve as investment vehicles rather than nurturing the cities productivity.

We should wonder where the money goes really. I have a mental picture where eggs are cheap but if you want a fried egg with a slice of bread it is going to cost you 100 times the price of an egg because the fried egg is mostly made up out of rent.

I think it would make much more sense to have government do the wealth extraction and to configure rent to have the proverbial eggs fried cheaply.

Cities not just import stuff produced elsewhere (because they cant do it themselves) but they also export a lot of valuable services. Those would be a lot more attractive if they didn't scale with rent prices 1:1.

I'm not claiming this is the holy grail, its a rather raw train of thought. It seems to me to have as much economic activity as possible one could force the price of the raw resources down by a whole lot. Forcing people to fry the egg at home doesn't make much economic sense, we can have professionals do it for you at scale.

It could be interesting to run the numbers on room service vs having your own kitchen? Why do we need a million kitchens in our city? They are just sitting there taking up space not being used? It seems as bad as having the empty buildings increasing their own value by making the resource more scarce.

One more thought:

Do we want university graduates or do we want land lords? Why would we want land lords to enrich themselves with money the students don't really have? The student automatically becomes an expensive employee. Education turns into a scarce resource. If it was a game (and it is) the "let the market figure it out" approach is easily defeated.

> Can you clarify what problem you are trying to solve with this proposal?

Say we live in a town where we make all the decisions and our word is law. Our imaginary town needs 2 garbage men, one to pick up the bags, one to drive the truck. We need a truck, fuel, some place to dump, our garbage men need some cloths, a place to sleep and they need to eat.

We take some city land, build 2 house and a garage.

With them serving tens of thousands of customers we can both pay them a nice salary and make the service cheap.

Now we can add a 3rd person who does nothing and pay him a huge sum for his services. We can make fancy documents dressed up with powerful geometry and invent some fancy title for this 3rd person. Say we call them Lords.

With tens of thousands of customers it seems like it doesn't matter. They can pay an extra 100 bucks annually and we could easily finance the 3rd or perhaps a 4th person who also doesn't work. They could live in great wealth without anyone getting upset over it. We could lower the salaries from the first 2 and make room to add a 5th.

Then one day the plumbing starts to leak. It might be portrayed as if the Lords repair the plumbing but the reality is that it requires a plumber.

What I'm trying to say is that however complex we make the bureaucracy, the way stuff works hardly changes. At least not until the bureaucracy becomes so important than there is no more room for the work.

I think that problem can be solved long before.

> No one is obligated to rent a property from someone else. You rent if you believe it's in your interest to rent, instead of buy. Why stop two consenting people from entering into rental agreements, both of whom believe it's in their interest?

In the existing formula our 2 garbage men are obligated to rent a property. The citizens will have to pay whatever the greedy unproductive landlords want them to pay.

That people can afford this only makes the problem worse.

It's consent only if the other voluntarily agrees. Individually they could chose not to be garbage men but that doesn't mean we no longer need garbage men.

Sure, we can have a thousand applicants and the winning one could be someone willing to drive 2 hours to get to work.

On a personal level that might seem like a reasonable way of doing things, as a town or city trying to organize it self its just poorly done. The citizens pay more than it costs and they are not getting anything for it.

We've sacrificed efficiency for exploitation. Or we've collectively done a half ass job organizing our shit and now we have to pay for it.

>Some people prefer to rent: they don't want to be obligated to live somewhere for 10 to 30 years. They prefer to be free of commitments and loans.

There is never any obligation to live some place. That would be inefficient. If rent contracts are replaced by lease buy contracts you don't need credit. You can pay rent 12 months then leave. The land lord would be obligated to buy back your share of the house or he has to sell it.

> Landlords also provide useful services to their tenants: they are responsible for all upkeep associated with the property.

I don't want their services because they are madly overpriced. I want the actual market to do these things.

> Property owners are forced to tie up their assets in the real estate.

no no no, they chose to do this because it makes a good investment. We can regulate it to be highly undesirable to own property which will drown out everyone except those who really need it.

> Lastly, landlords assume risk. If they can't find a tenant for their property, then it sits idle and they take a loss.

This would be the desirable mechanism. Sadly there is so much demand they would have to ask absurd amounts of rent to be able to not find anyone.

> When you own property, you can lose a significant amount of money if the property depreciates, as happened during the last recession.

This can only happen if the market value grows beyond the new value. Don't feel sorry for investors. We are currently forcing people out of their home to satisfy all that greedy exploitation. Investors only risk losing part of their investment. Its not like they are out on the street like tenants during the great recession.

> When you're renting, your risk is capped - you owe the rent but that's it.

I'm perhaps a lot older than you. I've seen many cases where people died and the relatives had to pay rent, clean out the house and return it into the claimed original state in less than 30 days OR pay some truly insane amount of money.

Say the previous owner build a garage, do you want it? Say they moved some walls around, put in a fire place and got a fancy kitchen? Say there are 20 trees in the back yard?

Mum died, you get 30 days. Don't forget to dig out the swimming pool as well.

Greedy unproductive cruel dictators they are AND they own you. Its a much to attractive scheme, it should be heavily discouraged in favor of economic activity, efficiency and quality of life.

I've paid the construction cost of my house 3 times now but every year I have to work more hours per month to live there???

Maintenance involved 1 phone call every 2 years and roughly 0.005% of the value of the place.

Almost every house on the block has the same owner. A decade ago we were allowed to buy it. Now they only sell houses to investors with the tenants still in them. The market value is about 7 times the construction cost.

They take 10 times the value of the house and not do any work.

If rather than me paying them they paid me the rent they would still be making crazy money without lifting a finger.

I work, other people have to pay for my work. Half of their money goes towars lazy greedy unproductive dictators. 1/3 of their money went to lazy greedy unproductive dictators too.

Then add taxes and they have to work 8 hours to get 1 hour of my labor.

And that my friend is ruining economic activity. Cut them all out and you will have an explosion of enterprise. Let the ponzi people take a risk and invest in that.

I didn't start pondering what is wrong until I see people having to pay rent for flooded houses.

Without risk it is not investment, it's pure exploitation and we are forcing people into it.

I think most people with an understanding of economics would agree that more supply is needed. The problem is, zoning laws are made by the cities themselves, which means they are ultimately made by the people who already live there. People who already live there don't want their neighborhoods bulldozed for luxury high rises, which is what happens when zoning is abolished.

Then, there is the problem of the suburbs. A lot of people suggest moving to the suburbs and embracing a longer commute as the solution. The problem is, suburbs also control their own zoning laws, just like cities, and surprise - they also don't want their neighborhoods bulldozed for luxury apartments.

So the problem is essentially a power issue - who holds the power? Without the political power to make zoning changes, little new housing will be built. I don't see a solution here. So it seems that the local people embrace rent control as the best possible solution among alternatives. Viewed from that perspective, it's not so bad after all. The city's residents will feel the impacts, and if it's not working out, they will eventually repeal the law. Big deal.

I wish someone with a deeper understanding would go to Japan and study how they got this so right. Their zoning laws don't separate uses, only nuisance levels, so you often see residential in commercial areas and small shops in residential neighborhoods. It's amazingly effective at reducing how far you need to go to get places, and gives the whole city a much more organic feel. Plus, there is actually housing if there's demand for it.

Is it just Japanese cultural collectivism that made this work? How did they make this happen when we failed so badly? I have no idea.

There's definitely a cultural element but it's also due to how buildings are used in japan. Black mold makes it where you really don't want to deal with a structure over 40 years old so there's always things being destroyed and new structures being built rather than old structures being renovated; neighborhoods are in a constant turnover and buildings are disposable. All of urban Tokyo was also destroyed during WWII and had to be rebuilt in a new way.

In the U.S. you might have some neighborhoods that have been largely the same for the past 50-100 years. Since there's no absolute need to replace housing stock unless disaster, people are much more emotionally invested in the existing layouts of their neighborhoods, and advocate against their own economic interests by voting down new developments or zoning changes.

I actually thought of both of these and discounted both. Here's why.

Post-WW2 buildings in Japan were crap so I can see why they'd replace those. But I think recent buildings are a lot more long-term. My sense is that they replaced because of the post-WW2 cheap building boom, not because of the climate/mold. It's no warmer or wetter than many places in America, and northern Japan is quite dry and chilly.

For the "never bombed America" argument, I'd just point to Europe, which was bombed. Or to new American cities built 1950 onwards, which suffer the same problems. I'd also point to Kyoto, which wasn't destroyed in WW2, but is still functional in terms of real estate AFAIK (though I'd love to hear otherwise).

It’s actually pretty simple: housing isn’t an investment vehicle like it is in many parts of the West. The social and historical reasons why this is so in Japan are complicated, but the overall circumstances are not.

You can either have affordable housing that’s not an appreciating asset or let finance/real estate Capital run roughshod over everything in speculative flurries, leading to the insane state of affairs in many western cities today. You can’t have both.

I read today that Fortress Investments purchased over 100,000 affordable units from the Japanese government for 60bn JPY in 2017 and plans to spend about as much on renovation. [1] Apparently firms like this usually expect an 18% return on these kinds of investments.

[1] https://www.wsj.com/articles/fortress-becomes-japans-biggest...

Yes and if all of its housing tilts this way, Japan too will spiral into unaffordability. But most families still live in single family homes that depreciate in value over time.

you can have both as long as productivity is growing, increasing labor's bargaining power and wages

unfortunately productivity is pretty stagnant across developed economies, including japan

if capital and business owners have no need for new/enhanced labor as is the case in many developed economies where offshoring/new hire cycling is rampant, then a housing affordability crisis definitely builds up, unless:

(1) the municipal/federal government steps in to regulate rent as it has done in Berlin

(2) there is a good architectural/geological/tax incentive that prevents NIMBYISM

(3) cultural/work factors allow the younger gen to live at home/work remotely

Wait, housing is socialized in Japan? Or is there some kind of non-socialized-but-non-privatized ownership situation? Do you have any further reading on this?

This is spot-on. Completely agree. Tokyo is an incredibly comfortable, quiet city. Preparing for a three-week trip, I expected it to be like New York — crowded, expensive, uncomfortable — but it completely blew my mind. I had never thought that the constellation of density, quiet, reasonable rent, and a first-class city were collectively possible.

Japan overall or Tokio specifically? Because Tokio would be a bad example as it’s super dense and I think that is exactly what residents try to prevent

There are a lot of factors at play here:

1.) Supply is inelastic because construction work and building approvals are limited by current capacity. It is not feasible to expect the market to react as quickly as 600,000 new inhabitants over 10 years required.

2.) A lot of policy is still considering this to be a fad before cities become less popular again. Berlin's plans had for instance foreseen falling demand for schools due to demographic change and now rising birthrates (good economic situation) and influx of young people into cities are causing a trend change (for how long?).

3.) Current ECB rates are causing a housing bubble in Germany where many people are buying property for the first time. Because these properties are mostly rented when purchased but renters can't be terminated in Germany, the only way to evict is by raising rent until renters give up. Putting a rent freeze into place makes sense to prevent this and the rampant luxury renovations which don't create more supply.

4.) Berlin at its peak (1944) had still more than half a million more people and is surrounded by mostly empty countryside. It could easily grow to 10m as Paris or London.

> Berlin at its peak (1944) had still more than half a million more people.

Yes, with 2 - 3 times more flats per every floor in a building. And with whole multi-generational families living in every one of them. Don't forget sharing one bathroom between all this families and sometimes toilets just being wooden huts outside.

Try visiting Mitte Museum in Gesundbrunnen, you'd see how miserable pre-war housing was, yes even in the very centre. The area around Ackerstr. was much more dangerous than Alex or Kotti is today.

The notion that Kotti or Alex are dangerous by any coherent metric can only be understood as satirical.

Sounds like Britain. Today.

Would you please stop posting unsubstantive comments to HN? We ban accounts that keep doing this, and have already had to ask you more than once.


Regarding 1: Germany's economy is doing well compared to the surrounding countries, so they're attracting many foreigners, especially in Berlin. These foreigners need a place to live, which is one big driver of rent increases.

Regarding 3: landlords are successfully invoking the "right of own use" to evict tenants. They are basically claiming that they need the apartment for themselves, a relative, etc. [1] Furthermore, thanks a relatively recent law, the landlord can't raise the rent for older buildings indefinitely - there's a cap. New buildings are exempt. For those rents start high and there's a standard ~2.5% increase per year.

[1] Article in German: https://www.spiegel.de/wirtschaft/soziales/mietwohnungen-eig...

> so they're attracting many foreigners, especially in Berlin.

Which is very ironic because Berlin is one of the least prosperous cities in the federation.

Ironically one of the factors attracting foreigners to Berlin is the cheaper cost of living.

> a fad before cities become less popular again

The only way this happens is if cities like Berlin putting rent freezes prevent construction that would increase capacity and lower prices to allow people to live in cities. There will be no new economic growth where people are spread thin - all future productivity will only emerge where people are. Any country trying to do anything but centralize their human capital in cities will find themselves at economic disadvantage going forward.

Or technology (self driving cars, remote work) and social change (universal basic income) would not require you to live in a city to work there or work at all that productively.

The point is more than density is an optimization of the marginal cost of maintaining a person. Manufacturing all the autos, maintaining all the roads for them to travel on, and providing supply lines across vast areas of low density are immense ongoing expenses that are hugely reduced when people are centralized in urban areas. As we move towards remote work it should lead to density increases, not the other way around - living denser means more access to more recreation and services, should mean cheaper goods and infrastructure, and can stymie the isolation problem brewing with remote workers across the industrialized world.

> 3.) Current ECB rates are causing a housing bubble

People keep saying stuff like this but this is a economic theory with very little actual support in any evidence or even in most economic theory of how montary policy works.

Symptom: rents are too high

Cause: insufficient housing supply

Solution: disincentivize new construction?

> 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

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.

So tax the shopping center, offices and hotels more to balance them out.

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.

Looks like the average joes have more clout than the residential landlords given the 5-year rent freeze.

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.

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?

We should consider a 75% capital gains rate on land value increases. After all, the owner typically had little effect on their own land value. A big effect comes from their neighbors building shops and offices and the biggest effect comes from the city building roads and transit and other infrastructure. Land "investment" is the least productive form of investment. If you built a building, then yes, profit from that, but benefits from increases in land value should go to the city.

The georgist approach.

I was pondering a high annual ground tax instead of a capital gains tax

Otherwise known as "property tax".

Something neat I've noticed locally is that condos with high property management fees have proportionally lower selling prices.

If all 2 bedroom units in an area/city are $3000/month and one building had property management fees of $1000 instead of $500, the unit's value is $500/month lower (approx. $100,000 selling price).

I'm not sure how that would be implemented on a city scale though.

For density: If you drastically raise property taxes to be proportional to square footage instead of appraised value, you instantly incentivize higher density building. If you're paying $1000 tax per square foot of ground floor, you can spread that over a single floor, or 40 floors.

Was that your thought?

Yes. But The tax needs to be high enough to capture most of the value not created by the landlord. As I am no property owner I am not too deep into this, but right now I think we are far from that.

Property tax is just now being redone in Germany. Unfortunately it seems that it might end up depending on the square meters of the house, not the underlying property.

The new law about the property tax links the tax amount to the value of the area. If done right, this forces house owners to rebuild their property and adjust the density if they want to remain profitable.

This accelerates gentrification I am not sure whether this is desirable.

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.

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?

In some cities that would absolutely be an issue. However in this specific case I don't believe Berlin will ever lack for real estate investment. In other popular cities we've just seen the type of investor change, from opportunistic to activist.

I'm curious about this, which cities with those be?

If you flush the market with supply, you get the same result. You also get the side benefit of more poor people have access to housing. The rent control model means a small portion of the poor wins the artificially low rent lottery.

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.

Nope. New buildings are exempt.

... 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.

So living in new buildings becomes undesirable even further because they are more expensive to live in than the rest of the city!

No, new buildings are desirable because they're new and will always find buyers, especially if built in a nice neighborhood.

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.

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).

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.

As others have said, a lot of new construction is hotels, shopping centers, and office space.

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.

Berlin doesn't need landlords. It needs homes for people.


Cities don't want or need more landlords. It needs more landOWNER residents.

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.

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.

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?)

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.

If there is more demand than supply, no.

No because the developer will just charge more for the new properties and old property prices will be worth less.

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.

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.

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.

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.

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.

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

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.

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

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.

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.

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.

> 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.

You claimed that the free market was incapable of allocating the resources correctly for an "industry".

And now you are suggesting that my assumption that you were implying that the government should do the allocating is also incorrect.

So what is your alternative suggestion?

> And now you are suggesting that my assumption that you were implying that the government should do the allocating is also incorrect.

Wrong. Please read what I write instead of "presuming" what I might think.

Rent control does not disincentivize new construction.

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.

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