Raising prices = Demand > Supply. You can either try to curb the demand (by e.g. creating incentives for companies to build offices elsewhere, move government bureaucracy somewhere else, etc.) or improve the supply by facilitating new construction, which in most places on earth is limited by, again, local government restrictions.
The thing is, that there is no real "pure" speculation without the demand.
In Berlin only 1.7% of housing is empty, of which 41% is because of ongoing modernisation, 31% because of renter currently changing and 12% because of mold or other damages.
So only approx. 0.27% of housing is empty in hope of higher prices or because of other reasons. [1]
The demand is real. No living space is created by this policy. Much will not be build because of it.
I would imagine, but obviously can't speak for the parent poster, that if you suggested limiting speculation they could agree on a sensible implementation of that policy.
I have not met anybody so far who thinks wealthy foreigners should be able to use real estate to launder money, store value, hide wealth, or otherwise not use real estate for what it is meant for, that is to say as places for people to live, play, or work.
Since all that does happen, what relevance is it to say you haven't met anyone who supports it? Do you consider yourself the kind of person who should have met such people? Do you move in those circles? Do you meet a disproportionately large amount of people, or people at high levels who influence policy?
How on earth is rent control supposed to help with that? If anything, rent control makes being a landlord less appealing relative to selling to a Russian oligarch.
Price is where supply meets demand. So prices moving up means either:
1. Demand is increasing faster than supply can keep up
2. Supply is shrinking faster than demand falls
For housing in large cities, it's usually (1) above.
Easy money policies stoke artificial demand by making money cheaper (lower interest rates). That makes speculation in housing easier than it otherwise should be. Don't blame "speculators." They are simply responding to conditions created by central banks and the fiat money system.
Hmm, this description made me wonder: wouldn't this measure reduce demand from investors looking to buy houses to rent out? In other words: if the bottleneck for new housing isn't that nobody's buying them, then this would at least lower the prices for people looking to buy a house to live in?
When things go bad government should intervene to protect people. These steps are always going to be extraordinary, because the situation is extraordinary, but it is the very role of government to apply necessary fixes without false pride for any economic or governmental models.
Of course, questions as to how one ended up in a bad situation have to be asked. Underlying issues should be fixed.
But when things get out of hand, when extraordinary action is deemed necessary to adjust for an untenable situation, it is not only right but paramount to take action.
As is with all issues, people will disagree with any specific course of action. By all means, vote to that effect.
> But when things get out of hand, when extraordinary action is deemed necessary to adjust for an untenable situation, it is not only right but paramount to take them.
That rationale is also how wars get started.
Not that I disagree with you, per se: lethal "cures" and excessive pollution were killing people in the early 20th century in the US and government intervention was required. But the Korean and Vietnam wars were also the result of people thinking that the spread of communism was also untenable.
Nope. Just like physics is exactly not how an atom bomb got dropped -- in an extremely important distinction between physics and atom bomb dropping -- there is a very important distinction between government intervention and going to war.
In a complicated world things will correlate. I hope this neither makes a generalised case against physics nor government intervention.
And only really wealthy people can afford to stay in a 5-star luxury hotel. The underlying mechanisms are the same: when demand for a resource is greater than supply, you can either artificially limited the demand by some controlling body, or let the market bring them into equilibrium through pricing signals.
By electing a socialist government the people of Berlin have indicated that they don't want their city to become a five star hotel. Simply letting the market take control is therefore not an option.
The problem is that market reaction can be too slow. In such case introducing new rules can be good as they destabilize the slow status quo and makes things to move in the desired direction quicker. Berlin government hopes that by restricting rent in older buildings it will push the market to build quicker.
How do you know that these supply building and incentive programs are not part of the plan? Such programs take years to materialize and show impact. I would imagine that's why they voted on a 5-year freeze.
That’s a simplistic view of the problem (simplistic as in introductory-economics-textbook-simplistic), and you have no idea what you’re talking about. Demand is obviously a factor (duh), but the main reason for the terrible, pathologic inflation of the real estate prices in Berlin is called speculation, together with government incompetence and, in some cases, blatant corruption. This rent cap is an emergency measure meant to stop evictions and give people around here a break. Of course it’s not going to solve the problem in the long run. No one is expecting that.
What's wrong with legally limiting artificial price hikes to prevent people from abusing Demand > Supply for the sake of their greed?
[Edit] To clarify, they seem to be "artificial" price hikes because they don't in any way necessary to cover costs. People realize they can charge more and get more money, so they simply do. That's inherently avaricious and unethical. Sure, maybe prices work themselves out, so that price goes down when supply goes up, but this seems to only be because suppliers can no longer get away with a higher price, because their competition is now selling it at a lower price. So I think it's far more ethical for a government to limit those kind of price hikes, which mainly just hurt the consumer, than to allow these abuses to continue in the name of "freedom".
You are using emotionally charged words ("artificial", "abuse", "greed"), which makes a bit hard to have a constructive argument, but let me try :).
One way to think about prices is as a signal. When greedy landlords raise prices, they send two signals: (1) To other landlords and wanna-be-landlords, saying it's an attractive market which would justify new construction or cleaning up your spare bedroom and putting it on the market, both increasing supply, and (2) to current and future renters, making it more economical for them to move elsewhere and thus save on their rent, thus reducing demand.
I just edited the comment to clarify what I meant by those words. And they should be used because they are accurate in this context. Although I did convert "greed" to "avarice" in my clarification since I think it's more accurate here.
> Why is greed so bad here? The problem isn’t greed it’s the demand in the face of the lack of supply.
Greed is bad in this situation because you can make more money of luxury apartments than those suitable for people who are somewhere between the poverty line and upper middle class. Hence new apartments in major cities tend to be more and more expensive to satisfy the demand of wealthier people. Greed is also bad when existing apartments are made much more expensive, thereby forcing senior citizens who have been living there for decades and who are barely able to afford the rent to basically leave town, family and friends.
Upper middle class are usually not homeless, right now they occupy some pool of apartments in cities anyway. By building more luxury apartments you encourage them to move, thus leaving their old apartment behind, either by putting it on sale, or renting it out.
Think of this like a domino effect: those earning $10M per year buy luxury residence, leaving their old house for those earning $1M, who in turn leave their own houses to those earning $500K, who leave their apartments for those earning $200k, and so on, and so on.
In the end everybody benefits from new housing being built, even if it's only luxury housing.
Also, increasing supply keeps prices down, thus decreasing profitability of buying houses as investment, causing larger share of apartments to be bought by people who actually plan to live in them.
EDIT: yes, this effect might not work as described if is limited to just one city, because there might be a lot of people wanting to move from elswhere. Or more precisely: it will work, eventually, but it would require much more housing to be built to meet the demand.
> Think of this like a domino effect: those earning $10M per year buy luxury residence, leaving their old house for those earning $1M, who in turn leave their own houses to those earning $500K, who leave their apartments for those earning $200k, and so on, and so on.
This assumes that a) rents don't increase for the new residents (which is false) and b) people only move within a city and there's no high demand from people outside to move into the city (which is false too).
Yes, this fits closer to reality. Most people want to spend as little as possible on rent for a situation that matches their needs. Just because fancier apartments become available at higher prices doesn't mean people will move into them from a cheaper place just because they can technically afford it. Plenty of people rent apartments below their "I can afford this" level in order to use that money elsewhere or save up for a future house.
Building luxury housing doesn't push prices lower on the bottom half of the housing spectrum, it just makes the top end higher. "Trickle down" housing takes way too long to be realized, while subsidized housing has a much stronger and immediate impact[0]
The market works this out "automatically" when supply is greater than demand. If there are too many dwelling units then landlords will compete with eachother for tenants by lowering prices relative to eachother.
In the meantime while we wait for this to happen, people will keep getting evicted due to rising rent. How long do we wait? When can we expect results?
The simplistic version of demand based economics do not take into account speculators who buy rental properties and do not rent them out to reduce supply and to help increase the price of the properties they are flipping.
If the market isn't the most efficient way to allocate resources, even allocating them centrally according to clear rules makes more sense than just commanding prices to stop rising, as if a price is merely an arbitrary number dreamed up by a seller instead of a description of a market reality that the economy will contort itself to move towards.
Wouldn't this do that indirectly? If you can't buy up existing housing stock and increase rents to gain revenue, you have to build new units if you want to charge higher rent.
I think there could be a better way to regulate how rents are determined, for example:
One symptom is that current tenants are subject to arbitrarily high rent increases, masquaraded as "market rate"
But when they finally evict, the landlord has to actually change the rent to something different until someone bites. Often times it is much lower or has some other concession.
If there were some way to regulate this behavior without easy ways to get around it, it could alleviate some pressure.
> No, it's going to become higher than a rent increase would allow (those have a limit by law, new contracts don't (yet)), that's the problem.
Yes I get that
But there are ALSO circumstances where a landlord TRIES to have a much higher increase as new contracts don't have a limit, but they go way above what actual participants in the market would bite at.
There are also circumstances where EXISTING tenants don't have a limit on increases
If there is a 'market abberation' find it, and deal with it.
For example, if tons of foreigners are buying homes, this might be a problem. Regulate it.
If tons of people are buying 2-3 homes and renting, thereby driving a wedge between home-owners/non-home-owners, regulate that.
If the issue is low interest rates, which are necessary for the regular economy, consider building in housing prices into the inflationary index, because it's a real thing that people have to pay for. This might affect how rate are set. That said, it's ECB and not really Germany anymore. FYI this should hint at the incredibly serious problems of Euro-area countries losing monetary policy by joining the Eurozone ...
If it's really just supply/demand build more homes.
It could be a function of older, crappier areas finally getting caught up in the modern world, in which case this might be an existential change that Berlin will have to deal with. The 'downtown' spots will eventually be paid for by people with decent jobs. Some pretty harsh and weird rules would have to be put in place to stop this.
Zone some areas for affordable housing.
My bet is the answer is mostly to build, but also that it's a 'neighbourhood' issue i.e. Kreuzebeurg (sorry, forget the spelling) is becoming gentrified and that's going to be a tough nut to alter.
another interesting area: regulations on building which drive the costs upward.
case in point: Los Angeles requires that new construction include parking for a certain number of cars per housing unit. usually this means placing the new building on top of a subterranean parking structure, which costs a lot more than a building on a normal foundation.
and new construction must also include a certain amount of outdoor space per unit which also reduces the number of units which can be built into a given lot.
all of this overhead is passed along to new tenants/buyers.
I was at a city council meeting for my specific city and that requirement for parking spaces per unit does not fully support all tenants. So street parking goes way up on a traditionally quiet street. It happening more and more as they start erecting these new "luxury" apartments.
