Rents are rising at a record pace in Germany. Politicians turn to a price control gambit guaranteed to fail.
Rent Control Evidence
Please a September 2019 Stanford Business Study on The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco
Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals’ migration, we find rent control limits renters’ mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.
A Brookings Study says “Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood. These results highlight that forcing landlords to provide insurance to tenants against rent increases can ultimately be counterproductive. If society desires to provide social insurance against rent increases, it may be less distortionary to offer this subsidy in the form of a government subsidy or tax credit. This would remove landlords’ incentives to decrease the housing supply and could provide households with the insurance they desire.”
Common Sense
Common sense suggests the same thing.
Landlords of rent control units have no incentive to make improvements, and developers do not want to add units in rent control areas.
The common remedy to the latter point is to offer developers incentives. Developer incentives further distorts the markets.
Rent Control Doesn’t Work, But It’s Still a Good Idea
Leave it To Vox to conclude Rent control won’t fix the housing crisis. It’s still a good idea.
Role of the Fed
None of the articles addressed the Fed’s role in creating housing bubbles, housing speculation, and asset bubbles in general.
The Problem Isn’t a Housing Shortage, It’s the Concentration of Ownership by the Wealthy, this bubble is fundamentally an artifact of central bank and government policies that enrich the already-rich, who were incentivized to outbid each other with low-cost credit to snap up “investment properties” with their “surplus capital” that generate more income and capital gains that cash, which until recently was “trash” due to near-zero savings yields.
Bingo.
Rent controls cannot possibly address that fundamental problem.
The Fed Commits to a 2 Percent Inflation Target, Carefully
Please note The Fed Commits to a 2 Percent Inflation Target, Carefully
Powell’s Warnings
Here is the key thing Powell said today: “As is often the case, we are navigating by the stars under cloudy skies.”
And to that I would add, using tools like inflation expectations proven to be totally worthless.
The Fed creates bubbles because it is has no idea what inflation is. Hell bent on raising routine consumer inflation, the Fed ignored massive bubbles in housing.
The Housing Bubble Is Expanding Again
After a two-month decline in most markets, prices are again on the rise.
For discussion, please see The Housing Bubble, as Measured by Case-Shiller, Is Expanding Again
Maybe Smith is right and the AirBnB Bubble will pop the housing bubble.
But meanwhile, Biden is doing everything he can to stoke inflation with energy policy and tariff madness.
nothing wrong with private property, but when you own someone’s home, i think there is a problem. i don’t think homes should be part of the free market. we can have a hierarchy and allow the rich to upgrade, but everyone should have a home. call me a socialist or communist, but it doesn’t make sense to have housing on the free market.
the government has infinite money for war, we can build affordable housing for our citizens.
“A man with a lawn will never be a communist.” Harry Truman on signing the FHA creation act.
So the FED people are either stupid not to see this, or things are working exactly as intended by them… I seriously don’t get the insistence on the stupidity theory.
When stupidity is a possibility, especially economic stupidity, it is highly likely to be the right reason.
Lacy Hunt one told me he had to unlearn nearly everything he learned in college. These clowns have decades of formal training in stupid economic theories.
I remember Nixon’s wage and price controls. At the end of the 1970’s inflation was hitting double digits.
An apt political response: Political leaders are seen to be doing something, as the populace screams for relief and for the government to do something, like make it stop.
This accounts for 72% of governance.
The other 36% is ideological doctrinaire agendas blind to anything real.
Where I live there as been an acute mult-generational housing shortage (and concomitant problems) ever since ww2, and it’s getting worse with ‘refugees’ and the green agenda stymying housing construction, despite thousands of government initiatives, policy changes, and promises. (Truth be told, there is a unique problem with limited space which precludes a free for all as a survivable solution).
“The Fed creates bubbles because it is has no idea what inflation is.”
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Bingo. and they can’t see inflation because they have no idea what money is, or money supply, or what is actually going on in the economy.
The lied about Volcker to their own benefit… their own reputations and glory.. Greenspan and Bernanke merely continued the lying.
The world thinks the economy is steered by their deft hands on the wheel, they’re all just petty Wizards of Oz, manipulating levers behind the curtain… for nothing more than public performance.
Meanwhile, the whole economic vehicle is falling apart, looking like the station wagon from Planes, Trains and Automobiles, because yes, “we’re going the wrong way.”
It is no longer “private property” when the government decides how much rent you can charge.
In Germany, WWII killed many of the landlord types or their assets. Every major town was reduced to rubble by the Eighth Air Force.
Post WWII leaders worried that a desperate population in Germany could be radicalized back into fascism or transformed into communists.
West Germany’s first housing minister noted that ”the number of communist voters in European countries stands in inverse proportion to the number of housing units per thousand inhabitants.”
I think the rental experience in Germany has been a more pleasant experience than for American renters by policy design. The shear number of slumlords and lousy public housing does not exist to the degree it does in America.
Rent control in Germany does not have the same negative affect as it would in America because American Real Estate is built on a foundation of Grift and Speculation.
“In Germany, WWII killed many of the landlord types or their assets.”
Directly setting the stage for Germany becoming one of the world’s wealthiest and most advanced societies.
Ditto Japan. And the rest of Europe. And even the US, although the 1930s-40s reset was less physical, more financial, over here.
For sentient people, there is a very obvious, lesson to be learned from that….
Fat chance the non-sentients that The Fed has robbed the rest for the benefit of, will ever catch it, though. Inability to comprehend anything beyond mindless regurgitation of “saving the syyyystem” is, after all, a defining trait of pathological non-sentience.
Rent control might work, because the silent generation and the boomers expire.
Immigrants fill the gap between European low birth rates and the expiring elderly.
In the 2030’s/40’s new immigrants’ higher birth rate might rejuvenate the housing market. They might create a religious divide. Germany & France ==> Iraq.
At the risk of sounding like a broken record, this is just another sign of unsustainable and fraudulent monetary policies. The inequality that these policies produced (and still produce) are causing severe societal dysfuntion, social unrest and an economy that is stagnant or even shrinking.
This isn’t an accidental outcome, this was pre-planned and well known by the criminals at the ECB.
In 2019, in Holland, you were able to get a 30yr fixed mortgage at 1,35%. No wonder properties doubled in value during that time.
Meanwhile, savingsaccounts were yielding zero, therefor incentivizing speculation in an already overheated housingmarket with a housingshortage of 500.000 homes.
Add to that an influx of migrants at levels so overwhelming, they didn’t even have enough facilities to shelter them properly causing them to sleep in the open air.
This is what you get when you no longer have sovereignty and you don’t have control over your own border.
Rent control doesn’t work, but having said this, in this reality, it’s a necessity because the situation for renters is out of control.
This housingbubble, combined with these destructive monetary policies have brought us here. The only way out of this is a normalization of interestrates and deflating the bubble. The problem is a lack of new construction. Or to stop the populationgrowth which is something we’re not allowed to talk about, it seems.
Why does everyone think this is sustainable when building homes is not allowed because of ‘climatechange’? So if you move millions of people from other areas into already overpopulated Western European countries with severe housingshortages…this is because of….what exactly?
Reality is starting to sink in however and corrections are already happening.
The lack of capable leaders is painfully obvious and the damage is starting to show.
But I wonder if the system is beyond saving or that it’ll be a controlled (or uncontrolled) collapse.
Rent control does not work, maybe, but monopolistic concentrated markets are a huge source of inflation. Housing needs to be treated as a public good, not as an investment speculation. The Fed always facilitated transfer of wealth to the wealthy. Rich owners have been given cheap money for years to concentrate home ownership in a few hands.
Rent control may not be a solution, but neither is subsidizing rich owners with government money. These same large owners also get bailed out whenever there is a housing crisis.
There are no free markets in housing, so let’s not pretend that landlords rising rents is the capitalistic way. There has to be a limit to price gouging, as imperfect as it may be.
A better way is to introduce a public/private system where government subsidizes housing construction and leases building management. If you have to subsidize rents, might as well subsidize the whole contruction. At least taxpayers get to own the building.
– Housing needs to be treated as a public good, not as an investment speculation.
> That would be extremely reckless and irresponsible at best. Next I suppose Automobiles can be added as well, and of course Food on every table… NOT!
– The Fed always facilitated transfer of wealth to the wealthy.
> That is an Election / Fed Issue and has nothing to do with Housing.
– There are no free markets in housing
> Due to Government Interference, which has nothing to do with housing and/or Capitalism.
It has been proven, beyond any doubt at all, that “Rent Control” doesn’t work, as the consequence from said action, undermines its intent, and makes matters even worse for renters afterwards. That is a Fact!
Biden Inc. just tried this in the U.S. and it has from the start, and still is, wreaking total havoc all over the place.
You simply can’t makeup for Bad Policies, with Bad Laws to Offset Them. It just doesn’t work that way, and the majority of people with any common sense whatsoever, know this, or should! The intended or unintended consequences, crush everything in there path as the new laws don’t allow for the proper adjustments after everything was erroneously pushed into motion without thought of said consequences…
While I completely agree w/the short-sightedness (nicest term I could come up with) of the strategy, what concerns me most is that you know folks here are chomping at the bit to do the same.
Germany is just trying to “make it Friday” so to speak along with the rest of the welfare west. It won’t work.
I wonder what the effect of all these stupid climate proposals are on the rate of inflation. As Herbert Spenser pointed out 150 years ago, “politician” is the only occupation where you can commit crimes against humanity and get accolades for do so. It’s amazing how far you can lead the sheeple away from their own self interest with a good narrative about some impending doom.
I have noticed that promising loads of free stuff is as effective as impending doom.
There are 8 billion people on earth thanks to Fritz Haber who was kicked out his lab
by Hitler. His family was exterminated by Zyklon B.
I doubt that 8 billion is thanks to Haber-Bosch of which most of those haven’t heard about. Unless you stretch it to say that Arctic lemmings have found new food source to graze down the planet.
I don’t think that popping the AirBnB bubble will bring down hosing prices to the trendline. The institutions with the residential housing still can tap big investors for funds. They may not be buying new properties but the funds are enough by far to pay the additional interest expense assuming that they borrowed at variable rates. It will probably take higher rates and for a longer time to break that cycle and I am wondering if even that will do it. There is a lot of money from wealthy “economic” refugees looking for a safe place to park their money as their own countries go down the tubes. I think it will take legislation to break it.
What concerns me is that in many cases we cannot find out who is the actual buyer and owner because they are hidden behind a string of shell companies set up to specifically hide them. That must cease. If you can’t find the ultimate owner then you can be sure that it was bought with questionable money and if the ultimate “owner” doesn’t show up then after due process then that property should be forfeit. It’s a pet peeve of mine and I don’t expect everyone to agree.
Germany I believe is an outer when it comes to residential real estate in that it has a very large part of their population who rent and apparently the rents are, or used to be, reasonable. If they decide to limit rent increases they will probably do it in the German way and get everyone on board for how much and how long.
Germans chose a poverty level standard of living when they chose to live without fossil fuels. Our industrial prosperity was built and sustained with inexpensive fossil fuels. Substituting expensive wind and solar power causes inflation and a low standard of living. German inflation is only just begun. None of Germany’s industrial corporations can manufacture product profitably if they use expensive wind and solar energy. Specifically the companies leaving Germany are in chemicals, plastics, steel, aluminum, metal bending, automobile manufacturing, fertilizer, beer, glass, semiconductors…. Jobs leave. Tax base leaves. Educated work force leaves.
Before fossil fuels people lived in thatch huts, teepees, yurts, log cabins, igloos, and caves. They hand pumped well water. They cooked with wood and cow patties. They rode horses. They milled flour with water wheels. The sustainable population was only a few million.
And they will again once the last dino juice is sucked from the ground.
I’ve been wondering about the efficacy of windmill powered electric steel furnaces or aluminum smelters. Would solar panels work better?
Edit is more important than voting like/dislike.
1) Most Germans are renters. They have low/no assets. Between 2004 and 2018
rent cpi was lower than the house price index of existing homes. Thereafter higher, but falling since 2022.
2) After freezing rent CPI at 130 for 3 years distresses landlords will sell few units to insiders at bargain prices to finance themselves, thus lowering existing home prices.
3) There will be a transfer of wealth from landlords to renters who can afford it.
4) House prices will cross rent CPI. Rent cpi will be higher than house prices, under rent control.
5) If new houses will be exempted from rent control capital will flow to new houses
constructions.
6) The housing market will be split between worthless rent control houses and the free market, for 3 years.
7) If Germany enters the recession, there will be no houses constructions. When
both recession and rent control will be over houses prices will be a bargain.
8) When the recession is over, if rent control will be extended for another 3 years, old will rot and the new will flourish. Most Germans will move away from the slums.
So if they pass a 3 year rent freeze to beat inflation will they also freeze council rates, water rates, property insurance rates and the wages and material costs of the plumbers and electricians that the landlord pays to maintain the rental?
Maybe the government can pay the difference between the current rental and the fair market rental over the next 3 years?
To properly fight inflation, you must pin a ‘WIN’ (Whip Inflation Now) button to your lapel. That’ll work.
“Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood”
Change the word rent control to Prop 13 and you essentially describe the housing issue in California as well. Prop 13 helped people in the short term decades ago but in the long run created 2 classes of people, those who pay next to nothing in taxes and those who pay market rates at the current market prices. Its why no one especially landlords want to sell homes to have their taxes adjusted to the modern levels.
Germany is nuts if it thinks 3 years rent control is going to help. Tenants may ultimately get evicted anyway if landlords can’t make their mortgage because they can’t increase the rent.
Our locality has rent control on already-existing housing, but encourages developers by exempting them from rent control for a number of years.
Thus, the developers are incentivized to have as high initial rents on their newer buildings, and this results in more inflationary pressures on middle class folk.