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BERLIN, GERMANY - April 10, 2020: Panoramic view of a still occupied East Berlin house since 1990, contrasting next to a modern constructed residential building.
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BERLIN: A CASE STUDY IN RENT CONTROL
The U.S. is not the only country to witness a renaissance of rent control, a policy an overwhelming percentage of economists say is harmful. In February 2020, Berlin introduced the so-called “Mietendeckel”—a “cap” on rent—to keep Berlin from becoming the next London or New York, cities where pricey rents have driven out many lower- and middle-class residents. The rent caps did not apply to everyone, however. They applied to properties built prior to 2014, freezing rents at June 18, 2019 levels.
The right answer to a housing shortage would be to increase supply — for instance, by cutting red tape in zoning and construction. Like in the U.S., Berlin’s rent control policy was driven by a legitimate problem. Rent prices had soared in recent years, the product of surging housing demand and constrained supply. This was a problem for Berliners, a city proud of being “grungy and affordable.” (It should be noted, however, that rental prices in Berlin remain modest compared to the most expensive cities in the world and are about 50 percent lower than New York.)
What Was the Solution? “The right answer to that [Berlin] shortage would be to increase supply — for instance, by cutting red tape in zoning and construction,” wrote Andreas Kluth, who has covered Berlin’s housing issues for Bloomberg. Instead, Berlin opted for rent control, a policy Swedish economist Assar Lindbeck once observed is the single most effective way to destroy a city “except for bombing.” (Though some have noted that rent control destroyed Hanoi more effectively than U.S. bombs.)
Well, a year later, and the results of Berlin’s experiment are in. “After a year, Berlin’s experiment with rent control is a failure,” The Economist declared Tuesday. “Rents may be down, but so is the supply of homes.” In fact, as Bloomberg puts it, if you’re looking for a place to live, “good luck finding a flat.” Housing supply has shrunk and many landlords have reportedly exited the market, making the shortage much worse.
“The number of classified ads for rentals has fallen by more than half,” The Economist explains. “Tenants, naturally enough, stick to their rent- capped apartments like glue. Landlords use flats for themselves, sell them or simply keep them empty in the hope that the court will nix the new regulation.”
But there’s more to the story. Kluth points out that by exempting some units from its rent cap, Berlin (rather predictably) essentially created two housing markets. “Unsurprisingly, the rent controls have split housing in Berlin into two distinct markets: the much larger one, consisting of all apartments built before 2014, which is now regulated; and the smaller unregulated one of relatively new buildings.”
Citing new research from four economists at Munich’s Ifo Institute, Kluth shows rent prices have surged in the unregulated market, rising faster than the average growth in the 13 next-largest German cities. “Newly built apartments have therefore become even more unaffordable for most people,” Kluth observes.
A HISTORY OF FAILURE
Hearing Theresa Dolata express fear about being
APARTMENT MANAGEMENT MAGAZINE - AUGUST 2021 CS-37