Episode 168: Rents Gone Wild: Spring Break!

Previously in Europe

• Episode: Episode 168: Rents Gone Wild: Spring Break!
• Website: Previously in Europe
• Feed URL: http://simplecast.com/podcasts/2120/rss
• Duration: 00:54:59
• Published: 2020-02-17 18:20

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## That would be nice

### Rent Control

Repeatedly in European elections and at more local levels the need for increased rent regulation or some form of temporary controls to balance out a difficult housing market: - Irish election 2020 this was a major issue with Sinn Féin using it as their main issue - London's mayor is talking about it heavily now as he's up for election in May - Berlin legislature passed a freeze which is now in effect (https://www.dw.com/en/berlins-new-rent-freeze-how-it-compares-globally/a-50937652) - Spain brought in new rules for contract length minimums and yearly increase caps (https://english.elpais.com/elpais/2019/03/04/inenglish/1551692513\_394392.html, https://www.bloomberg.com/news/articles/2019-05-28/spain-s-most-aggressive-rent-controls-may-soon-hit-barcelona) Overall the regulations vary wildly across Europe. In the UK there's barely any, in Spain their starting point was already comparatively long minimum contract lengths to protect renters.

### Sounds like its necessary, no?

Well my friend, don't you read the economist? They'd say, and it would be parroted by politicians from Ireland to Germany to.. eh.. Zagreb I'm sure, that rent controls don't work

https://www-economist-com.libproxy.kcl.ac.uk/leaders/2019/09/19/rent-control-will-make-housing-shortages-worse

"Rent controls are a textbook example of a well-intentioned policy that does not work. They deter the supply of good-quality rental housing. With rents capped, building new homes becomes less profitable. Even maintaining existing properties is discouraged because landlords see no return for their investment."

"The mismatch reduces economy-wide productivity. The longer a tenant stays put, the bigger the disparity between the market rent and his payments, sharpening the incentive not to move."

https://www-economist-com.libproxy.kcl.ac.uk/europe/2019/07/20/europe-embraces-rent-controls-a-policy-that-never-works

"Critics argue that instead of trying to fix prices, cities should allow more homes to be built. Sebastian Czaja, an MP for the Free Democratic Party in Germany, says Berlin needs “a construction offensive”. The city has grown by about 50,000 people a year since 2011, but added only 10,000 new apartments per year. "

### An obvious logic gap?

This argument is making some clear assumptions:

- People will only build houses if they can make huge profits on them
- If you let them build whatever they want it will serve the market
- There are people available to rent/buy what developers want to build

To get there you have to ignore all the reasons why rent controls have been brought in for most of these places - people can't afford the rent increases because their salary doesn't increase.

Some other things that have to be ignored for a low regulation building frenzy to work:

- Luxury accommodation is more profitable and there is a focus on building more of that if possible, eventually selling that will earn you more money.
- All other rent control systems failed/had issues only because controlling rent is bad, rather than a loophole (https://www.bbc.co.uk/news/business-47028342) - There is available space to build rental stock everywhere
- People aren't interested in protecting existing local populations
- Building to produce only rental stock is a good thing...

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### It does raise the issue of what works and how to sell it?

You can get stuck in the loop Fine Gael spun during the Irish debates on this last year: "there's no evidence this won't decrease stock", etc.

Like most policy I think there's some good rules to go by:

- Make it as universal as possible, loopholes arise from complications
- Needs to be paired with social housing policy where possible
- Needs to be paired with other housing policy to protect people: e.g. minimum standards, discouraging empty housing

This isn't a terrible starting place - https://www.generationrent.org/rentcontrol

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