Why Berlin's new rent control law is a gift to the rich
This is a 6-minute read
“45 percent, imagine that!” said my friend, who we’ll call Adam. He was all smiles as he told me about the rent reduction he was about to get on the 140 square metres of prime Berlin real estate he shares with his wife and baby.
Adam is a beneficiary of Berlin’s rent-control policy - the Mietendeckel. While his landlord won’t be able to cover the interest costs on his mortgage anymore, Berlin’s left-wing government has set a rent it believes is fair for two high-income tech workers.
After a nine-month warmup during which only new rents were capped, the Berlin senate yesterday dealt the next (left-handed) blow to freedom of contract and right to property. Now every tenant renting an apartment built before 2014 will have their rent reduced if it is above the level set by city authorities.
Surging rents are the bane of metropolitan areas the world over. But few places have seen such dramatic increases as those in Berlin. In the decade since I moved here, rents have gone up fifty percent. It goes without saying that median wages have not kept pace. No wonder then that Berliners take to the streets to demand that their politicians do something.
I will readily admit though that I have never attended a Mietenwahnsinn demonstration.
While I wholeheartedly support the cause of lower rents, I neither agree with the protesters’ demands of expropriation à la GDR nor with the Mietendeckel, which is the most radical form of rent control Europe has ever seen.
The Mietendeckel is the brainchild of former Housing Senator Katrin Lompscher (die Linke) and is supported by both the Social Democrats and the Greens.
I’ll admit it - I googled Lompscher’s background in the hope of being able to fire a cheap shot at her lack of expertise. Then I learned that the ‘Non-Housing Senator’, as Tagesspiegel mockingly called her for her failure to actually build housing, is an architect with 30 years’ experience in city planning.
Lompscher resigned in August after being caught tax dodging. Her successor Sebastian Scheel doesn’t have such a fitting CV, but he is an economist. He should be familiar with the law of supply and demand, which stipulates that “as the price of a good (rent) decreases, the quantity of that good (available apartments) will decrease as well.” So it can’t have come as a complete surprise that (as anyone who’s been flat hunting in Berlin knows) the number of available rental flats has fallen by a staggering 40 percent in the last twelve months.
One apartment taken off the market is the one that I moved out of in April. My landlord shook her head when I asked if I could help find a Nachmieter. She wouldn’t be looking for a new tenant because the new rent would be too low. Instead of taking a bit of steam out of the red-hot rental market, she’d give the flat to her two teenage sons.
Perhaps it’s presumptuous of me, a high-wage Wahlberliner with a Swedish passport, to scoff at an attempt to curb rising housing costs that threaten the city’s social fabric. After all, people like me are apparently part of the problem.
But, as a Swede, I know a thing or two about what happens when politicians keep meddling with rents. Want a crystal ball to find out what will happen to Berlin’s housing market? Just look at Stockholm.
For over a century, politicians have tampered with rents in the “spiritual home of rent controls.” As a result, three distinct species exist on the housing market. There are the insiders, mainly elderly people lucky enough to sit on a cheap flat; they’ve figured out how to pass it on to friends and family rather than give it up. The owners are the wealthy who simply buy their housing. Then there are the outsiders - the young, poor, and immigrated; they pay punishing sublet rents on the semi-legal black market. You won’t be surprised to learn that inner-city Stockholm is a gentrified ghetto of high-income blondes...
That’s the thing with markets - regardless of what you think of them, they exist and cannot be artificially curbed. Like quicksilver, they just pop up somewhere else.
Berlin’s rents can only be manipulated in two ways - by reducing the demand for residential real estate or by increasing its supply. Do either and - like magic - rents will decline.
Believe it or not, Berlin’s politicians have spent a significant amount of time on the demand side; both the CDU and die Linke have suggested closing Berlin off to new entrants and tourists (!), instead of doing what they should be doing - incentivizing developers to build apartments, or do it themselves.
Lompscher and Scheel are no friends of free enterprise, so they probably count it as a success that private construction has ground to a halt; real estate developers are taking their business elsewhere rather than risk expropriation or collapsing finances as the result of forced rent reductions.
But the city isn’t building either. Two years ago the CEOs of Berlin’s state property companies lambasted Lompscher for slowing down construction with red tape and bureaucracy.
Before my friend Adam drove back to his rent-controlled apartment in his silver SUV, we talked about Berlin’s upcoming 2021 election. Given that the city government has succeeded in taking 40 percent of supply off the market, stifled private construction, and not met its own lofty construction goals - it’s a fair bet that housing will be a hot topic.
My former landlord will vote for one of the parties vowing to overturn what they see as an unconstitutional law. Adam, on the other hand, might actually vote for the party that looks after insiders like him - die Linke.
A.B.B.
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Who we are:
Jörg Luyken: Journalist based in Berlin since 2014. His work has been published by German and English outlets including der Spiegel, die Welt, the Daily Telegraph and the Times. Formerly in the Middle East.
Axel Bard Bringéus: Started his career as a journalist for the leading Swedish daily Svenska Dagbladet and has spent the last decade in senior roles at Spotify and as a venture capital investor. In Berlin since 2011.
Berlin is the de facto capital of Europe. In the normal way, rents would rise to equal those in Manhattan or London. It will be intetesting to see how the fight against that particular future plays out. Of course it can only play out with serious distortions of normal market equilibrium. One obvious result, as stated, will be that the number of properties offered for rent will decline, exacerbating existing shortages. It might make more sense for the Berlin authorities to require all new developments, no matter how luxurious and up-market, to include a proportion of social housing. And to build more.
Very good analysis. Refreshing to see such comments in Germany, where most of the press has gone strange ways to the left.