Are rent brakes antisocial?

Do rent brakes have a counterproductive effect? Are they – again, knowing better – just a populist fig leaf to avoid having to actually solve the problems?

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The idea is good

Rent brakes are a well-intentioned idea. And it is also necessary, in my view, that we avert the threat of division in our society. And help small and medium incomes in particular to get out of the “housing” cost trap again.

And now one could – also for good reasons – also hold the conviction that “living” is just like “driving” a necessity for which the state as a community must at least have an ordering function. If necessary, it would even have to create the infrastructure if the market does not take hold. Or just failed.

The devil is in the details

There are many approaches, such as the extreme case of “socialization of property,” which recently came closer in Berlin as a result of a referendum that is not binding on the Senate, to bring the state back into a stronger power role. Or less extreme, but basically just as much an encroachment on property rights, the various rent brakes that countries and states in Europe are currently trying.

What exactly is the cause of the housing shortage, primarily in urban centers? That’s right, more people need housing. As living space is available. And why is that?

  • Inflow from rural regions and migration movements
  • demographic developments (more single households, more micro households)
  • Weekly commuters need housing to be at work at least part of the week
  • in popular locations, the luxury market subtracts residential space that is rarely used

Looking more closely, the first trend is starting to change again since Corona. People are increasingly moving to the suburbs again, and land prices there have risen sharply. However, this applies mainly to families with rather higher incomes. The demographic development and also the weekly commuting bring other problems, namely here other housing types and forms are sought. Micro-apartments. Barrier-free living. Living with concierge. Living with Workspaces are keywords that come up frequently.

At the same time, building regulations have become massively stricter in the last ten or more years. Escalating fire safety regulations, energy-efficient construction, etc. simply make building more expensive.

And then there was inflation

If we now add the explosive rise in material costs in the construction industry, we have long since arrived at a massive inflation that only the statistical basket of goods does not reflect. Opium for the people.

The dream of owning your own home? For the middle class in metropolitan areas, this has long been a dream!

We used to have programs in which socially subsidized housing was built by private investors who received low-interest loans in exchange for long rent control of the subsidized housing. This worked well as long as the general interest rate level was higher. But since all the world’s federal banks have been unabashedly printing money and buying up junk paper, capital has – oh wonder – discovered concrete money in its search for a safe haven.

As a result, the factors for multi-family houses, by which experts refer to the factor between the annual cold rent of a building and its purchase price, increased from the previous 7-10 to 25-50. The returns, i.e. the profit on the capital invested, decreased accordingly from around 8% to around 3%. Sure, it’s better than penalty interest on a bulging account. But basically – after costs of management and repair serious calculating landlord, no longer a business.

What concepts of rent brakes work?

There are a few mechanisms of rent brakes across Europe that I’ve looked at. And with Allen, it’s very easy to explain why they don’t just have to fail. But rather achieve the opposite of their well-intentioned goal.

Income-dependent rents

Perhaps the craziest idea came – of course – from Berlin. In the first approach, an attempt was made to link the rent brake to the fact that a certain proportion of the tenant’s income would not be exceeded by the rent. Nice thought. But what would that logically have led to? That landlords would have accepted only higher income tenants for their apartments. And that would really be the most antisocial effect that a rent brake could have.

Rent prices are fixed at a rent index

Probably the fairest idea there can be in theory. Unfortunately, very costly in terms of data collection and implementation. Many countries, many cities still do not have a rent index. And since the devil is in the details and the statistically ascertainable premiums for higher-quality fittings are only very small, this form also leads to the fact that the further scarce living space is neither extended nor renovated. Because there is enough demand. And the price is capped. The only beneficiaries are the tenants of luxury apartments, whose apartments suddenly become cheaper. And that is really an antisocial consequence of a socially intended regulation.

Rent increases are temporarily “suspended

Basically not new at all. Because rent increases have been allowed only marginally for years in all the rental legislation I know of in Europe. Or justified by more extensive renovations, depending on the country. In fact, the stock of old contracts would be “protected” here. But what neither helps the one who pulls. Nor to the one who wants to downsize, for example, for age reasons. And finds that the 1 room apartment in the new lease costs more than the 4 room apartment of his old contract. But basically a good idea? Yep. It does not create housing… But at least does less harm than the other measures.

What does the capital do?

As the saying goes: water finds its way. Capital too.

Think of our politicians as a group of amateur hunters racing through the woods with clubs to kill a rabbit.

Rent brake fails
Mietpreisbremse fails (Sources: mietercoach.de, fotolia.de, Author: bluedesign)

The discussions about expropriation and rent controls alone have caused investment projects to be reconsidered. Or that instead of a normal apartment building, a boarding house was rather built, which is not considered by the Mietpreisbremse. Or that only commercial tenants were accepted by landlords. Or that eventually luxury apartments were built and sold. Instead of creating real housing. So: no matter which rent brake was implemented no matter where. Always, the creation of affordable housing was further reduced.

So: the social explosives are there. And it’s not getting any better. It is not acceptable that millions of households in Germany have to invest too much of their income in rent. However, it is also not acceptable that a purchase is no longer an option for precisely these households. Nor is it acceptable for savings to be penalized and poor management to be rewarded.

So what to do?

The simple answer is: build. Demand-driven. Economical. With incentives. For All.

We need to provide relief for small incomes. It is always argued here that the tax burden on low earners is low. Theoretically also true. Only it is pretended that the costs of the social systems, which have been capped by law at 40% for employers and employees together, are not taxes. How antisocial is that? We force small and medium earners, of all people, into a system that increases their labor costs by 40% and then claim that it would be social if the progression in the tax rate starts a few thousand euros higher up? At the same time, the actual tax burden is higher by exactly these 40% points! And the higher earners such as self-employed entrepreneurs or executives and just as all civil servants are exempt or can be exempted.

Absurd! This burden must be shared more broadly. In my opinion, we need a citizens’ insurance. And I am sure that every high earner would have to join in here just out of a sense of justice and logic. And we don’t need 40 different health insurance companies, which are virtually nationalized anyway. One is enough. Which manages better. No money wasted on marketing. And has a unified management.

And with the air gained for small and medium incomes, wealth accumulation must be made possible for precisely this stratum of society, which has made Germany strong and will hopefully make it strong again. It is precisely private provision, which in the end also prevents pensions that are too small in the interest of all, that must be promoted. And why shouldn’t real estate investment trusts or cooperatives be just as eligible as life insurance? If we can spread the product “letting” over more shoulders again, then building will become worthwhile again. And if subsidies flow into society on a broad front and a broad front participates in asset accumulation, then this asset accumulation will also become socially acceptable again.

I have started a small collection of links on the topic that I found while doing some research: (last update: 10/12/2021)

Wikipedia (Source: wikipedia.org, as of 10/12/2021):

“Rent control” (also rent freeze, rent freeze or rent brake) is a mostly governmental fixing of rents through legally standardized maximum prices or a prohibition or restriction of rent increases under residential leases.

In 2016, 14 of the 36 OECD countries had some form of rent control in place,[1]

including four states in the United States.[2]

Rent control is one of several proposed measures for creating affordable housing, along with social housing, or housing subsidy payments.

There is a scientific consensus among economists that rent control reduces the quality and quantity of rental housing units.[3][4][5][6][7][8][9]

The Mietpreisbremse does harm (Source: H.A.Z., as of Aug. 20, 2019) [leider teilweise hinter Bezahlschranke]

here are two older articles:

Misconstruction Mietpreisbremse – Concept only works for luxury apartments (Source: rbb online, as of: 21.11.2013 )

The price spiral on the housing market remains unchecked (Source: WirtschaftsWoche online, as of: 22.09.2015)

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