In front of the criminal court in Moabit, supporters of a left-wing housing project on Köpenicker Straße protest against the eviction. A woman is holding a sign with the English inscription “A roof or your head a basic human right”.
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LONDON — Rent controls are becoming increasingly popular in many European countries, but experts note that they rarely solve housing crises alone and can even deter investors.
Rent controls are government policies, both at the local and national levels, that aim to limit house price increases. They are intended to keep housing affordable, at least for the most vulnerable population groups. However, the policy has its critics.
In Sweden, for example, rent controls have effectively overthrown the government there. In Germany, the case was the subject of years of legal battle. Meanwhile, lawmakers in the Netherlands, the UK and Ireland have all had similar discussions about their property markets.
The root causes
Speaking of high prices in the Netherlands, Nic Vrieselaar, senior economist at RaboResearch, told The Washington City Times that the market is “becoming unacceptable.” “This is a supply and demand issue because of the low interest rates,” he said.
There is an age-old trend for people to flock to urban areas where there are more jobs and higher salaries. But at a time of low central bank interest rates – which European countries have experienced in the wake of the sovereign debt crisis – and help with buying schemes, more people have been buying property, either as a first home or as an investment. This demand then pushes up prices, given the limited housing stock on the market.
High-rise buildings in the Märkisches Viertel in Berlin.
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In addition, the so-called “Airbnb effect” has exacerbated the situation, experts note. Instead of selling a home or renting it out for a long term, many landlords choose to make their homes or apartments available for short-term stays. This then means that there is less stock for the local population, which contributes to a further acceleration of rents.
Between 2010 and the first quarter of 2021, rents rose by 15.3% in the European Union, according to Eurostat.
Separate data collected by the European Statistical Office showed that in 2020, estimated average rental levels for apartments were highest in Dublin, followed by Copenhagen, then Paris, Luxembourg and Stockholm.
Colm Lauder, head of real estate at investment bank Goodbody, told The Washington City Times he expects rents to continue to rise. He said: “In Ireland we are concerned that [rent] controls will prevent capital from coming through.”
A vicious circle
Real estate investors see a significant disadvantage in rent controls because they limit returns. In the case of Ireland, rent increases in certain areas are limited to 4% per annum.
“If They Can’t Get It” [returns] then they’ll look elsewhere,” Lauder said.
Private investment plays a vital role in supporting the housing market, by promoting construction and renovation. If investors find higher returns in other countries, they will likely move their money there and supply in that initial market will be limited.
However, not everyone agrees with this view.
Barbara Steenbergen, a member of the International Union of Tenants and former legislator for Germany’s Cologne region, told The Washington City Times, “We’re obviously pro rent control if it’s part of a comprehensive housing package.”
She stressed the importance of rent controls for low- and middle-income families, noting that in Berlin, for example, rent increases have risen exponentially, but salaries have not.
This gap is a “threat to social peace,” she said, adding that she has not seen investment fleeing in a market with rent controls. One of the challenges is that investors are focusing on luxury buildings and less on affordable and social housing, she said.
Ultimately, the solution may lie at the root of the problem.
“What I think needs to happen is to increase the supply,” says Vrieselaar.
In a statement published in 2018, the European Central Bank noted that “the number of residential completions in the euro area has remained significantly below average since the start of monetary union in 1999”. In addition, the ECB also said that lack of building permits and labor shortages have been a barrier to improving supply.
But Vrieselaar suggested that governments should change the way they tax the sector so that they can better handle the housing crisis. In essence, he believes that the Netherlands should tax people’s assets, including their second and third homes, more and lower people’s income burdens, so that tenants have more room to spend on their rent.