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Market & Figures

Rent caps are not improved tenant protection
Overregulated residential markets are bad for tenants – as shown by these three examples
Rent caps are not improved tenant protection
Overregulated residential markets are bad for tenants – as shown by these three examples
Some political actors in Germany continue to call for a rent cap, even though it has been declared unconstitutional. And they call for even more measures. But tougher regulations do not automatically mean more protection for tenants, however, and they can actually have devastating consequences for rental markets. This can be seen from three international examples, which we in Germany should on no account use as role models.
Apartment house

Lisbon – standstill for decades and then a price explosion

There is scarcely any other city in the world that has suffered the consequences of rent caps to the same extent as Lisbon: in 1947 the then dictator of Portugal, António de Oliveira Salazar, proclaimed a rent cap, which remained in effect in its original form until the end of the 1980s.

The main consequence of this was that the most beautiful pre-war inner-city apartment buildings fell into rack and ruin, with some of them even collapsing. In Portugal we saw that the long-term consequences of such a market intervention can be unpredictable. Once a rent cap has come into effect, it can only be removed with difficulty. In this manner, possible rent increases were coupled to the rate of inflation for a further twenty years.

It was not until 2006 that the markets were gradually deregulated. With positively explosive consequences: according to official reports by public agencies, alone between 2013 and 2017 rents rose by a massive 71 % – whereby this was merely the long overdue market correction. For many residents the situation was nevertheless devastating.

New York City – perhaps the longest-standing rent controls worldwide

New York is a city renowned the world over for its rigorous rent controls. Originally introduced in 1943 as a measure to counter inflation in times of war, the subsequent legislation is still in effect. In the following decades the regulations were alternatively relaxed and tightened, whereby it is above all the Rent Stabilization Law passed in 1969 by John Lindsay, the then mayor of New York, which is of significance.

As a result, entire boroughs such as Brooklyn, for example, fell into disrepair and became problem areas. It is striking that the crime rates in these districts also soared to extreme levels in the 1970s. It was only in subsequent years that the regulations were gradually relaxed. From the start of the new millennium onwards the proportion of unregulated apartments increased from about 32 to around 43 %. 2019 ultimately saw another U-turn, however – since then there has been a significantly tougher rent cap in place. Whether this will be good for the people of New York remains doubtful.

unrenovated room

Stockholm – start-up doldrums due to rent cap

In the post-war period Stockholm was to become a veritable Eldorado for tenants: it was intended that everybody would be entitled to an apartment of a high quality, regardless of their background or income. The restrictions that passed into law at that time are still in effect today.

Unfortunately the objective was never achieved: according to research conducted by the Swiss newspaper NZZ, residents of Stockholm can wait for as long as ten or even twenty years for such a regulated apartment once they have officially registered. The consequence of this is that above all people with an immigrant background and young adults are at a clear disadvantage when looking for an apartment. Those who have been able to conclude such a lease agreement, in contrast, rarely give up their apartment – even if it no longer suits their lifestyle.

According to NZZ this has even had an impact on Stockholm as a location for start-ups: young high potentials from all over the world would actually have ideal working conditions in the Swedish capital. But they shy away from the enormous difficulty of finding an apartment and prefer (at least for the time being) metropolises such as Berlin.

 

Germany – expropriation and mortgage profit levies are not new

 That a state with an undemocratic structure such as the German Democratic Republic, which was better known as East Germany, expropriated its citizens is hardly surprising. After the Second World War the victims of this were initially the major landowners, but later also apartment owners. What very few people know, however, is that there was also considerable intervention with respect to privately-owned owned property in West Germany. Thus, for instance, the first federal chancellor of Germany, Konrad Adenauer, imposed a mortgage profit levy on West German apartment owners in the years 1949 to 1952 in the framework of the so-called Equalisation of War Burdens Act. Half the value of a property was to be paid to central government and entered as a lien on the mortgage, with payment taking place over 30 years – a very long period of time, in which the respective property was only marketable to a limited extent.



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