Experts say we need to make it easier to build new homes.
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Complaining about steep rent in major cities is as original as leading a conversation with “well how about that weather?”
But knowing there’s a housing problem and knowing how to fix it are two different things, and sometimes well-meaning efforts to keep rents down end up backfiring.
Take Berlin, for example, where the housing market has been popping off: The average residential rent this June jumped 16% from last year, per real estate firm JLL. The desirability of Europe’s rave capital is the main reason why average rent in Berlin has nearly doubled since 2014, as people from all over the world are drawn to its economic opportunities and cultural amenities. But a recent Wall Street Journal analysis suggests Berlin’s bureaucrats, who imposed restrictions intended to keep prices at bay, are also at least partially to blame.
So, what went wrong in Berlin and what can other cities learn from it?
The Berlin approach
The German capital has imposed drastic restrictions on rent hikes and luxury upgrades to keep the number of bougie condos with granite countertops and basement gyms to a minimum.
- Homeowners must navigate a bureaucratic obstacle course to make upgrades to their dwellings. One landlord told the WSJ that the city once asked him to replace a toilet that officials deemed too fancy.
- Landlords are forbidden from splitting their buildings into multiple condos in an effort to prevent existing tenants from getting pushed out, not renewing a tenant’s rental contract is difficult, and there are caps on rent increases for tenants re-signing their leases.
Why didn’t it work? Many housing experts say this crackdown on landlords is part of the problem rather than the solution since it stamps out the profit motive for developers to supply more housing.
Plus, while the rules have kept rents stable for longtime tenants, rents have soared for people just moving in, and many skirt the formal lease process by making verbal contracts. That’s why critics say Berlin should focus on making it easier to build more homes rather than regulating the existing ones.
How do you keep rent affordable?
Housing advocates say Berlin can learn from Minneapolis, whose leaders have encouraged home construction. The city came in at No. 11 in a ranking of 51 major US metros by the number of housing units built per dweller last year, according to Bloomberg. This is likely the reason why Minneapolis’s average rent has grown just 1% since 2017, compared to a 31% increase nationwide.
To help spur new housing stock, local governments should avoid putting too many restrictions on the construction industry, experts say. Jason Ward of the RAND Center on Housing and Homelessness told Morning Brew that burdensome project approval processes and restrictive zoning rules that ban multifamily housing make building affordable homes not economically feasible for developers in his home state of California. He says the current system caters to “single-family homeowners, who really don’t want anything that might threaten the value of [their] wildly valuable homes.”
One success story: When Auckland, New Zealand, loosened its zoning rules in 2016, it was able to keep rents from growing fast. The construction that followed benefited not just the residents of brand-new luxury cribs, but also the most modest tenants, as inflation-adjusted rents for the cheapest 25% of apartments in the city have stayed flat since the reform.
What about gentrification? The Auckland experience might reassure skeptics worried that new residential construction could displace existing residents by making a neighborhood look prettier and thus pricier. Housing economists say it's not the only evidence that even luxury housing can keep rents in the nearby area stable. That’s because supplying high-end renters with new housing options makes them less inclined to compete with others for limited square footage.
Governments can do more than just get out of the way. Many experts say that the government should play an active role in bolstering housing supply by providing subsidies and ensuring that affordable options get built. Some point to Vienna with its abundance of affordable government-owned or subsidized housing and favorable construction laws, which prompted the New York Times to liken it to a “renter’s utopia.”—SK
This article was originally published by Morning Brew.
