Rent Caps: A Benefit or a Curse? – Liberal Article
Berlin’s recent implementation of the second stage of their rent caps has seen widespread support throughout the city; over 70% of Berliners support the legislation. With this legislation, landlords are now not allowed to exceed the caps by 20%. The Guardian estimates that this will affect over 365,000 homes, with der Spiegel suggesting 512,000.
Rent caps attempt to create affordable housing in places where living costs are overbearing. Berlin has seen a rise in privatisation of social housing, along with an increase in other living costs. The move by the government has created a short-term method to produce affordable housing. This has been especially pressing during the pandemic.
The problem with rent caps is that it is a double-edged sword. On the one hand, it prevents landlords from charging an excessive amount due to the high demand. German Sociologist, Andrej Holm, says that since 2009, rent has risen by roughly 40% in existing residences and 65% in new residencies.
These numbers are ludicrous. How is it fair that one must sacrifice such a large sum simply to have a roof over your head? The caps will prevent landlords from abusing the rising demand to live in the popular city.
However, this does come at a price. One could argue that landlords are simply playing the system; capitalism. If there is a rise in demand, it is fair to increase the price to reach the equilibrium. Many believe that it is okay for large corporations to make profits. Landlords are simply doing their job.
In addition, the ability to abuse the rent caps should not be underestimated. Those who can afford to buy a house or apartment that is not under the new restrictions have little incentive. Why would they buy when they can save money by renting an eligible property?
The means the rent caps are doing the complete opposite of what they set out to achieve. It would allow the already wealthy to keep their money whilst those who already struggle financially suffer. Although rent caps are the first step, it needs to be based on who is eligible, rather than which property.
Germany’s rent caps have also sparked debate here in the UK. In my opinion, implementing UK rent caps would have the same outcome. London especially. Being a financial hub for some of the largest corporations in the world, it is home to an incredibly competitive housing market. According to HomeLet, in 2019 the average price to rent in London for new tenancies was £1,665 per month (an increase of 3.1% since the previous year).
As we see a rise in costs of living, it would be fair to insert rent caps, to make it more affordable for those who need it. But as I mentioned earlier, what would prevent the wealthier from abusing the system? We cannot rely on ethics in a city (even country) that prides itself on competitiveness.
Another large factor is the number of private housing to rent. Since 2000, the proportion of households that are ‘rent on the open market’ rose from 15% to 27%. To convince so many landlords who are able to use the free market – which is their right – to switch would be extremely difficult.
I know this article may make it sound like I disagree with the concept of rent caps. I don’t, I believe that they are beneficial if monitored properly. The problem is that they are a concept that needs work. We cannot rely on the decency of people.
Written by Senior Liberal Writer, Charlie Papamichael
Point of Information
Rent caps are a tricky one – A Conservative Response
I enjoyed reading my colleague’s article about Germany’s implementation of rent caps in Berlin. I also appreciated the critical approach taken in the article with regard to the policy.
Despite this, I am not sure I completely agree. Although I do see the benefits of rent caps in protecting low-income urban populations from process such as gentrification, I feel the flaws outlined by Charlie do out-weigh the potential positives of rent caps.
I also question the fairness of the scheme overall. Landlords should be able to make a profit off of renting good quality houses fairly to people. By reducing their income, it is making their own lives more difficult. If landlords in Berlin cannot make it viable to continue leasing properties under the new rent caps, then surely the policy has solved some problems whilst creating others.
Unlike Charlie, I believe in ‘the decency of people’ as he describes it. Not to say all landlords are honourable, just like not all tenants are respectable. But empirically, I have found that it is the more ‘decent’ landlords who tend to do better.
Thanks to the freedom of choice within capitalism, potential tenants are able to choose the landlords who offer the best quality housing and lowest prices. It is the exact competitiveness that Charlies critiques that actually means landlords have to offer a quality service for fear of being beaten by competitors and being left penniless.
Although the new rent caps in Berlin do not affect all properties, I feel that anything which restricts one’s ability to be an entrepreneur (working morally and legally within our current economic system that is) is questionable.
I do not agree that such large umbrella policies such as rent caps work well in each individual case. The real solution is addressing injustices landlord by landlord. Rent caps can mean hardworking honest landlords are less well-off for doing nothing wrong at all.
Overall, I am mixed over rent caps, and do not feel they are the best solution in protecting vulnerable urban populations. I did appreciate Charlie’s article but cannot agree with him on every point. I would like to see what happens in Berlin before I consider it ever being implemented across the Channel, here in Britain. If it proves successful, I am happy to reconsider my position.
Written by Senior Conservative Writer, Peter Pearce
If you’re going to do it, do it right – A Labour Response
As both Peter and Charlie have reflected in their writing, rent caps are complicated concepts; it is difficult to have a straightforward opinion on them. As a young, soon-to-be graduate, I am at the bottom of the housing food-chain. The horror stories many of my mates tell of how they are treated by landlords, even as students, are appalling.
I am incredibly lucky as London is home for me, so I have the fall-back option of living at home (sorry mum and dad!). But for many, this is not possible. Most young people in London are spending more than half their income on rent. Furthermore, the average monthly private rents increased by 35% between 2011 and 2018 in London. How is this sustainable? Rent caps provide the financial stability needed by renters. There is no possibility of saving or planning ahead for the future with the constant threat of rent rises.
Many compare London to what we’re seeing in Berlin. However, I do not think the housing situations are comparable. Germany has one of the lowest homeownership rates in Europe, standing at 51%. In Berlin alone, 85% of homes are rented. Research from the German Institute for Economic Research has shown that Germany has recently experienced enormous rent increases, with rises of at least 4% each previous year. As such, it is understandable that short-term relief needs to be provided to the desperate renting population.
The reason Berlin has experienced such ruthless increases in recent years is due to the majority of properties being owned by estate institutions. This is not the case in London. Instead, “the overwhelming majority of landlords in England own one property”, says a report investigating the impact of such measures on London’s housing market.
Therefore, as Charlie points out, one should not expect rent caps to be effective in the UK in ensuring a fair market. San Francisco provides a useful case study to demonstrate this. Rent controls were introduced in San Francisco in the 1970s and then tightened in the 1990s. However, these measures caused many landlords to convert their properties into expensive, luxury accommodations to avoid the caps. These controls also helped accelerate gentrification. Landlords would demolish their older properties in favour of new builds as they were exempt from the limits.
Looking at San Fran, researchers found that between 1994 and 2010, rent-controlled properties saw their tenants pay roughly $2.9 billion (£2.3bn) less in rent, but at the expense of new renters. Those who came to the market slightly later paid an extra $2.9bn over the same period, mainly due to the shortage of standard housing.
Thus, it is clear that rent caps are helpful for existing tenants in areas with fast-rising rents, and often provide short-term protection from the cycle of displacement and eviction. However, this comes at a price. Why should new renters pay for the current ones?
On top of this, it hasn’t even proven to be effective! A University of Cambridge study found that minor rent control measures, like a three-year rent freeze on existing contracts, would not make any difference in affordability. It concluded that real change required far more radical measures, such as setting rent at two-thirds of the current market value. Unfortunately, these measures would surely prompt many landlords to sell their properties.
Thus, if rent caps are implemented, landlords should not be the ones to carry the full cost of it. Government subsidies or tax credits must help renters absorb the price increases. I am all for greater regulation, especially of the housing market. But in this case, we cannot afford half-hearted attempts. It must be either all or nothing.
It is clear that rent caps are no friend to the renter if not well implemented. I absolutely hate the idea of people being held captive by basic living costs. It is disgusting the amount that landlords can demand. However, if rent caps are to be implemented, they need to be done right. Government aid would be desperately needed. Otherwise, I fear more harm than good would come of it.
Written by Senior Labour Writer, Abi Smuts