Rent caps are back as Berlin forgets the lessons of economic history
IIt is a painful and tantalising fantasy at the end of the month to imagine one could click one’s fingers and find prices miraculously lowered.
Like winning the Lottery, our material woes would disappear.
Jeremy Corbyn held out this promise to voters - instead of clicking fingers, simply place an ‘X’ next to the Labour candidate, and he could come in and lower rents. Higher wages were also on the menu for good measure.
History tells us this is foolish and self-defeating: when rents are capped, landlords stop investing in their properties. If they cannot pass costs of maintenance on to tenants, they stop maintaining the property.
Rental life deteriorates, and renting becomes associated with poverty and misery.
These lessons are forgotten rapidly, and perhaps understandably by renters who are either young or pressed by high bills or both.
As a result people regularly fall for it.
Its planned cap is being introduced because “we don’t want to end up like London”, in the words of the country’s finance minister.
The scheme caps rents based on a combination of factors including historic rents and wage rises. It applies to pre-2014 properties, stopping landlords raising rents above a set level and potentially allowing tenants to get their current rents lowered, with a focus on those whose current rents are more than 20pc above the incoming cap.
Economists at the Ifo Institute have studied the market and discovered the radical extent of the scheme: rents on 96.7pc of all apartments on the market are above the cap.
In more than four-fifths of all cases, they exceed the cap by more than 20pc.
This has already affected rents in the city, which are rising more slowly than those in other regions.
By contrast rents on newer properties are surging ahead, as they will not be controlled by the rules.
It typically means expensive and fashionable apartments are more expensive than ever. Less desirable properties will only become more so, as landlords investing.
Once the cap kicks in, the economists expect a flood of sales of flats as landlords find continued ownership is not worth their while.
That means fewer opportunities for tenants to rent price-controlled property, pushing them towards either ever-more poorly maintained flats, or the increasingly expensive areas without controls.
Congratulations to the Berlin authorities for trashing their fine city’s property market with little gain to anyone.
Britain had a lucky escape from rent controls when voters wisely rejected Corbyn, handing Labour its worst defeat since 1935 in December’s general election.
London has not dodged it yet - Sadiq Khan wants more power over tenants’ monthly bills, and is expected to make the policy a cornerstone of his mayoral reelection campaign later this year.
So the German capital’s example should be instructive: rent caps are no kind of solution.
They merely address one bad policy with another, piling mistake upon mistake.
Property prices and rents in London are high because of a lack of suitable properties in the right places, caused by ludicrously restrictive planning rules and an inflexible transport network.
We need to build more homes. Slapping caps on rents does nothing to cure the problem and end up making its symptoms worse.
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