Rent controls have split housing in Berlin into two distinct markets • Hacker News Board

Re: Rent controls have split housing in Berlin into two distinct markets

#511

Post by kelnos » Wed, Mar 03, 2021, 3:12 AM UTC

freyir wrote: post #423

Xylakant wrote: post #312

Earlier quoted context omitted.

A counterexample is Vienna, which utilizes a well balanced system of rent-control and social housing to have incredibly low rents and still a stable supply of flats. One tweak they apply is that rent-control does not apply to new developments, so creating new flats is more lucrative than turning old buildings into luxury developments. The city also acts as a competitor, driving prices down by offering cheap flats. Th…

San Francisco also applies rent control only to older buildings. The effect is that developers only build top-of-market “luxury” housing (often cheaply constructed it rented at luxury rates). This helps them recover their development costs, which they couldn’t recoup on affordable housing.

I don't think that's the cause. The reason developers only build luxury housing is because:

1. Land zoned for more than a single-family home or just a few units is relatively scarce and thus expensive.

2. The planning process is ridiculously long, which means:

2a) They need to pay property taxes on the unimproved land for much longer without any income, and

2b) Investors expect a certain % return per year, so a longer amount of time between the investment and sale means you need higher prices.

3. Nearly every development project faces lawsuits from NIMBYs, and lawyers are expensive.

Remove rent control and we'd still have the same situation with new development.

Re: Rent controls have split housing in Berlin into two distinct markets

#512

Post by busterarm » Wed, Mar 03, 2021, 3:25 AM UTC

Ahh, once again the single most divisive topic on Hacker News. Where contempt for the rich and contempt for the poor battle with the same points of view.

You think we'd learn.

Re: Rent controls have split housing in Berlin into two distinct markets

#513

Post by kelnos » Wed, Mar 03, 2021, 3:26 AM UTC

refurb wrote: post #454

austhrow743 wrote: post #441

Earlier quoted context omitted.

I don’t understand how those things impacts each other. Are you saying that if old buildings didn’t have rent control then developers would build less profit maximising buildings?

If you only have 15 years of free pricing, then build the housing with the highest short term margins possible. If you have free pricing in perpetuity, then you can build housing that might have a lower margin near term but an overall high NPV over its lifetime.

> If you only have 15 years of free pricing

What do you mean by that? Rent control in SF only applies to buildings built before mid-1979. New buildings built today, whether low-end or high-end, will not be subject to rent control now, or in 15 years.

There was a 2020 ballot initiative to change that so buildings older than 15 years old could be subject to rent control on a rolling basis, but IIRC that failed. (And even if it had passed, that wouldn't explain the last 10+ years of predominately "luxury" building.)

Re: Rent controls have split housing in Berlin into two distinct markets

#514

Post by kelnos » Wed, Mar 03, 2021, 3:28 AM UTC

elihu wrote: post #425

Xylakant wrote: post #312

Earlier quoted context omitted.

A counterexample is Vienna, which utilizes a well balanced system of rent-control and social housing to have incredibly low rents and still a stable supply of flats. One tweak they apply is that rent-control does not apply to new developments, so creating new flats is more lucrative than turning old buildings into luxury developments. The city also acts as a competitor, driving prices down by offering cheap flats. Th…

Are new buildings exempted from rent control permanently, or just for a limited time? The latter seems like it would be a workable system: incentivize new buildings by allowing the owners to charge whatever rents the market will bear for the first 10 or 20 years or so, then eventually they revert to rent control (presumably after the original construction costs have been repaid and then some).

Permanently. There was a 2020 ballot measure that aimed to change that so buildings could become subject to rent control on a rolling basis after they'd been around for 15 years or more, but it did not pass.

Re: Rent controls have split housing in Berlin into two distinct markets

#515

Post by kelnos » Wed, Mar 03, 2021, 3:31 AM UTC

jboog wrote: post #502

Red_Leaves_Flyy wrote: post #459

Earlier quoted context omitted.

This is a national problem requiring a federal solution. Anything less will be exploited by desperate people. Don't hate the poor players. Hate the rich exploiting them for profit.

What would you propose the federal solution would be?

I guess you could require municipalities greater than a certain (fairly small) size construct and maintain some public housing, with the required unit count related to population in some way.

If you applied that uniformly across the US, no one city or town would become hot spots for migration.

I don't think this is really a workable policy, however. Not even sure it'd be constitutional for the federal government to do this.

And public housing has a reputation for being lowest-common-denominator, poorly-built, and poorly-maintained. If you drive through the south of the Potrero Hill neighborhood in SF, you'll see a lot of public housing, and... frankly, it doesn't look particularly pleasant to live there. I'm sure there are much worse options, but the housing there doesn't look in great shape.

Re: Rent controls have split housing in Berlin into two distinct markets

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Post by skohan » Wed, Mar 03, 2021, 3:36 AM UTC

whatshisface wrote: post #509

skohan wrote: post #503

Earlier quoted context omitted.

Vienna has achieved a very good result with socialized housing, in terms of keeping costs down and providing adequate housing stock. It seems like an example of the government solving the problem of housing better than the market.

Well, it's not like there's a counterfactual Venice with a market to compete with the real Venetian government. But even accepting your claim at face value, all I said was that the government paying construction companies was not likely to outperform landlords paying construction companies by that much, because the best they could do would be to get rid of the (actually quite small) cut that landlords take for themse…

First of all, it's Vienna, not Venice. And you don't need a counterfactual Vienna to compare it to cities of similar size and economic characteristics.

> the best they could do would be to get rid of the (actually quite small) cut that landlords take for themselves

Again, I think this claim is easily contradicted by the success of Vienna's housing market. The thing is, if you took the market as it is today, and the government just bought all the housing properties at market rates, then yes you would only see savings in terms of the profit margin which is currently enjoyed by landlords. But if the government takes the role of providing housing as a public good, it can change the incentive structure of the market in a way which benefits renters.

For instance, if your goal is to maximize rent profits, you will make decisions to maximize the year-over-year increase in rent, and you will build more units in a way which maximizes the rental price per unit. That's how you end up with so many shoebox-sized luxury condos in Toronto that nobody really wants and an under-served affordable housing market. If you treat housing as a public good, you make decisions to keep rent prices stable, and you build more housing to serve the need rather than the profit motive.

Re: Rent controls have split housing in Berlin into two distinct markets

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Post by kelnos » Wed, Mar 03, 2021, 3:39 AM UTC

CydeWeys wrote: post #455

filoleg wrote: post #426

Earlier quoted context omitted.

Yes, but only until the current tenant leaves. Which gave that landlord all the incentives to make the current tenant leave, as evident by the half-assed repairs and other slumlord-like behaviors that the parent comment mentioned.

Yeah, so it actively incentivizes neglecting maintenance duties and driving out the current tenants rather than offering them to renew their lease at the market rate. Sounds like a terrible law.

That's the downside of rent control. Rent ends up being stable and predictable for tenants, but it reduces the landlord's incentive to fix thing when they break and to make improvements (though many rent control laws, including SF's, still allow landlords to pass some of the cost of capital improvements to renters).

Even when rent control continues to be active, landlords have an incentive to want to get their tenants out, because (at least in SF), a new tenant can be charged market rate when they move in (and then that rate is locked in with limited yearly increases until they leave).

When rent control in Berkeley ended, but existing tenants grandfathered in, the landlords were incentivized even more than usual to do things to make a tenant want to leave, since then they'd have a completely non-rent-controlled unit again.

It's not only bad behavior on the landlords' side. Tenants are incentivized to hold onto the unit as long as possible, even if they want or need to move out for a while. They'll often illegally sublet the place and hope the landlord doesn't come by to check on them until after they move back in. But they're also in some ways trapped: they may want to move, but know that they'll face a huge rent increase in their new place, so they stay put.

Honestly I can't really blame landlords or tenants for their bad behavior under rent control; the rules around it only tend to provide one good outcome: rent stable and increases are predictable. Other outcomes are usually negative, and that's an inherent property of the system. But that one good outcome is often good enough to justify keeping rent control around.

Re: Rent controls have split housing in Berlin into two distinct markets

#518

Post by asdff » Wed, Mar 03, 2021, 3:39 AM UTC

Robotbeat wrote: post #335

asdff wrote: post #274

Earlier quoted context omitted.

If people could move en masse out of cramped expensive rent controlled housing in manhattan, they would. Moving requires upfront capital that a lot of people don't have. Banning rent control doesn't move these working people into more space in some suburb on the outskirts of town, it moves them into a tent under an overpass.

Right. Rent control has created a situation where people are stuck in cramped apartments and no one has incentive to fix the problem. And there aren’t any easy outs. Just have to relentlessly attack the housing supply crunch until rent control isn’t needed.

All rent control says is that you can't raise rent more than x% a year. In my city that is 4%. For a landlord, being able to raise rent 4% a year is a great thing; that's a 15% increase every 3 years. Not all real estate markets even support that level of growth, my rent in collegetown USA was stagant for my four years, but for places where rents surge by double digits a year it puts some brakes in place, since wages don't follow suit with a double digit hike a year.

In a world where wages aren't going up by that much, rent control is needed to protect workers from price gouging by scrupulous landlords taking advantage of a sellers market. I don't know why so many are against simple consumer side protections such as preventing price gouging on shelter; we make it (sensibly) illegal to price gouge on food and water and other essential goods, but shelter is somehow an investment.

Re: Rent controls have split housing in Berlin into two distinct markets

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Post by tehjoker » Wed, Mar 03, 2021, 3:40 AM UTC

mjevans wrote: post #501

tehjoker wrote: post #478

Earlier quoted context omitted.

I agree, but I don't think the literal lord of a property should be able to force people to migrate by demanding higher tribute. There should be a rational humane process that isn't driven by simple greed.

As a suggestion for a process... Pick a duration upon which to re-evaluate the value of property. Distribute this roughly evenly over all the property everywhere so that it isn't all at once. When a property's up for evaluation, offer it for 'sale' via a distributed dutch auction as part of a block with similar properties in the same jurisdiction (roughly, zipcodes, or maybe divided up should work). The block is bid…

Why are we randomly forcing residents to leave? Why don't we just take the available housing stock and divide it between old and new residents in a rational manner? Should an individual or family be kicked to the curb just because someone has a preference for living somewhere? What if they could prove a necessity?

There's a lot to be said for knowing that once you pick a place to live you can depend on it being there as long as you need it and can develop a community, take risks in other areas of life, etc.

Re: Rent controls have split housing in Berlin into two distinct markets

#520

Post by shuckles » Wed, Mar 03, 2021, 3:41 AM UTC

refurb wrote: post #495

shuckles wrote: post #483

Earlier quoted context omitted.

I doubt this calculation changes whether a developer chooses $500 or $1000 countertops. New units in San Francisco are not luxury units. Few have luxury amenities like doormen.

Think more along the lines of amenities like pools, exercise rooms rather than more spartan buildings that are literally just basic apartments.

Few San Francisco new constructions have pools, and I don’t see how putting some exercise equipment in what would otherwise be a storage closet makes a building luxury. That can’t be more than a few basis points of total project cost.