Quick Takes – Rent Control Fail: Minnesota; Stockholm; Berlin

     Another “quick takes” on items where there is too little to say to make a complete article, but is still important enough to comment on.

     The focus this time: “The curious task of economics is to demonstrate to men how little they really know about what they imagine the can design.” ― F. A. Hayek

     First, a little mood music:

     Carrying on…

     Demonstrating, yet again, that limiting rent means limiting economic reason to provide rentals.

“Less than 24 hours after St. Paul voters approved one of the country’s most stringent rent control policies, Nicolle Goodman’s phone started to ring. Developers were calling to tell the city’s director of planning and economic development they were placing projects on hold, putting hundreds of new housing units at risk. …

“Voters’ decision Tuesday to cap annual rent increases at 3% sent developers into a frenzy, prompting some with stakes in Minnesota’s capital city to pause projects or reconsider sites for future housing.

Unlike most cities with rent control, St. Paul will not exempt new construction, which opponents argue will force lenders and developers to look outside the city for spots where they feel more confident that they will recoup investments and earn profits.”

     Not even that purported “socialist utopia” of Sweden can get “rent control” under control!

“A shortage of accommodation in Stockholm and other cities, is causing a major headache for young Swedes – in a country which has been championing rent controls since World War Two.

“Rents are supposed to be kept low due to nationwide rules, and collective bargaining between state-approved tenant and landlord associations.

“In theory, anyone can join a city’s state-run queue for what Swedes call a ‘first-hand’ accommodation contract.

“Once you have one of these highly-prized contracts it’s yours for life. But in Stockholm, the average waiting time for a rent-controlled property is now nine years, says the city’s housing agency Bostadsförmedlingen, up from around five years a decade ago.

“This wait-time doubles in Stockholm’s most attractive inner-city neighbourhoods.

“The traffic-jam has fuelled a thriving sub-letting or ‘second-hand’ market, with ‘first-hand’ renters and owners alike offering apartments to tenants for very high prices, despite regulations designed to stop people being ripped-off.”

     Yet again, bad ideas come from Berlin.

“A year ago, a rent cap took effect in the city that was unprecedented in Germany. For all apartments built before 2014, rents were frozen at whatever they were on Jun. 18, 2019. Tenants in those units can also force landlords to lower rents defined as ‘excessive.’


“Unsurprisingly, the rent controls have split housing in Berlin into two distinct markets: the much larger one, consisting of all apartments built before 2014, which is now regulated; and the smaller unregulated one of relatively new buildings.


“The caps represent a windfall to one group of tenants: those, whether rich or poor, who are already ensconced in regulated apartments. Simultaneously, they hurt all other groups — especially young people and those coming from other cities — by all but shutting them out of the market.

“To complicate Berlin’s situation further, Germany’s constitutional court is expected in the coming months to decide whether these rent controls are even legal. If the judges nix the legislation, lots of tenants in the formerly regulated sector could get hit by huge and even retroactive increases in their rents. That would create yet more chaos.

“The biggest question is whether this episode of left-wing populism has damaged confidence in Berlin’s real-estate market permanently. If investors fear that local property rights will be put at risk in every election, they might stop building houses in the city at all.”


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