Germany’s Ruling Party Proposes A 3 Year Rent Freeze To Halt Inflation

Authored by Mike Shedlock via MishTalk.com,

Rents are rising at a record pace in Germany. Politicians turn to a price control gambit guaranteed to fail…

Germany’s ruling party, the Social Democratic Party (SPD), is preparing to propose a three-year rent freeze nationwide to help tenants cope with rising housing costs. “We need to create a space where we can breathe – we need a rent freeze for the next three years,” says senior…

— Kuzey Piyasası (@kuzeypiyasasi) August 27, 2023

Rent Control Evidence

Please a September 2019 Stanford Business Study on The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco

Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals’ migration, we find rent control limits renters’ mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.

A Brookings Study says “Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood. These results highlight that forcing landlords to provide insurance to tenants against rent increases can ultimately be counterproductive. If society desires to provide social insurance against rent increases, it may be less distortionary to offer this subsidy in the form of a government subsidy or tax credit. This would remove landlords’ incentives to decrease the housing supply and could provide households with the insurance they desire.”

Common Sense

Common sense suggests the same thing.

Landlords of rent control units have no incentive to make improvements, and developers do not want to add units in rent control areas.

The common remedy to the latter point is to offer developers incentives. Developer incentives further distorts the markets.

Rent Control Doesn’t Work, But It’s Still a Good Idea

Leave it To Vox to conclude Rent control won’t fix the housing crisis. It’s still a good idea.

Role of the Fed

None of the articles addressed the Fed’s role in creating housing bubbles, housing speculation, and asset bubbles in general.

The AirBnB Bubble Popping Will Pop The Housing Bubble https://t.co/iLM783yvj9

— zerohedge (@zerohedge) August 27, 2023

Charles Hugh Smith Via ZeroHedge

The Problem Isn’t a Housing Shortage, It’s the Concentration of Ownership by the Wealthy, this bubble is fundamentally an artifact of central bank and government policies that enrich the already-rich, who were incentivized to outbid each other with low-cost credit to snap up “investment properties” with their “surplus capital” that generate more income and capital gains that cash, which until recently was “trash” due to near-zero savings yields.

Bingo.

Rent controls cannot possibly address that fundamental problem.

The Fed Commits to a 2 Percent Inflation Target, Carefully

Please note The Fed Commits to a 2 Percent Inflation Target, Carefully

Powell’s Warnings

Here is the key thing Powell said today: “As is often the case, we are navigating by the stars under cloudy skies.”

And to that I would add, using tools like inflation expectations proven to be totally worthless.

The Fed creates bubbles because it is has no idea what inflation is. Hell bent on raising routine consumer inflation, the Fed ignored massive bubbles in housing.

The Housing Bubble Is Expanding Again

Case Shiller National and 10-City home prices indexes plus OER, CPI, and Rent indexes from the BLS.

After a two-month decline in most markets, prices are again on the rise.

For discussion, please see The Housing Bubble, as Measured by Case-Shiller, Is Expanding Again

Maybe Smith is right and the AirBnB Bubble will pop the housing bubble.

But meanwhile, Biden is doing everything he can to stoke inflation with energy policy and tariff madness.

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