As another commenter notes, housing is unaffordable because marginal demand is greater than marginal supply. We can either decrease demand, or increase supply.
Housing demand is pretty sticky, so that leaves us with one option.
Housing demand is pretty sticky, so that leaves us with one option.
Some people want to own their own home and live in it (owner occupiers); these people however compete with investors who are seeking to rent it out. While investors don't directly affect the rentals market (as you'd expect an owner-occupier to not be a renter), they do push the price of housing, because housing becomes more of an investment (competing against everything else with zero / negative interest rates).
Progressive taxes on investors can mitigate this and make home ownership more affordable. First property, no tax. Second property, 1% of its land value charged annually. Third property: 2% of its land value, etc...
Owner occupier properties exempt. Investor owned properties X% per year.
If they own 5 average houses and pay $10k per house in tax, they'd pay $50k and their dividend would return $10k, so would have to pay $40k more
But lets assume the worst, that it is all just pure evil capitalist speculation: even that is not necessarily bad. They try to anticipate future demand. So they anticipate that in the (near) future, somebody will need that apartment even more urgently than the people looking for housing right now. So it is better to keep it available for those people in the future. Think about keeping ICU units ready for future Covid patients for an analogy.
So what if the speculators are right, and the future buyers really have a higher need than the current ones?
Also I think if there really is just speculation, especially foreign investors, why not build cheap houses and sell them to the speculators for a lot of money? Nobody will ever live there (according to the anti-capitalists), anyway. Seems like a good way to make money for a country.
Some very select markets may have an actual problem if foreign money laundering is a thing (as I’ve heard is true of Vancouver).
Lowering rates can cause loan problems.
Renters can choose not to pay rent, can cause untold damage to the property and can use it for illegal purposes to name but a few reasons why it might be rational not to rent a property out, specially if it's an appreciating asset.
I suspect that the majority of these empty properties are owned by wealthy people from countries like China or Russia.
Further, the properties held purely as assets are generally very expensive ones. The effect ripples down, well heeled people move into cheaper housing and those people moving in turn.
This is nearly 8 years old, but generally describes the issue with some specifics:
https://www.theguardian.com/society/2014/jan/31/inside-londo...
Vacancy rates are extremely low. That puts an upper limit on the amount of people that could be doing that. Is it not easy to tell if a home is vacant?
And why should politics decide for people whether they should rent or buy, I mean, why push them in one direction or the other?
Taxes are often used to discourage behaviour society believes to have negative externalities. For example: tobacco excise taxes; and also in the other direction (e.g. concessions for long term capital gains; which is supposed to encourage 'investment').
In general taxes are regressive and people want to avoid them. If you tax regressive behavior the most, people will stop doing it.
In Germany home ownership is not seen as strictly positive in the same way it is in the US for example. Many, perhaps even the majority, of Germans go their whole lives as renters.
There is an arb between the two markets which should hold them in tandem on a risk adjusted basis.
Housing supply is housing supply. There is scarce distinction in real life between rental and occupier owned housing.
Point being, it's not true that all supply of homes ends up being used by people to live in. A lot stay empty most, or all, of the time. People owning those tend to have more money than locals looking for a place to live, so the latter get priced out.
But investors are really not the main problem. If you banned housing investment, prices would hardly budge.
By the way, land is also limited in Berlin and therefore expensive. Makes building cheap apartments difficult.
20 years ago when I moved to London I'd have loved to find a tiny self contained Japanese style 10 square metre apartment[0], which is cheaper (in actuality, not just inflationwise) and far nicer and featureful than the HMO I ended up in.
https://www.livingbiginatinyhouse.com/tiny-house-tours/tiny-...
Does anyone who has lived in Japan and abroad think there is anything "cosy" about Japanese housing?
It's cramped, of poor quality, and manages to be colder than the outside in winter and warmer than the outside in summer. I've seen some crap properties in London but Japan takes the biscuit.
A Japanese micro apartment for less than half that price [0] would have been far better.
Same with hotels. I still go to London fairly frequently, in fact I had 3 nights there this week. I turn up to the hotel, sleep in a bed, have a shower, then leave, maybe with breakfast. For that I'm charged £90 plus.
[0] https://www.nippon.com/en/news/fnn20200211001/tokyo%E2%80%99...
You can find cheap rooms in either city, you can find bargains in either city, what you won't find en masse in Tokyo (nor any other city in Japan as far as I'm aware) is housing with walls that seem like walls and not paper, with insulation, and you certainly won't find central heating.
This is the other reality of free markets and scarce resources: if there is only so much land in Berlin, and lots of people want to live in Berlin, then it means some people won’t be able to. That’s just the reality. Unfortunately that means people who can’t afford have to move. As sad as that is, we don’t have a better system for allocating scarce resources sustainably.
(Edit: I do agree with your conclusion though. We need more homes)
So i disagree with the solution you propose. The better solution is to reduce the type of demand that is responsible for this failure in housing prices.
They of course are contributing factors and if you want to regulate that, fine, go ahead. But they absolutely are not driving prices higher. Investors have tons of alternatives to invest in if prices are too high. People don’t have alternative forms of shelter, so they will tend to pay whatever the price is. And society facilitates and exacerbates this through well meaning efforts like “affordable housing” policies that artificially reduce interest rates and drive demand higher.
The bigger issue is that housing and property should never have become a de facto investment class. You should not earn inflation adjusted returns for owning a house. But of course, most wealth in the world is due to housing. And the next generations just increasingly get screwed over.
Supply and demand do not exist in a vacuum.
There's no _immediate_ response to people not being willing to pay a certain amount.
Owners, and especially individuals or companies that own large amounts of housing, will refuse to lower prices, regardless of demand dropping. Be it actual demand, or people staying away because the price is too high.
Because they have the power to do that.
I invite you to watch these little documentaries on new york city: https://www.youtube.com/watch?v=Zjd1WNhGliY&list=PLkVbIsAWN2...
Where store spaces have not been rented out for sometimes a decade, because owners consistently refuse to lower prices. Just refusing to lower rent, for years on end, and being empty that entire time.
And if you ask why, the answer is: commercially backed mortgages.
It's simply: you take a loan with a bank for, say, 10 million USD. You're required to pay this loan back over a period of 10+ years. The bank, meanwhile, sells this as an investment product. The bank uses their own funds to guarantee the profit this loan is going to generate, and attracts investors to take a part of it. Thus gaining them a % increase after X years.
However, this means that you can't ever lower the amount you have to pay back, if the value of the physical good your property is based on, drops.
Price isn't dynamic in a pure sense. There's a person on the controls and if they refuse to move them, even if you think it's illogical to do so, they're not going to budge.
Because they have a loan to pay back. Over a finite amount of years. And lowering rent means longer time to pay back the loan, meaning breach of contract.
There are far more systems in place than many are even willing to consider. For it assaults their idealized worldview.
Be it shop or regular housing, this is a system that artificially stops prices from dropping.
But no in the sense that commercial real estate investors are a small chunk of the global RE market. The vast majority of residential property are owned by the tenants. We have turned housing into the largest retirement fund and don't have a way of undoing that. And we have exacerbated this by deciding to push interests rates artificially low so that all sorts of people who otherwise would be priced out of home ownership, are now part of the demand curve competing against the same supply curve.
I don't get it. Refusing to rent out the property means even longer time to pay back the loan, doesn't it? It can't be the reason.
I get that wealthy investors driving up housing prices gets people angry and is a good rallying cry. But it’s such a small piece of demand.
For example, pre-covid, there was a vast number of vacant apartments in NYC.
https://www.6sqft.com/nearly-250000-nyc-rental-apartments-si...
But also being in NYC during COVID and watching the real estate market react, it feels far from an efficient market, as one side has more information, resources and time.
https://www.businessinsider.com/new-york-city-rent-deals-lan...
Affordable housing in Berlin means:
- "Normal" people working in Berlin can afford it (e.g. prices are still below e.g. Munich but you ear much more in Munich).
- You are not forced to spent so much money on housing that you not can't really afford anything else.
- We are speaking about apartments available now, there are a lot of people with older rental contracts which as such still pay much lower rents. (I.e. the price of entering a new rent contract is basically always noticeable above the average rent price, often as much as legally possible).
You can totally have "unaffordably" priced housing and high occupancy, because housing is in general not a think people can choose to "simply not have".
Also if you decrease the supply of "affordable" housing and make the remainder more expansive you totally can have an effect where occupancy stays high and people and up on the street (decrease the supply => convert rented apartments to owned ones, which don't count into "rented apartments occupancy").
So what you see is:
- More WGs i.e. people sharing a apartment and the rent, and this is not just young people.
- A lot of "natives" moving away from Berlin.
- A lot of rented Appartments being converted to owned ones, some being actually used other not.
- A lot of people with non-high wage jobs spending so much money on rent that they have no money left to put aside for emergencies and potentially even have to cut corners in their daily live.
- Some more wealth people coming to Berlin.
One major difference to some of the more expensive cities in Germany is that people people tend to earn much less money and thinks like "moving to a cheaper metro area around Berlin" are often not really viable (as there isn't that much to move to, it might actually be more expansive then living in Berlin it also is legally seen another German state and commute times can become a problem, too. I mean they can be a problem in-side of Berlin, it's a pretty wide city.)
I don't know. According to a somewhat recent study[1], Berlin is pretty average, only 10-20% below e.g. Hamburg, North Rhine-Westphalia, Bavaria and Baden-Württemberg (where the rents for comparable flats in the larger cities tend to be much higher than in Berlin, and not just 10-20%, while cost of living (utilities, meals, services) is generally 10-20% lower in Berlin).
It's true that the current prices do get obscured by looking at averages, especially in Berlin where old contracts are absurdly cheap. Comparing the usual real-estate sites in Germany (granted, most markets aren't exactly showing many offers, so it's always a small sample, but it remains the same over time), you'll find that Berlin's rents are still considerably lower than those in Hamburg, Munich, Dusseldorf etc. Berlin is in a very special situation in Europe in that the capital of the country is not anywhere close to being the most expensive population center.
As for "natives" moving out of Berlin: not so sure either, many Berliners weren't born in Berlin, but that has been going on for the longest time (it's been a thing a hundred years ago, has settled during the GDR, and has been reignited in the last two decades; today, slightly over half of Berlin residents were not born in Berlin). It's a city where young people move to study and party and then stay for the life style and lower cost of living. Coincidentally, these are often the same people complaining about the high rents and asking for collectivization.
[1] https://www.bz-berlin.de/berlin/berliner-liegen-mit-42-525-e...
The issue is that Germany does not have a housing crisis, there are at least 600k uninhabited housing units. Yes, those are mostly rural and especially in the former GDR. Usually you get a commission if you FIND somebody willing to rent long-term.
People are drawn into cities, especially Berlin has become "hip" - even though the job market is not even close to Munich or Stuttgart. So I think (and most people I know who moved there) people move for the lifestyle. I am pretty mad at the Berlin government now using taxpayers money to buy back pricy appartments - especially since Berlin is one of the poorest states in Germany and heavily subsidied by the other states (through "Länderfinanzausgleich"). And this will in no way help with the high demand/low supply problem, that actually exists.
Doesn't mean thinks didn't become unaffordable for other people. If a lot a people which grow up do or are considering leaving because they can't afford rent it's a social problem.
> The issue is that Germany does not have a housing crisis, there are at least 600k uninhabited housing units.
Just because there are housing units in some places doesn't mean there is no housing crisis. Because what point are housing units in the wrong places.
Because what point is a housing unit in a area where there is no work, no hospitals (close by), no supper market (close by), no public transport (which goes frequently), no restaurants, bars or people to meet, probably bad internet, etc.
I mean if that places would be nice countryside nature places it might be interesting, but they often aren't even that. They often are areas where in the past there had been a lot of manual work (car industry, coal mining, heavy industry, etc.) and it went away, as well as small villages.
> People are drawn into cities
Often out necessity, due to the points mentioned above.
Of course, the only unaffordable price is one which the market will not bear. Any price at which a market transacts is by definition affordable.
And herein lies the issue: everyone wants to live in Berlin, but not everyone can live in Berlin. Price is the mechanism by which we determine who values living in Berlin most.
You might not think it’s fair, but this is the reality.
High prices are only unfair at first look, but actually allocating scarce resources through market prices is a very fair and transparent mechanism.
But most people conflate "fairness" with some emotional feeling about the outcomes (which of course, has nothing to do with being fair).
The demand side of capital is underrated because it’s hard to see. Normal folks don’t realize that managers of large funds are doing previously impractical things like buying suburban subdivision homes because they have access to unlimited capital and can offload/distribute risk.
I also recoded a lot of their compliance CRM for them when these now-discarded consumer protection laws first came into effect.. and was shaking my head in disgust at Frydenberg... no wonder Hayne would not shake that man's hand...
https://www.theguardian.com/global/video/2019/feb/01/awkward...
This is of course already priced in today
"Zoning" to me seems to be a modern version of "kulaks" for neoliberal types that just can't grok that there is something fundamentally rotten in the entire system. And have no real practical solutions to fix it.
https://www.abc.net.au/news/2018-03-08/zoning-regulations-ad...
It's not surprising that every major urban centre has inflated property prices. Restrictive zoning laws such as the ones studied above are more common than not. San Fran, London, Australia, Berlin, what have you. NIMBYism is the default. Homeowners aren't going to willingly vote away their profits.
Not only is there solid empirical evidence, but it makes evident sense. There is no cap on supply due to the ability to build vertically. Rapidly inflating prices significantly above cost over a multi decade time frame makes zero sense in a market economy without an artificial cap on supply. Gold would be cheap (at cost) if more supply could be invented/constructed, irrespective of how many people wanted to invest.