BERLIN’S RENT FREEZE didn’t work, Taoiseach Leo Varadkar said last night during The Leaders’ Debate on RTÉ One.
Sinn Féin leader Mary Lou McDonald – arguing in favour of a rent freeze to relieve pressure on Ireland’s rental market – was being quizzed by RTÉ’s Miriam O’Callaghan on whether this measure could force landlords to leave Ireland’s property market.
“It was tried in Berlin. It didn’t work,” said Varadkar, in response. “[It] just froze people out and prevented people renting altogether.”
Is it possible Varadkar said Berlin by mistake? Perhaps The Taoiseach meant San Francisco, where rent controls advanced gentrification as landlords sold off rental apartments, according to a 2017 study.
The fact is, Berlin’s rent freeze – rooted in growing discontent with large corporate landlords and backed by Berlin’s left-leaning Government – has yet to take effect.
So, what exactly is happening in the German capital? What specific measures are being implemented? And could it be a model for Ireland?
‘Private Real Estate’
It’s estimated that 80% of people in Berlin rent.
Unlike Ireland’s traditional owner-occupier structure, renting in Germany’s capital was relatively cheap until recently.
Writing in Bloomberg Business Week yesterday, Caroline Winter and Andrew Blackman note that Berlin’s post-Communist debt contributed to a dominance of private real estate seen today.
“In Berlin the government is partially responsible for the dominance of big real estate firms. Before the reunification of Germany in 1990, East Berlin was Communist and West Berlin—a tiny capitalist island within the Soviet bloc—lived off subsidies from the West German government,” they wrote.
“After the wall fell, the subsidies ran dry and Berlin racked up billions of dollars in debt, which the local government attempted to pay down by selling what it could to private companies. That included, from 1997 to 2004, the city’s water utility, half its electricity producers, and more than one-third of its public housing, or about 200,000 apartments.”
Like other cities post-2008, Berlin also experienced investors buying old property, renovating it, and eventually selling it for profit.
In recent years, increased frustration lead Berliners to form grassroots organisations demanding action on rising rents.
In 2019, Senator for Urban Development and Housing Katrin Lompscher proposed Berlin’s rent freeze.
It was passed by Berlin’s parliament on 30 January.
‘Rent Freeze’
It’s estimated 1.5 million homes in Berlin will have their rents frozen until 2025 and capped at €9.80 per square metre under new legislation, which is due to come into effect in mid-February.
The new law also states that landlords can’t charge higher rents than tenants previously paid.
It also gives tenants power to sue landlords to have their rent lowered if it is above a limit set out in a “rent table”.
“The new Berlin law also follows the Netherlands and Spain in that it gives ‘extortionate rents’ a legal definition, setting it at 120% of the value set out in the rent table,” according to German Broadcaster Deutsche Welle.
“If the rent is above that, Berlin tenants can sue to have their rent lowered, regardless of what it says in their contracts.”
In the Netherlands and Spain, rents are capped to inflation rates. In Spain, there’s also a five-year minimum on rent contracts to protect against rent increases.
Under Berlin’s rent-freeze, buildings built after 2014 will be exempt, as will social housing units in order to encourage new construction. It’s estimated that three-quarters of apartments in Berlin will be covered, however.
From 2022, landlords will be allowed raise rents in line with inflation – 1.3% per year.
Landlords who break these rules could face fines of up to €500,000.
‘Increased Supply’
According to statistics published by Daft.ie yesterday, Ireland’s average rent has decreased for the first time in seven years.
Rents fell marginally by 0.1% in the final three months of 2019, according to the report – the first time since the middle of 2012 that rents have not risen quarter-on quarter.
Prices in the capital have risen 3.5%, however – slowest rate of increase since 2008.
In Dublin, Cork and Galway City, rents rose between September and December. Outside major cities, rents fell on average.
Yesterday’s report found rents in Dublin at the end of 2019 were 3.5% higher. In Cork and Galway rents were 5.5% higher than at the end of 2018.
However, in November rents in Ireland hit a record high.
Speaking to TheJournal.ie in November, Senior Research Officer at the Economic and Social Research Institute (ESRI) Conor O’Toole said a rent freeze comes with significant “health warnings”, suggesting a better move is to increase supply of housing.
“The difficulty with housing is always that housing need is immediate. People have housing difficulties today and we just don’t have enough units to deal with that problem,” he told TheJournal.ie.
“It takes that time-lapse as there is a natural time lag and a very big challenge in trying to bridge that gap.
“We need to be very careful about responding to that with short-term measures like a rent freeze which could have long-term negative consequences.”
“It can be hard to unwind these things if we think we might not need them in the future so you need to be careful about these types of decisions.”
In its manifesto, Sinn Féin has called for a Three-year Rent Freeze. Fianna Fáil, meanwhile, has said this measure is unconstitutional, according to legal advice it received, adding it won’t implement one if in Government.
Sinn Féin’s Housing Spokesperson Eoin Ó Broin TD told TheJournal.ie that his party’s propositions are “very different” to Berlin’s.
Firstly, Berlin’s “rent table” measure means rents will be reduced, unlike a straight rent freeze, he said.
Secondly, no measure has been proposed in Berlin to invest in its supply of affordable housing. “We’ve been very clear on this,” said Ó Broin. “You need to ensure that supply continues. I don’t accept the argument that the private sector will withdraw supply because there’s quite a lot of investment coming in.
“The big difficulty is all that new investment isn’t affordable. The high-end, build-to-rent [properties] are €2,500 and €3,500 [per month],” he said.
‘Black Economy’
Berlin’s rent prices have been exploding, Deutsche Welle reported yesterday, noting that as its population grows by some 40,000 people a year, “displacement of low-income communities and social inequality have been the inevitable result”.
With the city’s rent freeze yet to come into effect, push-back has come from certain quarters.
In an open letter to Berlin’s Parliament, property developers, architects and construction companies said this rent freeze could see investment in Berlin drop by 90%.
Described as “breathing space for tenants” by Lompscher yesterday, time will tell the effect her rent freeze will have on Germany’s capital.
Speaking to TheJournal.ie today, Leo Varadkar pointed to the recent open letter from Berlin’s construction industry as an example of the risks associated with the city’s rent freeze.
He said: “It freezes out people who need to rent for the first time”, including students migrants and people who were living at home aiming to enter the rental market.
Varadkar said rent freezes lead to a “black economy” of people living in rent-controlled apartments which “they can sub-let for cash”.
“Rent controls are not a substitute for the actual solution which is more supply,” he said. “Supply has doubled since 2016. I believe we can double it again.”
In our latest Candidate Podcast, we sat down with Fine Gael leader Taoiseach Leo Varadkar.
The Candidate / SoundCloud
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