Lease ceiling or expropriation: the state can’t resolve the issue of excessive rents

The state rent inspection body must monitor Giffey’s 30 percent rule and force landlords to reduce rent if the cap is exceeded. According to information from the Berliner Zeitung, only the 30 percent regulation should benefit families who are entitled to a Certificate of Housing Benefit (WBS). In addition, the limits of living space for social housing apply.

Consequences of setting rent at 30 per cent

Only last year the Social Democrats, the Left and the Greens failed with the “rent cap” before the Federal Constitutional Court because these rent regulations are a matter of the federal government, not a state. The common denominator between the rent cap and the new idea is that not a single new apartment will be created as a result. What would be the consequences of setting rent at 30 percent of income?

Orwell’s “Big Brother Is Watching You” bitter reality will become a reality. Tenants who believe they have the right to reduce rent must disclose their income to the landlord, not just once, but frequently.

Transparency in all areas

Did you lose your job? Please inform the owner immediately. Did you get a raise? Please also tell the landlord about this, because then he can increase the rent. What about a small business owner whose income fluctuates wildly? Does his rent change every month? Or every quarter? In the future, will he have to disclose not only his income and expenses to the tax office, but also to the landlord and the state rent inspection agency? Who verifies the completeness and correctness of the information? What happens if the tenant provides false information? Do students with little or no income still have a chance to rent an apartment? Better not.

Rent independent of the owner’s economic account

However, the idea is absurd, because rent no longer has anything to do with the owner’s economic accounts. Imagine if there was a right in the future that repairing a car or groceries couldn’t cost more than a certain percentage of your income. Then, the low-income earner will have to pay less for milk or car repairs than the high-income earners.

The price of the goods will be determined independently of manufacturing and supply and demand costs. Of course, such an economic system cannot work. We will have a variety of prices for the same product, depending on the income of the consumer.

An idea that brings with it many risks

And, as with all of these ideas about government control of economic life, there are unintended side effects. Landlords can no longer calculate because there has always been a possibility that they will have to lower the rent, perhaps to the point that the rent no longer covers interest and repayment costs. Under these circumstances, will the bank continue to finance the property at all?

In order to reduce the risk of having to lower the rent, landlords are no longer renting apartments to lower income earners who are more at risk of falling above the 30 percent limit. Small business owners will not have the opportunity to rent an apartment due to fluctuating income.

The “interference spiral” theory

However, once it becomes clear that landlords are choosing their tenants based on these criteria, politicians will certainly argue that landlords should be forced to rent to socially disadvantaged tenants who risk earning more than the 30 percent — the next frontier. The result will be state regulations about who the landlord must rent. Economist Ludwig von Mises developed the theory of “the spiral of interference”, according to which state regulations always lead to additional new regulations. It will be the same here.

Jaffee’s proposal has also been criticized by leftists who want something different, the expropriation of real estate companies with more than 3,000 apartments. The majority of Berliners voted for her in a referendum last year. Whether it’s rent caps, rent freezes, expropriations, or the state-monitored “30 percent” rule: all of these proposals are united by the conviction that only the state can solve the problem of rising rents.

Government regulations have done damage in the past

There were rent regulations such as rent freezes under Hitler and East Germany – and the result was a disaster: After German reunification, apartments in East Germany and Berlin were in a disastrous state. In 1989, when the German Democratic Republic was on its verge, 65 percent of all apartments—including 3.2 million post-war buildings—were still heated with coal kilns. 24 percent do not have their own toilets and 18 percent do not have a bathroom. The equipment with elevators, balconies and modern kitchens was less.

40 percent of apartment buildings were deemed severely damaged, and 11 percent were deemed uninhabitable at all. It was the result of a policy that demonized the market and regulated everything by the state.

More market, fewer government regulations like capping rents or expropriation

What would help There are 25,000 building regulations and standards in Germany that make building expensive. It often takes more than a decade to prepare a development plan in Berlin. Constantly new environmental regulations to save energy are making construction more expensive. In Berlin, investors and property owners are often treated as enemies by state authorities and politicians, and life becomes as difficult as possible for them. Who wants to build under these conditions anyway? Not less, but more market, not more government regulations, but less, that would help the tenants.

Implementation of Joffe’s proposal would mean the death knell for the Berlin housing market. I myself sold a large part of my apartment in Berlin and invested in the United States instead.

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