Written by 10:19 am abroaden weekly insights

The Dire Rent Control Warning from Berlin


This is issue #049 of our abroaden weekly insights newsletter where we talk about rent control in Berlin. Get these insights and more directly to your inbox.

Berlin’s rent rule overturned.

If you aren’t living in Germany, then you probably didn’t catch this one. 

However, that doesn’t mean you shouldn’t know about it. 

For the last ten years, Berlin, like many other cities, saw a surge of people moving in.

As available apartments became scarce, rents climbed to meet demand. 

By the end of the decade, many Berliners felt priced out of their city. 

The local government (like so many others) decided to act and put into place a rent law. 

It decreed that rent for all buildings built before 2014 would have their rental prices frozen to June 2019’s rates. 

Despite having noble intentions, Germany’s supreme court last week ruled the law unconstitutional, striking it down immediately. 

Now, renters who benefited from the cap could potentially have to pay back the difference between the adjusted rate and the market value. 

On the surface, this ruling sounds like a loss for Berliner renters. 

However, that couldn’t be further from the truth. 

Ask any economist, and she’ll tell you the disasters behind rent controls. 

Like many government policies, rent controls have unintended consequences. Unlike other ones, though, this one is harrowing for everyone. 

For starters, Berlin’s rental market got more competitive and not less.

People living in units built before 2014 immediately extended their contracts. Others jumped as fast as they could to rent what little supply was available. 

With the pre-2014 market almost wholly occupied, desperate renters turned to the unregulated supply of newer homes. 

Since the laws of economics are immutable, rental prices in this segment shot up. 

Owners of newer homes quickly sold their units, fearing that the local government would eventually come after them, too. 

In the end, the Berlin rental market came to a near-standstill, harming everyone involved.

We’ve seen this story play out countless times.  

Real Estate and rentals are some of the most popular hot-button issues around. 

They’re also some of the most misunderstood and prone to political interference. 

Here’s why.

Real Estate isn’t about “location, location, location.” It’s about supply versus demand.

If there isn’t enough supply on the market to meet demand, then rent goes up. If there’s too much supply, rent goes down. 

Free markets are pretty good about self-regulating prices, especially when given the right tools. 

By “right tools,” we mean a solid legal system and efficient bureaucracy that facilitates construction. 

All too often, though, lawmakers avoid these fixes. 

Instead, they do the opposite, caving to popular political pressure. 

Rent controls or even going after “tourist apartments” make for great headlines. 

Unfortunately, they fail to address the real reasons for soaring rents and often make them worse.

Before getting the pitchforks out, think about this: 

A family of five gets a rent-controlled 4-bedroom apartment, with prices locked in for decades. Over the years, the kids move out, and the husband dies.  

The elderly widow now has a flat too big for her needs. However, because of the rent control, she has no incentive to leave. 

Meanwhile, a new family, two generations under her, is desperate. They are looking for a 4-bedroom apartment in the center of the city, yet can’t find any on the market (at least one that won’t break the bank). 

Rent controls, not investors or tourist flats, are holding them back. 

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Deliveroo’s market flop. 

Last week, British gig delivery service Deliveroo went public, listing their shares on the London Stock Exchange. 

An initial public offering (IPO) is usually good for the share price. Deliveroo, though, saw their price drop following their debut. 

On the surface, this flop is a bit puzzling. After all, we’re still in the pandemic. Food delivery has been one of the hottest performers in the economy recently. 

Look a bit closer, though, and the reason for the drop becomes clear: social responsibility.

Gig economy works like Deliveroo or Uber are a bit controversial. On the one hand, these services reinvent traditional jobs and give people a quick way to make extra cash. 

On the other, some investors see gig work as exploitative. For years now, workers, companies, and governments squabble over the definition of gig work. 

Generally, as freelancers, gig workers have to pay their way for social security, healthcare, and other benefits.

Meanwhile, investors are increasingly demanding that their money go to more ethical causes like green and socially responsible investing or “SRI.”

Investors rejecting Deliveroo delivers a powerful message to companies: behave, or you can’t have our money.

Coinbase’s IPO

Speaking of IPOs, cryptocurrency exchange Coinbase went public last week, offering their shares on the New York’s NASDAQ stock exchange.

Unlike Deliveroo, Coinbase took off, nearly doubling its initial share price on the first day of trading.

This IPO represents a milestone for the enigmatic cryptocurrency movement. For years, “cryptos” had a seedy reputation (and with reasonable cause). 

However, bitcoin and other cryptos without intrinsic value continued to defy gravity, driving prices and the public’s interest. 

With Coinbase’s successful IPO, it represents a turning point of sorts for digital currency. 

For one, it brings cryptocurrency closer to the mainstream. Wall Street’s (and the US regulator’s)belief Coinbase is legit gives tacit approval to bitcoin and other cryptos. 

Second, cryptocurrencies are both notoriously volatile and lack stringent regulatory oversight. Coinbase offers investors a relatively safer way to get returns from that market. 

It will be interesting to watch how the situation evolves. 

This video from FT on the music business 

Late last week, we saw this video from the Financial Times diving into the music business. 

The music industry is both fascinating and misunderstood.

We want to do a piece on it sometime here in the future. Until then, definitely check out this video:

The Canary in the Coworking

Okay, that’s a horrible title. However, according to the Spanish newspaper El Pais, the Canary Islands is fast becoming a hub for remote workers

For almost any remote worker or digital nomad, this article shouldn’t come as a surprise. This far-flung corner of Africa Europe has long been a hotspot for remote work. 

Throw in the fact that the islands have had some of the lowest Covid infection rates, and it’s not at all shocking that remote working is booming there. 

That said, articles like this one are great for the remote working movement. As employers and lawmakers see more and more of these topics, they’ll give more thought to changing policies. If that fixes some of the structural flaws in remote working, we say bring them on!

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