Berlin Rent Controls Cheered by Sadiq Crashed Supply
The pet housing policy choice championed by the Labour Party but decried by economists left and right alike, rent control, has further wrecked the housing market of yet another city. Back in March, Sadiq Khan announced that “I am making the mayoral election on 7 May a referendum on rent controls” – and cited Berlin as a successful example after the German capital imposed a ‘rent cap’ in February. Sadly for Sadiq, real estate analysis has now revealed that as a result of Berlin’s rent control policy, supply is down 41% and demand is up 172%.
The experience has generated the phenomenon of ‘shadow rents’, where two separate rents are agreed between landlords and tenants – one complying with the rent cap and one ‘shadow rent’ significantly above it – sometimes for cash. While those shadow rents have been rising, more and more property is being taken off the market – the opposite of what needs to happen to genuinely lower rent. As Swedish economist and socialist Assar Lindbeck famously said, “rent control appears to be the most efficient technique presently known to destroy a city – except for bombing.”