Rent controls they are becoming very divisive issue in Europe

Front of the criminal court in Moabit, supporters of a left- wing housing project in The Köpenicker Strasse protest against his eviction. A woman holds a sign with the English writing “A roof or your head a basic human right “.

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LONDON – Rent controls they are becoming more and more popular in many European nations, but experts note that rarely solve housing crisis on own and can also scare via investors.

Rent controls I’m government policies, either on local oa national level, which aim to cap house price increases. They aim to keep housing affordable, at least for the most vulnerable parts of a population. however, the policy has his own critics.

In Sweden, for example, rent controls effectively overturned the government there. In Germany, the matter was the subject of a year-long legal battle. Meanwhile, the legislators in the Netherlands, the UK and Ireland have had similar discussions about theirs property markets.

The root causes

Speaking of high prices in Netherlands, Nic Vrieselaar, a senior RaboResearch economist, told CNBC that the market it is “becoming unacceptable”. “This is a question of supply-demand due to low interest rate environment, “He said.

There is a secular trend of people crowding the urban areas where there is more works e higher salaries. But, in one moment of low interest rates from central banks – which European nations have experienced in the awakening of the king debt crisis – e help-to-buy schemes, more people I bought property, both as a first home or as an investment to rent. This demand then pushes up prices given the limited housing stock on the market.

Tall-rise buildings in the Märkisches Viertel in Berlin.

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In addition, the so-called “Airbnb effect”made the situation worse, experts note. Rather than sell a property or leave it out long term, many owners choose to build their houses or apartments available for short stays. This means there is less stock for the premises, thus contributing to further acceleration of rental prices.

Between 2010 and first quarter of 2021, increased fees by 15.3% in of the European Union, according to Eurostat.

Separate data collected from European statistics office showed that, in 2020, the estimated average rents for apartments was the highest in Dublin, followed by Copenhagen, then Paris, Luxembourg and Stockholm.

Colm Lauder, head of real investment property bank Goodbody told CNBC that he expects rental prices to hold up rising. He said: “In Ireland, we are concerned That [rent] controls it will stop the flow of capital. “

A vicious circle

Real estate investors see a significant disadvantage in rent controls in that cover the returns. In case of Ireland, the rent increases in some areas are limited to 4% per year.

“If they can’t get it [returns] then they will look elsewhere, “Lauder said.

Private investment plays a crucial role role in supporting the accommodation market, promoting construction and renovation. If investors find higher come back in other nations, they are likely to transfer their funds there and the offer will remain limited in the initial one market.

However, not everyone agrees with this view.

Barbara Steenbergen, a member of the International Union of Tenants e former legislator for German region of Cologne told CNBC: “We are of pro rental course controls if it is part of a complete accommodation package. “

He highlighted how important rent controls I’m for low- and middle-income families, noting that in Berlin, for for example, the rent increases are gone up exponentially, but wages don’t.

This division is a “threat to social pace”he said, adding that he has not seen investments flee in any market who has the rent controls. One of the challenges is that investors focus on luxury buildings and less on convenient and social accommodation, he said.

Eventually, the solution may lie with the root of the problem.

“What I think needs to be done is to increase the offer,” Vrieselaar said.

In a published statement in 2018, the European Central Bank noted that “housing completions in the euro area have remained substantially below their average level since start of monetary union” in 1999. Furthermore, the ECB also said the lack of building permits and labor shortages were a constraint in improve the offer.

But Vrieselaar suggested that governments should change the way tax the sector, so they can better deal with the housing crisis. Essentially, he believes the Netherlands should sets people wealth more, including theirs second and third homes and reduce the burden on people the incomes of this are the tenants more room for spend on rent them.

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