Rent limits around the world: neither taboo nor a panacea

Rent regulation has become the umpteenth point of confrontation in the coalition government.

The dispute is settled between two opposing views.

The PSOE defends giving tax incentives to owners who rent below a certain price, which is reminiscent of a measure approved in Portugal in 2019. United We Can is much more resounding and prefers to freeze rents that are below the average and force drops up to that limit on the highest rents.

In the midst of a bitter debate, the two parties bring up examples that supposedly prove the benefits of one or the other model.

It is a complex comparison due to the peculiarities of each housing market.

The absence in Spain of a genuine public rental policy makes it even more difficult to draw conclusions when looking at other countries.

But the experiences of Germany, France, Italy and the United States leave two conclusions.

The first, that setting rent limits of some kind is not taboo, but something that many cities have done.

The second is that none of these cases has been a resounding success or a panacea for affordable homes.

Debate in Germany

The discussion about rent control is recurrent in the EU country where a higher percentage of the population (48.9%) lives in flats that they do not own.

In addition to the capital Berlin, several cities have high population density and high demand, which pushes prices.

From 2010 to 2018, rents in the seven largest German cities rose more than 40% on average, according to the consulting firm Empirica.

The federal government tried in 2015 to reduce the hikes by passing the rent brake law, which limits prices in new contracts to a maximum of 10% of the average rent in the area where the house is located.

The standard applies to stressed areas.

A study by the DIW think tank noted in 2018 that only a “moderate slowdown” was achieved.

In areas where prices had risen sharply in previous years (such as the Berlin districts of Kreuzberg or Neukölln, or the center of Munich), control did prevent strong rises.

A year ago another regulation of the Berlin City-State Government (coalition of social democrats, environmentalists and post-communists) came into force that set a cap on rents based on the year the property was built and the improvements it has had over five years .

It does not apply to new floors.

It was approved with all the opposition against and was answered in the courts, which have not yet decided.

The Ifo economic institute this week published a study that assures that rents have fallen, but supply has contracted.

The owners put fewer apartments on the market, in a city where 85% of the inhabitants live for rent and to which 40,000 new residents arrive each year.

France: two laws in five years

The housing shortage in Paris makes it impossible for many to buy a house: more than 60% of the inhabitants of the French capital live for rent.

But renting is not cheap: after a 50% rise in prices in a decade, the Government of François Hollande approved a law in 2014 that allowed to limit rents in "tense" areas.

The justice stopped the law in 2017, which according to some studies triggered prices up to 25%.

A new regulation, the so-called Elan law, once again made it possible to limit income and Paris has applied it since July 2019.

The standard is contemplated both in new contracts and in renewals.

The price cannot exceed 20% of the reference value set each year by decree, which considers criteria such as location, number of rooms or year of construction.

It also cannot be less than 30%.

The limits are applied in 80 neighborhoods of Paris and the fines for infringing them range from 5,000 euros, for individuals, to 15,000 euros, for companies.

The Paris Rentals Observatory, where the private sector and administrations participate, pointed out that prices rose slightly more in 2019, when the law to contain prices was already in force, than in 2018. One in three new contracts raised the rent above what the official index allows without justification (can be done if improvements are made to the home).

In 2020, greater containment in prices was expected, more due to the effect of the pandemic than due to an expansion of the law.

Agreed rentals in Italy

Since 1998, the country has had a rent control mechanism called Agreed Rate Rent.

Each City Council, based on agreements between the local associations of owners and representatives of the tenants, sets maximum and minimum prices.

Rome introduced this national standard in 2004.

The municipality indicates precisely how to make an assessment of the property.

To establish the price scale that guides the negotiations between tenant and landlord, even nearby services and green areas are taken into account.

These types of contracts, of a voluntary nature, are increasingly popular, as the State offers tax incentives.

A payment of fees for owners of 10% of the total rent is contemplated (compared to 21% in the so-called free contracts).

Since last April, tenants and owners can agree to a rent reduction due to the coronavirus crisis.

Neither party must pay the fees corresponding to the registration of a new contract.

According to the latest report from the SoloAffitti portal, rents fell by 7.5% on average in Italy during the health emergency.

In 2020, adherence to the agreed price rental contract increased by more than 3%, due to the tax benefits that this formula entails.

USA, limits in three states

The housing affordability crisis in New York is structural.

The lack of space and the offer of the free market place prices through the roof, in a city eminently focused on rent: 65% of residents (about 5.4 million) are tenants.

In 2019, a third dedicated at least 50% of their income to paying rent.

Of the existing stock of rental housing in New York, 43% are free and 45% are privately owned but with limited rents (regulated by a government agency).

In 2019, the State adopted a new law applicable to the latter.

Along with the two aforementioned categories, there are two more: controlled rent (equivalent to old rent in Spain), some 20,000 properties built mostly before 1947;

and the public offer, 12% of all rental housing, which is dedicated to people with a lower income level and has huge waiting lists.

On January 1, 2020, California capped the annual rent increase to 5% plus inflation for 10 years.

The move made California the third state in the country to adopt meaningful tenant protection.

Oregon approved in 2019 an annual rent limit of 7% plus inflation, with no time limit.