Berlin - It’s almost like a mantra. When activists and politicians suggest real policies to stop rent from skyrocketing and the displacement of working-class tenants, real estate lobby surrogates counter banally, “The only thing that helps is build, build, build!”
The approach has appeal. It’s soothingly simple, repetitive, and has a deceptive common-sense logic to it. It’s even spawned a counter-movement to NIMBY politics, the YIMBYs (yes in my backyard) who vociferously support any-and-all-new housing construction.
However, the argument that simply building more apartments will solve our grossly unequal and destructive housing market is not only empirically wrong but also counterproductive.
Given the highly speculative nature of real estate and land, building without socialisation and de-commodification is just a veiled vehicle for gentrification, displacement, and segregation. Worse, it completely gives up the question of distribution and mobility within cities, essentially creating “rich ghettos” that are devoid of culture, services, and alternative spaces.
Here are a few reasons why focusing solely on building and supply risks pushing rent even further up for the average person. Rather, both socialising existing housing and increasing the supply of public, social, or non-profit housing would actually bring rents down and keep them there, ensuring more affordable housing for all and creating a more livable, equitable city.
Here in Germany, where the state plays a big role in securing affordable housing, there has never been a single un-subsidised social housing unit built by the private sector. Between 2014 and 2018, less than 1,000 social housing units were built in Berlin—all by Berlin’s public housing companies.
Private housing is built by developers who need to see an immediate profit on what they build. As land prices rise due to scarcity, developers thus need to inflate the purchase price to match. So in the end, most of what gets built is luxury housing or condos for sale.
This luxury housing glut is so bad, that in New York around a quarter of all condos built in the city have remained unsold. Of some 80,000 new housing units that opened up in Los Angeles over the past four years, 91 per cent were unaffordable to those with moderate income.
New construction actually drives up rent in the neighbourhood
Luxury construction, and even market-rate new builds, bring wealthy in-movers rather than creating new housing for working-class residents. The new buildings operate as gentrification signals, spurring landlords to renovate their apartments so they can raise the rent and kick their tenants out.
Numerous studies show that this leads to rising living costs and the mass exodus of lower-income residents. This doesn’t just affect low-income residents, a recent study at the Humboldt Universität found that one out of every four moves in Berlin is caused by displacement.
In California, the situation is so dire that the black population in Berkeley declined by 30 per cent between 2000 and 2018.
“But extra supply will still help lower rents!” is the typical real estate lobby response. And there is evidence that market-rate, luxury apartments can help lower median rents. Yet this is at the regional level and only after significant displacement. Further, these effects take decades and are not proven to provide affordable housing — in fact, the second study above showed massive amounts of displacement and enormous increases in median rents. The first study shows that subsidised or public housing is twice as effective at reducing rents at regional levels.
Investors often rather speculate than build.
Around the world, an unprecedented amount of money is being used to buy up existing housing and property to speculate or use as a financial asset.
Between 2009 and 2015, London saw over $100 billion flow into the housing market from foreign investors—used to purchase existing homes and property. Here in Berlin, more than $200 billion was spent over the last decade on purchasing existing apartments and land — compared with the $18 billion spent on building.
In cities like Berlin, with considerable empty spaces, the land stays empty for years after which owners can sell at a serious profit. In 2018, property prices increased by 18 per cent, the sharpest rise in the world.
Back in the UK, over 500,000 unbuilt plots with construction permits blight cities and the countryside. In many places, there are plenty of plots to build on. But it’s often more lucrative to speculate on empty land or existing housing.
Affordable housing is being financialised and destroyed faster than it’s being built. Since the Great Recession, American and European cities have seen a mass entry of real estate capital into their cities, due to quantitative easing, public housing privatisation, and mortgage foreclosures. Housing is becoming increasingly concentrated in the hands of foreign and institutional investors. And that’s driving rent up astronomically.
In Berlin, the number of apartments by mega-landlords with more than 3,000 apartments has more than doubled since 2014, from around 90,000 to over 250,000 apartments. The largest landlord, Deutsche Wohnen owns over 110,000 apartments. Over 60,000 of their apartments were at one point owned by the city, sold for around €7,000 per unit in 2005. Rent in these apartments has far outstripped smaller landlords. Deutsche Wohnen explicitly states their business model is so lucrative because they can use scale to identify rent gaps and close them through cheap renovations.
The recently-announced merger of Berlin’s two largest landlords, Deutsche Wohnen and Vonovia, is a big cause for alarm as it will speed up this process. It comes with a hefty price tag of €19 billion that will have to be paid for with drastically higher rents in merged apartment stock of over 160,000 apartments.
Blackstone, one of the world’s largest asset management firms, broke dramatically into the US and European rental markets, buying up mortgages in the wake of the financial crisis. In the process, they have become the largest private landlord in the US. They recently spent $5.6 million to help kill prospects of rent control in California in 2018. In Barcelona, 95 per cent of their rental units charge above the neighbourhood average.
These investor landlords also have no qualms brutally enforcing their financialisation logic. In areas of Atlanta with a prominent concentration of property owned by real estate funds and investors, more than 20 per cent of renters received eviction notices in 2015.
We need to decommodify our way out of this crisis.
Building more housing is necessary—and indeed this is true everywhere in the world. Urbanisation points in one clear direction—by 2050, 68 per cent of the world population will live in urban areas.
However, it’s not a panacea. New construction will do little to keep long-term residents in their neighbourhood. Worse, if it’s built privately, it will drive gentrification and displacement, pushing rents way up above what’s affordable for most people in a neighbourhood.
Cities need to radically rethink housing as a distribution problem. Are all areas of the cities accessible to working-class residents? Without a more just distribution of affordable, de-commodified housing, we risk pushing vulnerable populations to areas with poor infrastructure and ripping them out of their social fabric. That’s not how we put an end to the gross inequality built into the DNA of our cities. This is a future of segregation that denies many access to the fruits of urbanisation.
Here in Berlin, we are leading a referendum campaign to expropriate mega-landlords with over 3,000 apartments, turning them into democratically-managed public housing. This is a radical break with the finance-first model of the past 40 years—towards a more rights-based approach.
Looking at the models of more equitable cities, you don’t need to look further than Vienna, Austria. It regular tops rankings of the world's most liveable cities, in large part due to its immensely affordable housing. The secret? 62 per cent of residents live in social housing, half of it owned by the city. Eight out of ten apartments built in the city today are subsidised by its social housing scheme, with the majority built by non-profit housing associations. Helsinki, a Housing First city, has bucked rising homelessness trends by simply guaranteeing homeless people housing.
These approaches are a far cry from speculation-first models that have turned metropolises all over the world into gilded cityscapes of corporate chains and under-occupied luxury apartments. But these successes show that thoroughly-gentrified cities like London, New York, or Dublin are by no means natural—by socialising and de-commodifying housing we can ensure housing as a right, and stop its exploitation as an endless source of speculative profit. That way we can win a city for all.