Market versus social contractuality?

Market versus social contract?

The position of housing cooperatives in the dispute over rent regulation

After months of dispute, the berlin house of representatives has passed the "law on the revision of legal provisions on rent control" passed. The so-called rent cap comes into force on 23. February in force.

The principle of the rent cap is contentious. On the one hand, there is the demand for social contractibility, which does not want to rely on a price mechanism that does not seem to produce a sustainable housing supply for many people. On the other hand, there is the free market approach, which, in the case of intervention in its mechanisms, predicts a situation in which everyone will be worse off.

The critical voices also include those of the berlin housing cooperatives, which for their part, as an established form of social contract-based housing organization, have a special role to play in what is happening.

The submitted version of a rent cap would limit the net cold rents for the next five years to the level of the respective lease, which was fixed on 18. June 2019 was valid. In addition, rent ceilings were formulated depending on the age and equipment of the apartments. Tenants* of existing leases that are more than 20 percent above the caps should be given the option to reduce their rents.

What problem situation is being responded to in this powerful bill seems obvious. In the discussion about housing, the term "affordable" often used. One third of the net income for the basic rent is considered to be the upper limit of what tenants can afford in terms of housing in the long term. This is a rule that can only take effect in the case of high and rising rents, at least in large cities, when a certain income is reached.

In a critical attitude towards the use of averages and city comparisons in the discussion about the housing situation, the research project "social housing needs" of the humboldt university in berlin and the goethe university in frankfurt a.M. In 2017, a report was published that was intended to provide a more differentiated view of housing conditions in germany’s major cities. "What emerged were serious differences, not only between cities, but above all between different income groups".

Among other things, a direct comparison is made between households below the poverty line and households with particularly high incomes. A rent burden of 40 percent for low-income households contrasts with 17 percent for high-income households – despite much smaller living space. About 1.3 million households are said to have residual incomes below the level of the standard rates of social transfer payments after paying rent.

Part of this dynamic is the lack of alternatives in the area of the lowest rents. If housing costs are outside the ‘affordable’ range – for example, because a tax office may have warned landlords about ‘too low’ rents – this will mean a change of residence, perhaps including a job search and loss of social environment.

The report states that in order to avoid homelessness, savings are instead made in other areas of life. This is one of the reasons why the rental market need not fear the demand side. The question is: can the free housing market be entrusted with a social contract solution to the situation under these circumstances??

The berlin senate sees a need for intervention and argues that there is a constant mismatch between supply and demand: "the main cause of this housing market development is the demand for housing in the state of berlin, which has been increasing for years. This demand has so far not been met by a corresponding increase in supply – primarily through new housing construction."

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