Rethinking rent control in Europe
This webinar on rethinking rent control in Europe will occur on Tuesday, December 7th on Zoom, from 10:00AM to 12:30PM (CET). Please register here.
This is the first event organized in collaboration between Housing Rights Watch and the Housing Solutions platform. Interpretation will be available in English, German and French.
Want to know more about the subject before joining the debate? Read our concept note on rent control here.
Context of the debate: The sharp rise in rents in the private rental sector, particularly in cities with a strained rental market, is increasingly affecting European citizens who are having to pay more for housing. Across the European Union, about one third of the population is housed in private rental accommodation. The increasing disparity between rent and the decrease in household incomes is pushing public authorities to regulate the rental market in order to ensure access to affordable housing for all. Increasingly used across the EU, rent controls are becoming a key measure when the property market or social housing stock are unable to meet the needs of low-income and middle-class households. In this debate we shall hear at different speakers on the relevance and need of rent regulation in European countries.
Draft programme:
Welcome: Ernest Urtasun, Member of the European Parliament, Group of the Greens/ European Free Alliance
1. The perspective of local actors
Chair: Sarah Coupechoux, Research Manager Europe, Fondation Abbé Pierre
A legal approach to rent regulations in the European Union. Maria Jose Aldanas, Policy Officer at FEANTSA and Coordinator of Housing Rights Watch (Confirmed)
Public housing policies: rent regulation as part of a broader land and real estate strategy. Mr Ulrich Soldner, Representative of the Mayor for Regional Networks and Land Strategy for the City of Ulm (Germany). (Confirmed)
Public Housing Policies in the city of Barcelona and the role of rent control. Javier Burón Cuadrado, Housing Manager of Barcelona City Council. (Spain)
The view of Tenants’ associations in the Netherlands: Erik Maassen, Senior policy officer at Woonbond. (Confirmed)
2. Reaction from international experts
Chair:Dara Turnbull, research coordinator, Housing Europe.
Policies for more affordable housing: the role of rent regulations, Marissa Plouin, Policy Analyst, OECD, (Confirmed)
Impact of rent control, an economic perspective. Dr. Konstantin A. Kholodilin, Research Associate in the Economic Policy Department. DIW, Berlin, (Confirmed)
Wrap up and Closing words: Sarah Coupechoux (Abbe Pierre Foundation) and Sorcha Edwards (Housing Europe).
Summary of the debate (pdf version here):
As an introduction, Ernest Urtasun, Member of the European Parliament in the Group of the Greens - European Free Alliance (EFA), stressed that the lack of access to adequate and affordable housing has become a European issue affecting all countries. With 25% of European tenants spending more than 30% of their income on rent, Europe has a problem to solve. According to him, the European Commission is the “guardian of the EU Charter of Fundamental rights” and has the responsibility and the tools available (banking supervision, monetary policy, laws, mortgage credits, etc) to tackle this issue. At the beginning of 2021, the European Parliament presented a report on the “Access to decent and affordable housing for all” calling on the Commission to propose an integrated strategy on affordable housing to ensure that housing rights are put before market interests and end homelessness by 2030. This report aspires to a “greater European ambition”, asks the Member States to ensure security of tenants and evokes the possibility of using the European Semester to push them to do more. The Green Group in the Parliament is currently working on a new study on the financialization of housing and how the EU can intervene to face this challenge. The Member of Parliament concluded by saying that consideration should be given to rent control, drawing on successful examples in some cities where it has already been implemented.
The 1st panel was chaired by Sarah Coupechoux, Research Manager Europe at the Fondation Abbé Pierre, and offered the local actors’ perspectives on rent control.
First, Maria Jose Aldanas, Policy Officer at FEANTSA and Coordinator of Housing Rights Watch presented a legal approach to rent regulations in the European Union. According to her, enabling the access to affordable housing is a condition to guarantee the fundamental right which is the right to housing. She explained that the past decade has seen a rise in rental prices, and even more in cities with tight rental markets. This has led to a disconnection between rents and incomes - stronger for poor households, leading FEANTSA to argue for the implementation of rent control. She highlighted that one of the key components of the right to housing, the affordability of housing, is guaranteed under International and European human rights law in the International Covenant on Economic, Social and Cultural Rights, Article 11 (1) as part of the“Right to an adequate standard of living”. General Coment N°4 of the UN Committee on Economic, Social and Cultural Rights states that: “Housing costs should be at a level that does not threaten or compromise people’s other basic needs”. “States must ensure that housing costs are not disproportionate to income levels”.
Although housing is a right guaranteed under human rights law and should not be subject to speculation, the financialisation of housing is one of the main current obstacles to affordable housing. All over Europe, investment funds are having a structural effect on rents. In some countries, activists are rising up against this reality, such as "Expropriate Deutsche Wohnen & co" who organized a referendum in Berlin to expropriate the large landlords. A joint research of Housing Rights Watch and the Fondation Abbé Pierre shows that rent control encompasses different realities, from limiting the initial rent to acting on lease renewals to imposing rent cap, etc. It showed that “second generation” of rent controls[1] allowed for exceptions in the case of housing renovations. Social housing is declining, but new EU initiatives show that the EU impact on the topic is increasing, and that municipalities are more keen on using rent control and have a bigger role in insuring affordable housing. The research shows that the existing rent control legislations all attempt to strike a balance between landlords' rights to property and tenants' rights to housing: while there is a fear that landlords will not rent their properties, there is a desire to preserve the supply of affordable housing and security of tenure. In this regard, the European Court of Human Rights (ECHR) does not oppose rent controls, but highlight the need to strike a balance between general interest and the landlord’s right.
At the national level, rent controls have already been implemented in Europe, such as in Germany with the 2015 Rent Control Act. A rent cap started to be implemented before it was deemed unconstitutional in March 2021. Nonetheless, the German Federal Constitutional Court stressed in its decision the permissibility of rent regulation, and its necessity for the public interest. In France, a decree prohibits rent increases since 2012 in 28 municipalites and the 2018 ELAN law imposed an experimental rent control system for 5 years in housing strained areas. Overall, the speaker reminded the need to restrict the right to property, as the right to housing is not compatible with deregulated market.
The second speaker, Ulrich Soldner, Representative of the Lord Mayor for regional networks and land strategy for the City of Ulm (Germany) presented the land policy of the city of Ulm. Affordable housing policies have started with the city’s industrialization in 1894, as the town council decided that Ulm should build accessible housing for the workers, as the factories needed to attract labour. Since then, the communal land has been used specifically to build communal housing, and the city started purchasing land for this purpose. Today, the strategy of the municipality to regulate the prices of rents is to purchase and create a stock of land that can be used for housing construction. The city’s strategy is to anticipates the supply to meet the demand. This stock is also exchanged for agriculture and used to face “human and natural challenges” (childcare, immigration, environmental degradations, etc).
The role of the city is central in controlling the affordability of housing. The Article 28 of the German Constitution makes municipalities responsible for all housing activities. In the city of Ulm more specifically, the agreement of the city is necessary to start the construction of a building, and private actors building on municipal land agree to offer a minimum of 30% of their stock to affordable housing. “The rate often exceeds this threshold” according to Mr. Soldner. By acquiring land with buildings that need to be renovated, one of the goals of the city is to improve the quality of the housing park. Moreover, the city of Ulm has its own municipal housing company “UWS”. UWS owns more than a third of the rented housing in the city and enables to control the level of rents. While the average rent is 8.6€/m2 at the scale of the city, it is 6€ in the UWS stock. Finally, Mr Soldner highlighted the "Ulm-Neu Ulm offensive", a partnership between the city of Ulm and the city of Neu-Ulm which will lead to the building of 7 000 new housing units in the next decade, out of which 30 to 50% will be owned by UWS.
Eduard Gonzales de Molina, PhD Candidate PPP's in Affordable Housing at Ajuntament de BCN and UPF Barcelona (Spain) presented the role of rent control in Barcelona’s housing policies. He reminded that the reasons that have led Spain to implement rent control policies were a shortage on social and rental housing in general combined with the strong increase in rental prices in the last years. The strategy of the city of Barcelona to face this crisis has been to launch a Right to Housing Plan to create 18 439 new social affordable housing units. This led to the creation of public housings targeting low-income households, elderly people, young people, etc. Another strategy was to purchase housing to better distribute the housing stock. The city also decided to mobilise vacant housing, although their vacant stock is very small, and developed public-private partnerships. Hence, a public-private company was funded to create affordable housing. Moreover, the city increased the public spending as well as grants for low-income homeowners.
The speaker stressed that the city aspires to a modern type of rent control which is neither too strict nor too permissive. This would include exemptions of future constructions from rent control, allow landlords to increase rents annually by moderating the sum tied to inflation, and would create incentives to keep the rental stock well maintained. Differences exist between the Catalan and Spanish rent regulations models: the first one limits increase in rents between contracts and during the contract (with early promising effects of the measure) and the second (which has not yet been implemented) includes a rent freeze policy, a tax incentive to reduce rent and a rent cap for big landlords. The speaker concluded by saying that building more homes would enable to rebalance the supply and the demand and questioned the existence of alternatives to rent control to have positive short-term effects on affordable rents.
Erik Maassen, Senior Policy Officer at Woonbond (the Netherlands) presented the view of tenants’ associations in the Netherlands. If regulations exist in the Netherlands, they could go further according to the speaker. A large part of the Dutch housing market is owned by private housing associations with non-profit goals. Regulated housing corresponds to dwellings whose rent value is -at the beginning of the contract- below the free-market threshold. If the rent is higher, the dwellings correspond to free-market housing. A large part of the Deutsch dwellings is both regulated and owned by housing associations, which makes it social housing.
The Dutch system guarantees strong tenant protection. All rental contracts are indefinite: while the tenants have legally 1 month notice before leaving, landlords need to go to court to end the lease. It is possible to change the nature of the contract only with new tenants, and in the case of affordable housing, tenants have easy legal access to a tribunal. A legal control on rent increase is insured by the housing ministry which declares yearly the maximum rent rise. The rent regulation system sets an objective standard on the maximum rent according to the square metres, quality, and property value of the dwelling. Finally, the affordability of regulated housing is guaranteed by a limit on the maximal annual rent increase set at the value of “inflation +2.5%”. Regarding the affordability of social housing, Woobond reached an agreement that the total amount of the rent increase should only be equal to the value of inflation alone. Regarding free market housing, last year for the first time (less stringent) regulations on rent increase were imposed.
The speaker also highlighted the downsizes of the Dutch system. In the last 10 years, regulations have diminished, and the part of unregulated dwellings owned by the private for-profit sector is increasing, as well as the proportion of temporary rental contracts. The country has a yearly tax on affordable housing, and lower middle income are sometimes excluded from social housing, as the Dutch Case demonstrated. International investors have been invited to the housing market by the government, and the introduction of commercial property value in the rent control system has made it easier for a dwelling to be considered as social housing. This has led to the fact that 800 000 tenant households have financial difficulties, a growing part of the housing stock is owned by investors, there is shortages on all housing types, and an increase in rent prices linked with a lack of regulation in the free market.
Q&A n°1
Do rent control could have a negative impact on private investments in cities? Will it lead to less supply because of the fear of not having sufficient financial return? Do the landlords will have sufficient money to maintain and renovate apartments they rent out?
Eduardo Gonzales de Molina: It depends on the design of rent control. A rigid type of rent control would lead to a reduction of the supply and renovations, but although we don’t have enough data to assert that with certainty, it is likely that the modern type of rent control policies with exceptions can provide better outcomes in the long term.
Erik Maassen: Regulations will not lead to a reduction in investment. In the Netherlands, the movement of de-regulation did not lead to new buildings. Investors started buying the stock of housing associations and brought it to the free market. The Dutch experience showed that more regulation and buildings organized by housing associations will lead to more buildings.
The 2nd panel was chaired by the research coordinator at Housing Europe, Dara Turnbull, and it was an opportunity to hear reactions from international experts.
First, Marissa Plouin, Policy Analyst at the OECD, presented perspectives on a more affordable rental market in OECD countries. She recalled that, in most OECD countries, owning a home is on average much more common that renting and that tenants constitute a majority in only two OECD countries. Housing affordability is a major challenge, especially for renters: since 2005, rent prices have increased in many countries and before the COVID crisis. By extension, over 2 million people were experiencing homelessness in the OECD. Different housing policies have been put in place by governments to make housing more affordable for tenants, the most common ones being housing allowances and social rental housing. In 2020, over half of OECD countries report some form of rent control regulation, but these differ considerably in terms of their coverage and design.
There are a number of arguments against strict rent control regulations, which should be kept in mind: these include, for instance, that rent controls help current renters at the expense of future renters, can lead to the reduction of the future rental supply, and iii) can reduce residential mobility. Considering these costs and trade-offs, she called for “a more nuanced debate.” She also emphasised the need to collect more data and evidence on the impacts of recently implemented rent stabilisation measures, which tend to be more flexible than “first-generation” rent controls, generally limiting the level of rent increases (linked, for instance, to the Consumer Price Index) and include exemptions for new development so as to avoid discouraging future rental supply. Finally, she mentioned that it is fundamental to increase the supply of affordable and social housing in light of dwindling public investment in housing development in most countries over the past two decades. Nevertheless, building new housing takes time, and it is critical to address immediate housing needs. While rent control is “the hot subject now”, she highlighted that the debate on affordable housing should not only focus on it, as “there are a lot of tools in the toolbox”.
Konstantin A. Kholodilin, Associate in the Economic Policy Department, DIW, Berlin presented the economic aspect of rent controls. He reminded that there are different tools available for housing policy from the cheap restrictive tools of rent control, eviction protection and housing rationing, to the most expensive stimulating tools of housing allowances and social housing. Nearly all countries in the world had or still have a form of rent control. These were massively implemented during World War I, before a period of deregulation in the post-war period. Rent regulations were implemented again during World War II, and deregulation happened again after the war. The 70s saw the return of regulation due to shocks and inflation, and in the late 80s rent controls diminished again as the former socialist countries removed these measures. A new wave of rent regulation occurred in the 2010s especially in Europe and even more in the 2020s, with about twenty countries implementing rent freezes and rent reductions.
The speaker highlighted that all housing policies have pros and cons and called for “a careful and thorough analysis” of the positive and negative effects of a policy like rent control before implementing it. Indeed, he reminded that rent control has intended and unintended effects. It leads to lower controlled rents, and to an increase in home ownership as landlords have more incentives to get rid of rental housing that give them no profit. It also lowers residential mobility, which could have the negative effect of making people less reactive to the chocks of the labour market as it creates an incentive to stay in the rent-controlled dwelling. At the same time, this ensures that tenure is more secure, and people move less as they are less evicted. According to the speaker, a majority of studies shows that rent control lowers housing constructions and the dwellings’ quality. Finally, rent control “support tenants in the controlled sector to the expense of the landlords and of tenants who are not lucky enough to occupy rental dwellings”.
Q&A n°2
How can government know how to position themselves on the scale from no regulation to strict rent controls? How could we get the most optimal social impact of rent control?
Erik Maassen: We need to analyse the policies not only in isolation but in relation to each other, as their simultaneous implementation may have an impact on them. In general, rent control is not a measure to be advised but if it is necessary, it must be as soft as possible in order not to damage the market mechanisms.
The OECD conducted research on the need to increase the government support for the construction sector to avoid the negative effects of rent control measures, but what kind of policies the governments could introduce to support the development of the housing supply?
Marissa Plouin: Over the past two decades in average, we have seen a decline in government investments in housing and especially new housing. Governments should invest more on housing and especially in quality social and affordable housing. Rent stabilization cannot be implemented alone, and there is a need to look at what other policies could be implemented as well. However, with the recovery we are seeing more investment and pledges for investment in rental regulation.
Finally, Sarah Coupechoux concluded the debate.
The housing crisis in Europe is undeniable and is having a severe impact on households, forcing the poorest to make savings on other spending categories such as food and energy. The balance of power between tenants and landlords is very uneven in Europe, and it is necessary to find the right balance for both parties. This debate has shown that there are ways to act and that a few European countries can serve as examples by having successfully implemented some form of rent control. However, it is not rent control per se that guarantees the access to affordable housing, but a combination of measures such as the production of affordable housing and the implementation of measures supporting tenants and landlords for example. When measures are implemented, it is also important to ensure their enforcement. A recent report by the Fondation Abbé Pierre showed that 35% of rents in Paris exceeded the rent control legislation. The design of rent controls can also be adapted to the context. The EU has a role to play in facing this crisis and multiple tools are available to influence the housing market. The current Renovation Wave could be an opportunity, not for tenants to pay the costs, but for them to benefit from ambitious social support measures. She concluded with a quote from Abbé Pierre: "You don't have to wait to be perfect to start something good".
Additional ressources :
- European Parliament, Report on the access to decent and affordable housing for all, 08/12/2020.
- FEANTSA, Fondation Abbé Pierre, The 6th Overview of Housing Exclusion in Europe 2021, Chapter 4: Legal Developments: Rent regulation in the European Union, May 2021.
- OECD Policy Brief on Affordable Housing, Better data and policies to fight homelessness in the OECD, 2020.
- OECD Policy Brief: Social housing: a key part of past and future housing policy, 2020.
- OECD Policy Brief: A crisis on the horizon: Ensuring affordable, accessible housing for people with disabilities, 2021.
- OECD Policy Brief: Building for a better tomorrow: Policies to make housing more affordable, 2021.
- OECD Affordable Housing Database
- Paris Rent Observatory, Survey on rent control in Paris, 2021.
- Hanna Ketunnen, Hannu Ruonavaara, Rent regulation in 21st century Europe. Comparative perspectives, May 2020.
- Michael Byrne, Does rent regulation work?, December 2021.