It has been happening for years. Berlin anarchists like to creep out in the early hours and set fire to luxury cars. One of the Berlin dailies printed a ‘How to set fire to a car safely,’ feature. The police were thrilled no doubt. Last weekend saw an escalation in the arson attacks – four cars, not all expensive, and a building site for luxury apartments, ignited. The use of crows’ feet to damage the tires of emergency vehicles is a new tactic. A group has claimed responsibility, and justified their actions, but we knew what their beef was. Gentrification! The German language has borrowed our word. They now say ‘Gentrifisierung.’ I hope I have spelt it correctly. It’s so new it has yet to find its way into my dictionary.
Gentrification was inevitable! When the wall, dividing the city, came down, many people borrowed money to speculate on property. The fear of cold-war escalation had kept the prices low, so one borrowed more than one could pay back, in the belief that prices would rise. After 15 years, one would sell again at a profit, pay back the loan and have a nest-egg in the bank. That was the theory. Banks and estate agents were in cahoots to get savers to overstretch themselves. After all – prices had to rise. But prices didn’t rise – they sank. After 15 years speculators had to sell at a loss. Many were bankrupt. Sound familiar?
15 year loans were not long enough. In the 10 years since the crash, prices have been going up by 15%, year on year. The small-time speculators were done for, so in came the big boys, from all over the world and bought, not individual apartments, but whole blocks, even streets. The houses needed renovating, which has happened, and now the rents have to go up to pay for the renovation. The original tenants cannot afford the new prices, are forced from their homes, and we get – gentrification.
There is a telling sentence in the text released by the anarchists, who claimed responsibility for the night of arson.
‘We will surface when least expected and attack whenever the political rascals manifest themselves. As long profit is made from our dwellings, the initiative will be called ‘sabotage and destruction’.
The naivety of that statement is staggering. Since when, wasn’t the rental market concerned with making a profit. House owners get a warm feeling when told their house has gone up in value, even though the wealth increase does nothing to improve standards of living. Although a crass statement, it contains a warning we would do well to heed. Across the world ever more books are appearing, written by powerful thinkers in the world of economics, warning that capitalism can’t go on taking the riches of the earth and sharing nothing. Put another way, we are beginning to appreciate that economics and the banking sector are there to serve society – not the other way round. Robert Peston predicted the need for a new capitalism, after the 2008 bank crash. I haven’t spotted the change yet.
How would the new capitalism work? Suppose a savvy landlord had invested his pension savings in the Berlin housing market around the time of the crash. Let’s assume he was never greedy and never did it to make money and he bought three apartments from desperate owners, who couldn’t service their debt. He didn’t haggle over price. He paid what they asked, although, within reason, they would have had to take whatever he offered. He got them out of a hole. He also allowed low income people, who wouldn’t otherwise get an apartment, to rent. Despite his big heart, he could expect a 6% return. The Berlin Senate has now put a cap on rents and he cannot put the rent up by even the rate of inflation. This is holding prices for the moment. Even with the rent cap he’s making 4% at a time my ISA is returning 0.9%. The apartments he paid £100 000 pounds for (that’s right – for all three) are now worth around £300 000 and rising.
Who cares if landlords can’t raise rents? People need somewhere to live. If you have enough to get by on, and by definition, landlords do, then it’s time to let go and help someone else get by! Alternative capitalism is that easy. The Berlin Senate has made us make a start.
I suggested the Berlin rent cap to my Beverley MP. He is Conservative and was underwhelmed!
Here are his downsides.
Many large Berlin apartment blocks, housing hundreds of families, are owned by insurance companies, who have invested their customers’ pension contributions. The rent cap must mean that their pension funds can’t grow as they need to.
My altruistic landlord is satisfied with 3% return. Anything on the stock market has to make 6% in order to attract new money. The big boys can’t accept a rent cap or a low return. What will give first? How many tenants will become anarchists, because they can’t manage 6%?
Image courtesy of Gustav von Rosenheim