The City That Tried to Buy Itself

September 11, 2017

Berlin recently announced that it was blocking the sale of a Friedrichshain-Kreuzberg tenement and instead buying the building itself. The action is allowed thanks to a right of pre-emption that came in as part of a national “neighborhood protection” law.

It’s a populist move that everyone involved knows isn’t sustainable. Berlin’s an up-and-coming city that real estate speculators in Germany and around the globe (this one was from Luxembourg) are veritably drooling over. If it tries to step in and buy every building whose ownership is going to turn over in the next decade, it’ll bankrupt itself in the blink of an eye. These acts of charity also have consequences – a lucky few tenants get access to permanently subsidized rents, but a municipality’s budget is a zero-sum game. Everyone else suffers from the loss in civic services that the money would have otherwise paid for.

And yet, the move is also indicative of a deeply-set problem that’s engulfing every rich society on the planet. It seems natural to think of real estate as an asset class that’s susceptible to the laws of supply and demand, but unlike stocks and bonds, shelter is a basic need that every person on Earth should have access to. Cheap money (~zero percent interest rates), poorly performing investments elsewhere, and a ubiquitous housing crunch have the well-moneyed racing to drop everything they can into rapidly appreciating urban environments. The rich eat the poor, the old eat the young, and everyone but the capital class is forced further out into the periphery with three-hour commutes and a proportional loss of opportunity.

Housing crises aren’t going to be solved by small time measures like governments buying buildings to prop up a few dozens tenants. A real solution is going to necessitate change so big that it would be challenging to think about from our perspective today. A combination of huge tax penalties on anything beyond primary residences, foreign buyer tax cranked to draconian levels, strictly enforced occupancy tax, and anti-AirBnB legislation are all going to be needed to counteract the overwhelming market forces at work. It’s worth considering even more extreme measures too – like making real estate investment flat out illegal.

The one key point in the eulogy of the human race will be its inability to solve big problems. Just like climate change and world peace, this is one that’s probably going to prove too big for us, and over the span of centuries is reasonably likely to lead to civilization-ending levels of social unrest.

On a slightly less somber note – what’s been happening in Vancouver recently is showing promise in both the measures implemented (foreign purchase and occupancy taxes) and the speed which they went in, so there is some hope. Berlin, London, San Francisco, New York, etc. should all be following suit as quickly as they can draw up the legislation.

The City That Tried to Buy Itself was published on September 11, 2017.

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