Capital Language Solutions | Housing Market Regulation

Housing Market Regulation

Anti-regulation-monopolyToo much regulation, too much red tape, too few incentives for developers and investors – Germany’s real estate industry seems to be up in arms on an almost weekly basis. Milieuschutz, Mietpreisbremse, Zweckentfremdungsverbot, European real estate credit agreement directives, Bestellerprinzip…the list goes on and on. Given the uproar with every market intervention proposed by attention-seeking (and vote-seeking) politicians across the political spectrum, we thought it might be interesting to discover whether the grass is always greener on the other side by looking at some of the measures introduced by other countries to regulate their housing markets. Read on to find out more.

Regulation armoury

So what regulatory tools do legislators have at their disposal to tackle rental housing markets? Here are the major areas for political intervention:

  • Control of rental prices, i.e. landlords’ freedom to set rental prices for new contracts;
  • Control of rental price increases, i.e. landlords’ freedom to amend rental prices during a tenancy;
  • Market regulation, i.e. the legal framework, taxes, incentives, subsidies and systems for seeking redress in case of disputes (arbitration, courts, etc.);
  • Deposit requirements for tenants, if any, in order to conclude legally binding rental contracts;
  • Tenant evictions, i.e. setting minimum standards for justifiable and enforceable evictions, such as renovation, urgent personal need, etc. and setting timeframes within which tenants have to vacate a property and find a new apartment;
  • Length of tenancy agreements, setting minimum lengths (or unlimited secure tenancies) for tenancy contracts.

Over the years, Germany’s authorities have passed legislation in all of these areas. Typically, politicians set about introducing new laws, or tightening up existing legislation, in the first four areas as rental housing markets begin to overheat. This is exactly what we have seen in Germany with the Mietpreisbremse (controlling rental prices), despite the fact that economists (and many others) know that rent control can only ultimately have an adverse impact on housing markets. Individual states/cities have also enacted rental increase caps (Kappungsgrenzen) and ordinances banning the conversion of rental units into condominiums, or banning luxury renovations (Mileuschutz). So what do market interventions look like in other countries? Are there any that have gone even further than Germany’s? Yes. And you may be surprised to find out that many are traditionally viewed as far more free-market-oriented than Germany.

Regulation in Canada

Each of Canada’s provinces is free to enact legislation in order to address its specific housing market issues. The government of British Columbia, for example, has signalled that it is about to launch a series of measures designed to “reign in unethical practices” after what it describes as ten years of failed self-regulation. These measures include a ban on agents representing both buyers and sellers (similar to Germany’s Bestellerprinzip, but with fines of up to C$500,000, rather than €50,000). This is in addition to an extra real estate transfer tax of 3 % on luxury homes, defined as those costing more than C$2 million, which is levied on top of the standard transfer tax. There is also serious talk of introducing a tax on homes that are not lived in or rented out.

Regulation in Singapore

Singapore’s government has a long track record of intervening in the country’s housing market, having introduced a cap on land purchase prices as far back as the 1960s in order to prevent landowners and speculators from speculative profiteering. This interventionist approach continues today, with measures designed to keep prices for the local population as low as possible, to the detriment of overseas’ investors. The real estate transfer tax for foreign buyers stands at 15% (how’s that for a Heuschreckensteuer?). Incidentally, 80% of Singapore’s population live in homes built by the state, and 90% of the population are home-owners.

Regulation in the UK

Stamp duty land tax (SDLT), which is the equivalent of Germany’s Grunderwerbsteuer, was reformed this year to penalise buy-to-let investors and second home owners. These now have to pay an extra 3 % SDLT on top of the standard tax assessment. The UK government hopes that this will dampen down speculative acquisitions and cut the amount of vacant property in the country, but so far the only impact has been to create a rush of property purchases in the first three months of the year as buyers rushed to avoid the higher rate.

Regulation in Australia

As of July, buyers and sellers of real estate in New South Wales have to prove their residency and citizenship status to the government before any sale is completed, under new rules targeting foreign buyers. This follows a crackdown by the Australian Taxation Office, which received tip-offs from the public on foreign owners who breached existing requirements, which led to the forced sale of $1 billion worth of real estate. Victoria and New South Wales, the states containing major cities such as Sydney and Melbourne, have introduced foreign buyer surcharges on land tax and stamp duty, and other states are set to follow. The surcharge in the state of Victoria adds an extra 1.5% to the 7% stamp duty land tax and is designed primarily to increase the costs of buying real estate for Chinese buyers. Foreign residents cannot buy an established residential dwelling in Australia, either directly in their own names, or through trust relationships or company structures. Penalties apply for breaching this rule.

Regulation in France

In Paris, 20% of per cent of all homes in the city have to be available for social rent – and president François Hollande’s government is increasing this to 25 per cent by 2025. On top of this, there is a 50 per cent social housing target for developments in specifically designated zones around the city.

Reassessing regulation in Germany

So, maybe the grass is not always so green on the other side. Foreigners buying property in Germany are basically free to make investments of any scale. There are no “foreign buyer surcharges.” Stamp duty land taxes, despite recent increases, are still fairly competitive in international terms. There is also no capital gains tax when selling real estate held for more than ten years. Yes, regulations in the rental housing sector have tightened over the last few years, but it certainly doesn’t seen to putting buyers off just yet. At least not when you consider that prices are still rising, and demand among investors far outstrips the supply of available rental units.

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