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Rent controls are becoming a highly divisive issue in Europe

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In front of the criminal court in Moabit, supporters of a left-wing housing project in Köpenicker Straße protest against its eviction. A woman holds a sign with the English inscription “A roof or your head a basic human right”.

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 LONDON — Rent controls are becoming increasingly popular in many European nations, but experts note that they rarely solve housing crises on their own and can even scare investors away.

Rent controls are government policies, whether on local or a national level, that aim to cap house price increases. They are intended to keep housing affordable, at least for the most vulnerable parts of a population. However, the policy has its critics.

In Sweden, for example, rent controls effectively toppled the government there. In Germany, the matter was subject to a year-long legal battle. Meanwhile, lawmakers in the Netherlands, the U.K. and Ireland have all had similar discussions about their property markets.

The root causes

Speaking about lofty prices in the Netherlands, Nic Vrieselaar, a senior economist at RaboResearch, told CNBC that the market is “becoming unacceptable.” “This is a matter of supply-demand due to the low interest rate environment,” he said.

There’s an age-old trend of people flocking to urban areas where there’s more jobs and higher salaries. But, at a time of low interest rates from central banks — which European nations have experienced in the wake of the sovereign debt crisis — and help-to-buy schemes, more people have bought property, either as a first home or as an investment to let. This demand then pushes up prices given the limited housing stock on the market.

High-rise buildings in the Märkisches Viertel in Berlin.

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In addition, the so-called “Airbnb effect” has worsened the situation, experts note. Rather than selling a property or letting it out long term, many landlords choose to make their houses or apartments available for short stays. This then means there’s less stock for the locals, thus contributing to a further acceleration of rental prices.

Between 2010 and the first quarter of 2021, rents increased by 15.3% in the European Union, according to Eurostat.

Separate data gathered by Europe’s statistics office showed that, in 2020, the estimated average rent levels for apartments was the highest in Dublin, followed by Copenhagen, then Paris, Luxembourg and Stockholm.

Colm Lauder, head of real estate at investment bank Goodbody, told CNBC that he expects rental prices to keep rising. He said: “In Ireland, we are concerned that [rent] controls will stop capital coming through.”

A vicious cycle

Property investors see a significant downside in rent controls in that they cap returns. In the case of Ireland, rent increases in certain areas are limited at 4% per year.

“If they can’t get [returns] then they will look elsewhere,” Lauder said.

Private investment plays a crucial role in supporting the housing market, by promoting construction and refurbishment. If investors find higher returns in other nations, they are likely to shift their funds there and supply will remain limited in that initial market.

However, not everybody agrees with this view.

Barbara Steenbergen, a member of the International Union of Tenants and former lawmaker for the German region of Cologne, told CNBC: “We are of course pro rent controls if it’s part of a comprehensive housing package.”

She highlighted how important rent controls are for low and middle-income families, noting that in Berlin, for example, rent increases have gone up exponentially, but salaries have not.

This divide is a “threat to social peace,” she said, while adding that she has not seen investment fleeing in any market that has rent controls. One of the challenges is that investors focus on luxury buildings and less on affordable and social housing, she said.

Ultimately, the solution may lay with the root of the problem.

“What I think needs to be done is increasing supply,” Vrieselaar said.

In a statement published in 2018, the European Central Bank noted that “housing completions in the euro area have remained substantially below their average level since the start of monetary union” in 1999. In addition, the ECB also said that the lack of building permits and labor shortages have been a constraint in improving supply. 

But Vrieselaar suggested that governments should change the way they tax the sector, so they can better tackle the housing crisis. Essentially, he believes that the Netherlands should tax people’s wealth more, including their second and third homes and lower the burden on people’s incomes so tenants have more room to spend on their rent.

 

 

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Retail sales post surprise gain as consumers show strength despite delta fears

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Retail sales posted a surprise gain in August despite fears that escalating Covid cases and supply chain issues would hold back consumers, the Census Bureau reported Thursday.

Sales increased 0.7% for the month against the Dow Jones estimate of a decline of 0.8%.

A separate economic report showed that weekly jobless claims increased to 332,000 for the week ended Sept. 11, according to the Labor Department. The Dow Jones estimate was for 320,000.

Economists had expected that consumers cut back their activity as the delta variant continued its tear through the U.S. Persistent supply chain bottlenecks also were expected to hold back spending as in-demand goods were hard to find.

The pandemic’s impact did show up in sales at bars and restaurants, which were flat for the month though still 31.9% ahead of where they were a year ago.

However, sales were strong for most areas during the month, when back-to-school shopping generally results in a pickup in activity, especially so this year as schools prepared to welcome back students after a year of remote learning.

The headline number would have been even better without a 3.6% monthly drop in auto-related activity; excluding the sector, sales rose 1.8%, also well above the 0.1% expected gain.

With fears rising over the pandemic, shoppers turned online, with nonstore sales jumping 5.3%. Furniture and home furnishing also saw a healthy 3.7% increase, while general merchandise sales increased 3.5%.

Electronics and appliances stores saw a 3.1% drop, while sporting goods and music stores fell 2.7%.

The numbers overall reflected a more resilient consumer, with sales up 15.1% from the same period a year ago.

The retail upside surprise was tempered slightly with a disappointing read on jobless claims.

Initial filings increased 20,000 from a week ago after posting a fresh pandemic-era low. Still, the four-week moving average, which accounts for weekly volatility, declined to 335,750, a drop of 4,250 that brought the figure to its lowest point since March 14, 2020, at the pandemic’s onset.

The claims total came under heavy seasonal adjustments, as the unadjusted figure showed a drop in filings of 23,331 to 262,619.

Continuing claims also declined, falling by 187,000 to 2.66 million, also a new low since Covid hit. The four-week moving average nudged lower to about 2.81 million.

However, those receiving compensation under all programs actually increased just ahead of the expiration of enhanced federal jobless benefits. That total, though Aug. 28 and thus before the expiration, rose by 178,937 to 12.1 million.

In a separate economic report, the Philadelphia Federal Reserve reported that its manufacturing activity index rose 11 points to 30.7, representing the percentage difference between firms reporting expanding activity against those seeing contraction. That number was well ahead of the Dow Jones estimate of 18.7.

This is breaking news. Please check back here for updates.

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StanChart chairman still sees opportunity in China as regulations tighten

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Tourists visit the Bund waterfront area on May 10, 2021 in Shanghai, China.

Wang Gang | Visual China Group | Getty Images

But overall, I think China continues to be a tremendous source of opportunity for the private sector.

Jose Vinals

Chairman of Standard Chartered

“There’ve been some articles in the media about — is China becoming uninvestable? I don’t think so,” Jose Vinals told CNBC’s Hadley Gamble on Wednesday.

A number of sectors may be “a little bit more challenged now” and investors need to look more carefully at what investments they are making, he said.

“But overall, I think China continues to be a tremendous source of opportunity for the private sector,” he said, pointing out Beijing has slowly opened up its financial sector, granting some international firms access.

The regulatory crackdown in China has been interpreted differently by big names in the financial world, including Ray Dalio, George Soros and David Roche.

Inflation expectations

Separately, Vinals said he doesn’t expect inflation to be a big problem.

“I still subscribe to the view that inflation that we’re seeing in the United States and in other Western countries in particular … has an important transitory component,” he said.

Read more about China from CNBC Pro

Fed Chair Jerome Powell similarly believes that inflation will soon subside and has said he wants to see more strong employment reports before the central bank starts paring back its bond purchases.

Vinals said many Western countries are operating below their maximum economic potential, adding the Federal Reserve is likely to hike rates early next year.

“My baseline is that inflation will not be a big problem. But there is a risk that it may become more of a problem than we think,” he said, acknowledging that it would “complicate things” for the world.

“But I see [inflation] more as a downside risk to the global economic recovery, than as the base case for the economic outlook,” he said.

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France rebukes Australia after it ditches submarine deal

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PARIS, FRANCE – JUNE 15: French President Emmanuel Macron (R) welcomes Australian Prime Minister, Scott Morrison (L) prior to a working dinner at the Elysee Presidential Palace on June 15, 2021.

Chesnot | Getty Images News | Getty Images

LONDON — France is not holding back showing its disappointment with Australia after it abruptly ended a submarine contract in order to sign a new deal with the U.S. and U.K.

“It was a stab in the back. We had established a relationship of trust with Australia. This trust has been betrayed,” Jean-Yves Le Drian, France’s minister for foreign affairs, told radio station FranceInfo Thursday morning.

Australia had signed a contract with French shipbuilder Naval Group in 2016 to build a new fleet, at a cost of $40 billion, according to Reuters. Both sides had confirmed the deal a couple of weeks ago. However, Canberra has now decided to scrap that agreement and join forces with the U.S. and Britain.

Late on Wednesday, the three nations announced a new security partnership where Australia will receive new nuclear-powered submarines. The deal with France would have provided conventional submarines.

“We intend to build these submarines in Adelaide in close cooperation with the U.K. and the U.S. But let me be clear, Australia is not seeking to acquire nuclear weapons,” Australia Prime Minister Scott Morrison said on Twitter.

He added that France is a “good partner” and the new deal was motivated by “a changed strategic environment,” according to France 24.

U.S. President Joe Biden made sure to reference France when presenting the new deal on Wednesday, saying the European nation will remain a key partner in the Indo-Pacific region.

However, these words are unlikely to appease the ill feelings in France.

“The American choice which leads to the removal of an ally and a European partner like France from structuring a partnership with Australia, at a time when we are facing unprecedented challenges in the Indo-Pacific region … marks an absence of coherence that France can only observe and regret,” France’s ministers of foreign affairs and the armed forces said in a joint statement on Thursday.

The statement also said that the latest developments intensify the need for European strategic autonomy — the idea that the EU should become more independent with its defense and security policies.

The European Commission, the EU’s executive arm, is due to present its strategy for the Indo-Pacific region on Thursday afternoon.

 

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