WC Varones

Don't lend your hand to raise no flag atop no ship of fools

Global competitive devaluation hits German renters

Germany ought to have low rent inflation, with its sluggish economy and declining demographics.  But a funny thing happens when people lose faith in a currency.  They begin to chase scarce assets with limited supply: fine art, gold, beachfront property, Berlin apartments.

Speigel:
The exploding costs and dwindling supply of urban housing are slowly pushing Germans of average means out of the cities. As September's national election approaches, politicians are jockeying to find viable solutions to a problem they helped create.

[...] Of the 1,200 apartments Mingazzini has sold this year, 150 were bought by Italians seeking to invest their savings in German real estate, which is seen as crisis-proof. "They know full well that if they buy an apartment that's currently being rented for €5 ($6.60) a square meter (about $0.60 a square foot), they can charge a lot more on a new lease," Mingazzini says.

The method being used by Italian teachers and lawyers to protect themselves against the euro crisis is causing turmoil in Germany's capital. Berlin's housing market is going haywire as local rents explode. Since 2007, average rents in the western part of the city have gone up by 20 percent, and other major cities are now experiencing the same development. Even apartments in second-tier cities have become nearly unaffordable for people with average incomes.

There was a time in my naive youth when I thought the Euro would be a sounder currency than the dollar because of the "stability pact" which imposed strict fiscal discipline on member states, limiting them to deficits of 3% of GDP.  Little did I realize that the "stability pact" was as big a farce as Gramm-Rudman, Pay-Go, the debt ceiling, or any budget gimmick that will be broken by politicians as soon as it becomes inconvenient.

Fasten your seat belts.  You wouldn't like the Germans when they're angry about inflation.

3 comments:

Independent Accountant said...

WCV:

I will give you a "pass". I saw this coming in 1999 and said so. Why do I give you a pass? I was born in 1951 and saw the Euro as being as useful as the Kellogg-Briand pact! I'm old. And disgusted.
Once the dollar had a "gold reserve" which supposedly was to prevent the Fed from printing too many. Which did what?

IA

Doo Doo Econ said...

8) nicely done!

K T Cat said...

It's odd that they're having a baby drought and a shortage of housing at the same time.

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