Paul Krugman backs temporary rent caps to curb housing speculation in Europe

For almost two months, a wave of social unrest has been bringing crowds out onto the streets of several European countries, where the persistent rise in the cost of living has become an increasingly difficult burden to bear. From Albania through Italy, France, Belgium and Germany to Portugal and Spain, the motives for the protests are not always the same, but one of the main grievances, particularly among younger people, is soaring housing costs, which in fact have been worsening since 2010. Although a principle enshrined in the Universal Declaration of Human Rights (1948) and a basic condition for the economic security of the population is at stake, it was only last September that the European Commission put forward a legislative proposal (source in Portuguese) to act on this front.

The problem is not confined to the old continent, Paul Krugman tells Euronews, and he accepts rent caps as a temporary measure with an immediate impact to contain speculation. The American economist says that, from an economic point of view, the issue is simple: it is enough to build more homes and to remove the restrictions that make construction difficult. In places where building has been liberalised, he adds, property prices have fallen significantly.

Even so, Krugman acknowledges that the current state of the housing market is "impossible" to bear. In comments quoted by AFP in coverage of one of the recent demonstrations in Italy, a 21-year-old Italian university student reported that in Rome a single room has reached 1,200 euros. In its opinion (source in Portuguese) on the Commission's housing plan, the European Students' Union warned that thousands of young people and students are being excluded from higher education by speculative practices.

According to the European University Association, students who do not live with their parents spend almost 40% of their monthly income on housing costs. The Commission itself and the European Parliament (source in Portuguese) also acknowledge that the financialisation of housing, meaning investment in this sector by funds that treat properties as profit-generating assets, is contributing to the sharp rise in prices. In this context, and given that building new homes in several European countries takes at least three to five years, Paul Krugman opts for a pragmatic approach to the rental market, supporting the introduction of second-generation rent stabilisation models.

The 2008 Nobel laureate in economics notes that his home city, New York, is stabilising rents. He says the mayor, who in European terms would be described as a man of the left, is doing so while allowing incentives and more construction, and that he is not a purist on this issue, arguing that building and regulation can coexist. The programme adopted in New York subjects annual rent increases to an index that sets a maximum percentage for uprating, and offers massive tax exemptions lasting up to 40 years to private developers in return for a substantial proportion of the new units being compulsorily brought under the regulated regime.