Tuesday, June 27, 2017

The Mannheim Apartment Rule

There was a vote yesterday within the city of Mannheim, Germany.  The city council wants to introduce a social quota episode into housing construction.

So the way this would work....you come up and want to build a new structure along the river for upscale apartments (the typical units would cost 2,500 Euro, let's assume).  A normal low-income or affordable housing cost would typically run 500 to 800 Euro, so it's the well-off that would be in the building.

With the city council rule....you would be forced to offer a quarter of your apartments at an affordable level (likely to be in the 750-to-850 Euro level (my best guess).  No one says the precise amount and I suspect this is the first big problem that lawyers get involved in.

The political folks think that this method will help to get new housing built for the affordable rent folks.

What will happen?  I sat and pondered upon this scenario and eventually reached this conclusion.  If I were a syndicate or group of investors and had this affordable-housing rule stuck in my face....where a quarter of the building is not going to be rented at the 2,000 Euro level...why build for apartments?  I'd go and ONLY build toward condo sales.

I suspect over the next three years....the city will be shocked that the handful of apartment buildings constructed in Mannheim....will only be affordable-range buildings.  No upscale or trendy apartment buildings for the 2,000 Euro range renters.....will be built.  Naturally, huge upswing on condo construction.

As much as the political folks wanted to fix a problem....they just re-invented the mess to be something totally different and more complicated to repair.

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