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

Over the past two months, numerous European countries have witnessed social unrest due to the increasing cost of living. While the motivations vary, young people, in particular, are frustrated by skyrocketing housing costs that have worsened since 2010. The European Commission proposed a legislative plan to address this issue in September.

American economist Paul Krugman, interviewed by Euronews, supports temporary rent caps as a measure to counteract housing speculation. He believes that building more homes and removing construction restrictions are simple solutions from an economic standpoint, as liberalized building regulations have led to significant drops in property prices in other locations.

However, Krugman acknowledges the current housing market is intolerable, citing a case in Rome where a single room has reached 1,200 euros. The European Students' Union, in a statement, warns that thousands of young people and students are being excluded from higher education due to speculative practices. The European University Association reports that students outside parental homes spend nearly 40% of their monthly income on housing.

Krugman advocates for a pragmatic approach to the rental market, favoring the introduction of second-generation rent stabilization models. In New York, where he resides, rent increases are tied to an index that caps annual hikes at a specific percentage. Developers receive significant tax exemptions if they commit to bringing a substantial portion of new units under the regulated regime.

In the broader economic context, Krugman highlights France's public debt at 119% of GDP as a source of market anxiety. With a retirement age too low, France could face a crisis similar to Portugal's, potentially leading to systemic imbalances and affecting the entire euro system. Krugman warns that France is now "too big to be saved," and that bailing out 20% of euro area GDP is not feasible.

Europe also faces external threats from US trade tariffs and China's overproduction, flooding the market with subsidised goods. Krugman believes the continent is at risk of deindustrialisation but believes the car industry could become competitive again. He supports free trade but recommends temporary protectionism in today's geopolitical climate to buffer the industry's recovery.