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02/15/2019

02:27 PM

The Communards

Berlin’s lack of housing prompts radical expropriation initiative

By: Matthias Streit, Silke Kersting

The capital’s lefty government is mulling ever more extreme measures to close the housing gap, even as burdensome regulations slow new building.

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I want that round one please.

Skyrocketing rents, massive immigration, and sluggish approvals for new construction have led to growing frustration and radical initiatives in Berlin, as the capital’s left-of-center government grapples with ways to provide sufficient housing.

One radical initiative is the call to simply expropriate companies owning more than 3,000 apartments. This hits not only Vonovia, which is one of the DAX 30 blue chips, but lesser known landlords like ADO Properties and Akelius.

Deutsche Wohnen, an MDAX company, last year wanted to buy 680 apartments in Friedrichshain, a former working-class district in eastern Berlin, but met fierce resistance from residents who thought that would push up rents throughout the neighborhood. 

The resistance from Berlin residents has reached such a level that investors are reluctant to put money into the city’s real estate, exacerbating the housing shortage.

Market research firm Empirica says apartments in the 60 to 80-square-meter range (645 to 860 square feet) have nearly doubled to €9.87 per square meter from €5.27 over the past 10 years. According to a survey by Empirica, Berliners now spend an average of 41.3 percent of their take-home pay for rent, compared to the 27 percent recommended by experts. (For historical reasons, the majority of German, especially in metropolitan areas, rent rather than buy.)

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The real estate industry has a simple solution: Build more apartments. But construction permits come only slowly and often with conditions. Members of the red-red-green coalition that governs the city-state of Berlin – Social Democrats, the Left, and the Greens environmental party – have called for rent caps in sought-after neighborhoods or stricter regulations. The Left party, which includes the former East German communist party, is backing the expropriation initiative.

Extreme measures

That is the last straw for the industry. Jürgen Michael Schick, president of the IVD real estate association says the expropriation debate is historically, socially and constitutionally unacceptable, calling it a total failure of the governing coalition.

"The expropriation debate is dangerous and above all brings no contribution to new housing,” says Carsten Sellschopf, managing director of developer Instone Real Estate. He warns the controversy could descend into a class-struggle dispute. 

Horst Seehofer, the Bavarian conservative politician whose federal cabinet portfolio includes construction, felt obliged to intervene and remind the city that the Christian Democrats in the federal government pledge fealty to the “social market economy,” with the emphasis in their minds on “market.”

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The pressure is on for city-dwellers as a chronic shortage of homes, either for rent or purchase, hits every walk of life.

One of the leaders of the expropriation movement, Rouzbeh Taheri, argues that article 51 in the German constitution allows for the nationalization of property. This article has never been applied in Germany’s postwar history, which for Taheri only means that the Berlin city government does not have to deal with any federal precedent to use it.

The expropriation movement is calling for a referendum, although that would not bind the city government even if came out in favor of expropriation. Lest anyone think this belongs to the realm of fantasy, a recent opinion poll by Forsa found that 44 percent of Berliners consider expropriation, with compensation, of landlords owning more than 3,000 apartments a sensible solution in principle, while 39 percent don’t and the rest declined to comment. 

Ralf Spann, head of Akelius in Germany, which owns 14,000 apartments in Berlin, says he trusts the rule of law will prevail in Germany. Another manager complains that the expropriation initiative is just populist propaganda.

Castles in the air

In fact, the question arises how a city that already has €60 billion in debt can pay for the estimated 200,000 apartments included in the initiative. The regional residential real estate association BBU estimates the cost at €25 billion. 

The city has been buying up some apartments to preserve the character of certain neighborhoods with the idea of selling them to housing associations. There have been 39 preemptive purchases of this nature since 2015, involving 1,174 apartments. The city is also negotiating with investors in a further 2,579 apartments regarding possible violation of the conditions under which they purchased the properties.

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The housing associations themselves have been reluctant to play their part. Three apartments preemptively bought by the Mitte district in Berlin went unsold because the associations considered it a political minefield. 

Many critics are skeptical any such communalization strategy can work. The housing associations are obliged in the case of a preemption to pay the price negotiated by the original investor. But this price often includes a rent increase the association could never get through, given the city’s rent controls. Moreover, the social impact of taking over these apartments is incalculable since no one knows who is currently living in them.

Only new construction can bring relief is the industry credo. But even the housing associations backed by the city, which have targeted 30,000 new apartments for this year, say only 20,000 to be realistic, and they still have to deal with the slow rate of permitting.

Silke Kersting covers environment and construction for Handelsblatt in Berlin. Matthias Streit is a reporter. Darrell Delamaide adapted this article into English for Handelsblatt Today. To contact the authors: [email protected] and [email protected].

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