Real estate, alternative real assets and other diversions

Berlin embraces the folly of hard-left housing policies

Residential Investor

In Berlin, support is growing for a referendum on mass property expropriation. In a move reminiscent of East Germany’s communist past, the referendum’s supporters aim to seize property from all private landlords who own more than 3,000 rental units.

If the housing activists are successful and expropriation is enacted, roughly a dozen housing companies owning around 240,000 apartments would be affected. The largest of these private landlords is the publicly traded real estate company, Deutsche Wohnen, which owns over 110,000 rental units in Berlin.

The campaigners believe that the referendum’s radical demand is supported by Germany’s 1949 constitution, the Basic Law, which specifies that “land, natural resources and means of production” may be transferred to “public ownership,” i.e. nationalised. However, this is the first time the law has actually been applied in practice.

It’s yet another example of how politicians in the West are forgetting the lessons of the socialist failures of the 20th century, a trend I document in my new book, The Power of Capitalism.

Compensation well under fair market value

According to the Berlin Senate’s own estimate, expropriating property owners would require compensation payments of up to €36 billion. However, the campaigners behind the referendum want to pay far less. They commissioned their own experts, who concluded that in the event of expropriation, there would be no need to pay the current market value of the property in compensation. They claim that a far lower price would suffice: some of the campaign’s leading figures have claimed that a symbolic sum of €1 would be enough.

Others have said they are ready to pay more, but even these offers are well below market value and would not even be enough for the real estate companies to settle their bank liabilities. In effect, the proposals amount to nothing less than expropriation without compensation. But even if the petition for a referendum is successful, it doesn’t necessarily follow that landlords will be expropriated.

In a previous referendum, for example, the population of Berlin voted to keep Tegel Airport open even after the (repeatedly postponed) opening of the new BER International Airport, but Berlin’s government simply ignored the result of the referendum and refused to implement it in a law.

Berlin is governed by three parties: the SPD (comparable with the British Labour Party), the left-wing environmentalist party, Die Grünen (the Greens) and the former communist party, Die Linke (the Left Party).  With its roots in communist East Germany’s ruling party, the SED, it is hardly surprising that the Left Party supports the expropriation campaign.

Learning lessons from communist East Germany

People’s experience of state-owned housing in the communist GDR couldn’t have been much worse. Despite the fact that East Germany’s government had made housing construction one of its priorities, the difference between East Germany’s planned economy and West Germany’s market economy was nowhere more visible than in the housing market. In East Germany, rents were controlled at extremely affordable levels, but East Germans still had to wait years for a highly-coveted apartment in one of the country’s new, prefabricated, concrete multi-family apartment buildings.

Pre-war multi-family buildings in Leipzig, Dresden, East Berlin, Erfurt and other East German cities were so dilapidated that a massive, tax-funded refurbishment scheme (costing several billion euros) was required to bring them up to scratch in the years after German reunification. By then the post-war era’s pre-fabricated apartment buildings also required large-scale renovation. In addition, an extensive construction program was also required to solve the severe housing shortage in Germany’s eastern regions. With the help of tax incentives, a total of 838,638 homes were completed in the former GDR during the 1990s, at a cost of €84 billion.

Senator Katrin Lompscher, who is responsible for housing construction in Berlin, is a member of the Left party who treats investors with open hostility. After taking office, she appointed Andrej Holm, a former member of the East German State Security Service (Stasi), as her secretary of state. Holm has previously pointed to Venezuela’s housing policy as an example Germany should follow. Having failed to disclose the work he did for the Stasi, he was forced to resign, although he still serves as a Senate advisor.

The Young Socialists target landlords with over 20 apartments

Far from being the preserve of the hard left, the expropriation demands have met with broad political support. Robert Habeck, chairman of the Green Party, said in a newspaper interview on April 7 that if necessary, housing companies would have to be expropriated. According to the latest opinion polls, his party is currently the second strongest in Germany and by far the strongest in Berlin.

The governing mayor of Berlin, the SPD’s Michael Müller, has distanced himself from the expropriation campaign, although even he has not ruled out using such a measure “as a last resort”, For Müller, the costs of expropriation are simply too high. Instead the SPD is focusing its efforts on a rent freeze. If they get their way, rents in the German capital will be frozen for at least five years. Müller has also announced that he wants to “buy” housing stock from the city’s private housing companies.

According to the referendum campaigners, these include the very same units that would be expropriated if the referendum ends up being successful. It would seem that Berlin’s government is pursuing a twin-track strategy: the extremists on the left are demanding expropriation, while the centre-left SPD wants to harass and ramp up the pressure on property owners until they “voluntarily” sell their apartments below market value.






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