Involvement instead of expropriation: Innovative ideas against housing shortages

For many, the corona pandemic was seen as a glimmer of hope on the German real estate market. Because the resulting economic brakes, such as short-time work, job cuts and investment anxiety, should put an end to the long-standing real estate bull market. But things turned out differently than expected: Due to historically low interest rates, cheap loans, a scarce real estate supply in sought-after locations And while demand was strong at the same time, real estate prices continued to soar — to the chagrin of many tenants, but also prospective buyers and potential builders.

Price increases and housing shortages in major cities

This is confirmed by the study “Postbank Housing Atlas 2021” On the development of prices on the real estate market: In more than 94% of all German districts and independent cities, residential properties became more expensive in 2020 — on average, prices rose by 9.6% after adjustment for inflation and thus more than in the previous year.

A similar picture is emerging on the rental market: Overall, cold rents in Germany are Increased by 13.2% on average between 2014 and 2019. There were upward outliers in the so-called top 7 cities of Berlin, Düsseldorf, Frankfurt am Main, Hamburg, Cologne, Munich and Stuttgart, with rent increases of around 19% within five years. In 2020, price increases slowed down in some major cities, but were still in the high, single-digit range. In Frankfurt and Berlin, for example, rents rose by 5.9 and 6.7%, respectively, in 2020.

Although the dynamics on the rental market slowed somewhat in 2021 due to factors such as loss of income or limited sightseeing opportunities, there can be no question of easing — especially as there is an acute housing shortage, especially in large cities such as Berlin. The middle Net rent across Germany in 2019 was eight euros per square meter. In 2020, it was 8.13 euros, with large cities such as Munich (20.55 euros) or Berlin (13.77 euros) Significantly higher average prices per square meter have currently been called up.

As a result, a Berlin initiative is calling for the nationalization of housing stocks in order to ease the situation on the rental market. Find out what problems the so-called expropriation initiative poses and what sensible urban development alternative there is.

Expropriation initiative against housing shortages — social or antisocial?

After years of skyrocketing real estate prices, rents and an increasing housing shortage, the Berlin Green Alliance “Expropriate German Housing and Co.” is calling for the socialization of housing. The initiators are committed to “socializing” real estate companies with more than 3,000 apartments, i.e. to expropriate them in exchange for billions of euros. This is intended to stop rent growth, protect tenants, curb speculation and increase the share of public interest housing stock to 50%. A total of around 240,000 of the approximately 1.5 million rental apartments in Berlin would be affected, including around 100,000 properties owned by the Deutsche Wohnen SE Group.

The Berliner Grüne themselves emphasized their controversial approach in a resolution that the circumstances would compel them to “use socialization as a last resort in order to be able to fulfill the constitutional mandate.”

The initiative's referendum, launched at the end of February, runs until June 25, 2021. If seven percent of eligible voters in the Berlin House of Representatives — i.e. around 175,000 citizens — have registered, a referendum will follow. However, the planned expropriation of residential property is a source of conflict even in advance.

High hurdles, low support among the population

• Financeability

For example, the question of financial viability. The citizens' initiative expects socialization and compensation costs of eight to 13 billion euros. On the other hand, a compensation amount stated by the CDU amounts to up to 36 billion euros. A valid price tag cannot be defined due to expected, long-term and costly expropriation processes. In any case, the already high level of debt in the state of Berlin is likely to rise exorbitantly.

• Little popular support

The residents themselves are also critical of the expropriation initiative: According to a recent Infratest survey On behalf of the Berlin CDU, only 36 percent of Berliners are in favour of the expropriation of residential property. 51 percent are against and 13 percent are uncertain or abstain.

• Legal hurdles

Furthermore, the protection of property under the Basic Law is barely compatible with state coercive measures. The “Expropriate German Housing and Co.” initiative is based on the Basic Law according to which “land, natural resources and means of production” can be converted into public ownership. By that, by the way, means socialization, not expropriation. According to constitutional lawyers, the person in question was Article 15 but never used before.

Our society and rule of law are also based on the guarantees of freedom under the Basic Law. This protects individual property in 14 para. 3 GG: “Expropriation is only permitted for the benefit of the general public. It may only be carried out by law or on the basis of a law which regulates the nature and extent of the compensation.” And only “if no more lenient means may be available which is equally suitable to achieve the intended purpose.”

Expropriation of residential property undermines urgently needed investment plans

In addition to the legal and financial hurdles mentioned above, ideological aspects also speak against the initiative of the Berlin Greens. The city depends on private and institutional investors to build urgently needed residential properties. But due to the rent cap and now the planned expropriation initiative, more and more financiers are withdrawing — as a result of which the referendum itself is sabotaging its actual goal of creating housing.

Rainer Schorr, head of PRS Family Trust GmbH in Berlin, explains how harmful the planned expropriation is to Berlin's urban development: “Large institutional investors in particular are reconsidering their involvement in Berlin.” A large pension fund has just left North Rhine-Westphalia. The plan was to purchase a 200,000 square meter plot of land for 100 million euros, on which, in consultation with the district, commercial and residential properties would be built, including more than 1,000 social housing. Now the money is “gone for Berlin.”

Jürgen Michael Schick, President of the German IVD Real Estate Association, wAware of the negative consequences for Berlin and its citizens: “If the request is successful, the state of Berlin and its citizens will inevitably face considerable damage. No investor will take the risk of investing in socialist Berlin anymore, with ruinous consequences for housing stock, new housing construction and the economy. In addition, Berliners must shoulder the financial consequences of expropriation over many decades. In purely mathematical terms, every Berliner would have to contribute 7,435 euros to the expropriation without any improvement for the tenants of the expropriated apartments or for apartment seekers in Berlin. The compensation financing will result in massive savings in all other municipal areas. ”

It is clear that expropriation would not create more square meters of living space. However, price pressure is likely to remain high due to the scarce supply of housing. It is therefore important to develop alternative solutions and eliminate investment barriers.

Objective: Optimizing construction processes and costs

As part of the housing campaign around three years ago, the federal government promised that by the end of the legislative period, the construction of 1.5 million new homes to care. According to recent calculations, around 1.2 million objects should be completed by the end of the year. In addition, the Ministry of Construction expects around 770,000 building permits. However, there is still a lack of affordable housing, and new or conversion projects are hampered by costly and lengthy approval processes.

For a lasting easing on the housing market, on the other hand, more sustainable, can be built more efficiently, in line with needs and at lower cost. For example, by digitizing and thus accelerating approval procedures for land and construction projects, expanding housing support and the construction industry entering into direct dialogue with interested citizens and investors. Instead of ideologically motivated wrap-arounds, politicians would do well to be more pragmatic and to continue supporting business models that already offer sustainable solutions.