New Berlin city government to tackle expropriation debate after "YES" vote

On the same day as the federal elections, Berliners voted on whether to nationalise thousands of housing units owned by the large real estate giants owning more than 3,000 apartments, against a background of rising rents and a shortage of affordable housing in the city.

Although the referendum was non-binding, 54% of voters said "YES" in favour of the measure, and 39% said "NO".

The referendum was added to Berliners' vote on the make-up of their own local legislature, the Berlin Senate, after Germany's constitutional court in April overturned the outgoing left-leaning Senate's earlier attempt to impose the Mietendeckel (rent cap) on apartments in the city. Campaigners for the initiative say it is necessary to slow a housing crisis in the capital that has seen rents in some areas jump as much as 146% in 10 years.

The result now forces the incoming Berlin Senate to at least debate the proposal officially.

Originally the movement was the result of a grassroots campaign to "Expropriate Deutsche Wohnen and Co." although it was targeted at all the big housing companies with more than 3,000 apartments in the city - with DAX-listed Deutsche Wohnen being just the most visible. Deutsche Wohnen owns nearly 120,000 apartments in the city. Companies would be reimbursed for the properties at a rate "well below market value," according to the campaign.

So what happens now? There were no shortage of legal experts quick to give their opinions on what has obviously been a well-flagged campaign, with the possibility of a YES vote never underestimated.

Ulrich Battis, emeritus professor of constitutional law at the Humboldt University in Berlin and a practicing lawyer at GSK Stockmann, says in his legal opinion for the planning association "New Ways for Berlin" that there is considerable legal doubt surrounding the feasibility of turning a referendum outcome into law. The nationalisation demanded by the initiative would represent a disproportionate encroachment on private property and would violate the principle of even-handedness, as only the housing stock above a threshold of 3,000 units would be nationalised.

In other words, the Senate is under no obligation to formulate a new law embodying the referendum result. It could conclude that such a decree would be too constitutionally risky.

Battis nonetheless concedes that the referendum will likely have the effect of pushing housing issues further up the agenda of priorities across all political parties, including accelerating the sale of 14,750 housing units recently from Vonovia and Deutsche Wohnen to the city of Berlin for €2.46bn, which might otherwise not have occurred.

Esfandiar Khorrami, senior partner at law firm Bottermann Khorrami in Berlin, also doubts the feasibility of enacting a law around the result . Any nationalisation according to Germany's Basic Law would only be conceivable if all other instruments for easing the rental housing market in Berlin were exhausted. However, this would also include new construction, which has hardly reached its limits, he says. And anyway, even if a parliamentary majority were to be found for a law, years of legal disputes would ensue.

In any event, how the matter is handled will largely depend on the make-up of the new Berlin government. The outgoing government was divided on any expropriation plans, with coalition partners SPD, the Greens and the hard-left Die Linke holding differing views. SPD leading candidate (also for mayor) Franziska Giffey is personally against expropriation, but there are many in her Berlin party who are for it.

On the day after the vote, Giffey said, "It's important for us to make it clear that we are all for affordable rents, but not at the cost of expropriating apartments." She added that she “respected the decision” but insisted it still would not result in any new apartments being built. “Preparation work for a draft Bill law will have to begin, but any draft must be examined for its constitutionality,” she said.

Her Green counterpart, Bettina Jarasch, said she was voting for socialising housing, but saw expropriation as a very last resort. Only Die Linke has been an out-and-out proponent of the extreme expropriation measures.

Up to 240,000 of the 1.5m apartments in Berlin with half a million tenants would be affected, coming from more than a dozen companies, and these would need to be brought into some sort of public authority to own and manage them.

The real estate industry collectively has been unanimous in its opposition to the expropriation initiative from the beginning. Axel Gedaschko, president of the nationwide GdW Association of German Housing and Property companies, said: "Irrespective of the question of whether a socialisation at the federal or state level would even be constitutional, implementing an expropriation of housing companies would be crossing a red line. The condition for starting coalition negotiations must therefore be to not negotiate with those parties that advocate expropriation."

Jürgen Michael Schick, president of nationwide property association IVD Immobilienverband Deutschland, said: "In the view of the IVD, the initiative violates the constitution in several respects. For reasons of proportionality and the principle of equality alone, an expropriation law cannot be made constitutional. Moreover, in the IVD's view, the state of Berlin has no legislative competence to do so. Instead, a new Berlin state government should take care of actually solving the problems and boost housing construction. The expropriation plans would swallow up to €40 billion in compensation payments, which would further increase the already high mountain of debt. This money should rather be invested in new construction of affordable housing."

His colleague, Kerstin Huth of IVD's local Berlin-Brandenburg branch, added: "The expropriation plans clearly contradict the Berlin state constitution. The intended socialisation would be an absolute novelty in the history of the Federal Republic and is doomed to failure. However, the capital cannot afford a legal follow-up á la rent cap. We hope that the new state government and administration will develop a new culture of dialogue with the real estate industry. At the end of the day, we have the same goal: relief for Berlin's housing market. The best way to achieve this goal is together - with binding guidelines and framework conditions and without expropriation."

The Berlin Senate has estimated that the heavily indebted city would have to stump up between €28.8bn and 36bn, or close to the market value of the housing units. The organisers of "Expropriate Deutsche Wohnen & Co." put the price at about €10bn, a figure which they believe is fair on the grounds that rent shouldn't be more than 30% of a tenant's income. The calculation is based on Berlin's low average income level, and a rate of €4.00 to €4.50 per sqm per month as a reasonable rent.

New figures from Germany's Federal Statistics Office (Destatis) show that prices for residential real estate in Germany rose more this spring than at any time since the beginning of the new millennium. Prices in the seven metropolitan areas of Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf rose particularly strongly: Prices for detached and semi-detached houses increased by 14.7%, with condominiums up 12.9%. per cent.