Come back, Free Democrats, all is (almost) forgiven

The recent elections in Hamburg brought joy to supporters of the Free Democrats, or Liberals, when their photogenic candidate Katja Suding rode a lucky combination of attention-grabbing stunts and her opposition’s faux-pas to garner 7.4% of the vote for her party, and re-entry into the city’s parliament.

This was unusual, as the party has been slaughtered nationwide since its disastrous partnership with the last Merkel government. It has largely disappeared from German national consciousness ever since, having failed to surmount the 5% threshold required for representation in the Bundestag, or Lower House.

Even for diehard supporters, who grew up in the postwar era when the Free Democrats were a critical coalition partner for both the big conservative CDU and social democratic SPD parties, the FDP had become somewhat of an embarrassment. No great tears were spilt when they were booted out of the Bundestag in 2013. Since then they’ve been engaged in a root-and-branch renewal process at Länder level, culminating in their recent Hamburg success – which has given a new - but elusive - breed of liberal, anti-dogmatic, immigration-tolerant voter hope that there might be life in the old dog yet.

That’s because, since the last federal elections, large swaths of Germans seem to have succumbed to a warm embrace of all initiatives emanating from the ‘Mutti’ Merkel-led coalition, underpinned by her coalition partners’ drive to wrap everyone up in a cocoon of safety and comfort, sheltered from the cold winds blowing around the labour, industrial and real estate markets in neighbouring Europe. The encroaching nanny state is being welcomed by seemingly ever-increasing numbers, content to shy away from conflict as a trade-off for the avoidance of any confrontation with risk. Here at REFIRE, we think it’s a very worrying trend.

The introduction of the Mietpreisbremse, or rental freeze on residential housing, has been looming for months. It’s now reality, with Berlin’s governing coalition signing off on the necessary legislation with what now looks like undue haste, given the meandering preamble of the last two years. Not only is the law now likely to kick in as soon as May or June of this year, but it is being coupled with another whole Pandora’s Box of potential nitroglycerin – the so-called Mietspiegelrecht, or the law determining the representative level of permissible rents in a locality.

This national can of worms will provide a bonanza for local lawyers, who’ll be dragged in to arbitrate in a field where the lack of clear data will make most cases disputable. The all powerful tenants’ associations are now jostling to have the average of the last 10 years rent levels used as the basis for permissible price rises in a given location, rather than the four years envisaged in the current law. Since the best current efforts even NOW fail to accurately reflect recent reality in local rent tables, throwing the data of a further six years into the mix is a recipe for total confusion.

As our journalistic colleague Dr. Rainer Zitelmann in Berlin points out, the inevitable absurd consequence of this would be an actual lowering of rents on new lease agreements, in localities where by definition the demand for affordable rents is highest (hence the introduction of the law). Knowing human nature, we can be sure of one thing, and that is that landlords will find a way to avoid being shoehorned into THAT outcome, if the queue of candidates to become the new tenant is stretching around the block.

With the main opposition parties in the Bundestag being Green and hardcore Left, there is little pro-business opposition to counter the moves being pushed through by the SPD and a compliant CDU, other than the efforts of Germany’s real estate lobbying groups.

The amendments to the next phase of the law on rental freezing – when the real negotiations start at the municipal and neighbourhood level right across Germany – is where the rubber really meets the road. The lack of an FDP or similar pro-business grouping with pragmatic real-life experience at national level, which might have prevented this monolith from even leaving the Bundestag in such a raw and unthought-through state, is regrettable.

The construction industry so far has remained phlegmatic, largely because new buildings are exempt from the restrictions of the new law. Across Germany, property prices still rose faster than rents last year, up 5.5% in western Germany and 1.4% in the eastern states, with the relationship between prices and rents, or prices and household income, reverting to long-term tendencies.

The recent real estate report presented to government by the independent ‘wise men’ concluded that last year marked the end of general residential rental growth, although the most popular ‘swarm cities’ with strong demographic growth will continue to see rent rises. These are the cities that lead to the hysterical headlines of unaffordable housing and tenants being abused by unscrupulous landlords. These are the thriving metropolitan areas where people want to live – and are likely to want to do so for years to come.

What we need are fresh policies that can promote new construction in these great cities, as a counterweight to further unsustainable rental growth, and politicians who don’t have to be greedy landlords nor anti-tenant to fight for fairer prices for us all. We’d almost say, Come back FDP – some (but by no means all!) is forgiven.