Housing may prove the pivotal factor in Germany’s coming election

Therere are six months to go until the German elections in September, and the opposition Social Democrats are beginning to give their candidate Peer Steinbruck a little more leash to play with. Steinbrück will be going head to head with Angela Merkel, offering the voters a chance to replace the current black-yellow coalition with the red-green of his party and their usual bedfellows, the Greens.

Both the SPD and the Greens will be campaigning heavily in the run up to the election with their promises of measures for more affordable housing rents, higher income taxes and the introduction of a new wealth tax. Housing costs may become the key issue of the campaign, as voters find themselves being priced out of affordable accommodation in the large job-providing metropolises, where everybody now wants to live.

Steinbrück, finance minister under Merkel at the outbreak of the financial crisis, and in his personal life a man with a taste for the finer things that money can buy, is positioning himself as the champion of housing reform. He knows the election may be won or lost on this. Merkel’s party, the CDU/CSU union, knows it as well and is scrambling to head Steinbrück and his reformers off at the pass. The results may be painful for investors, no matter who wins. But builders might have it good.

The first round of a series of changes to Germany’s residential tenancy laws comes into effect today on May 1st, under which Germany’s federal states are at liberty to impose new rights and obligations on landlords and tenants. Munich is the first big city to announce a restriction on rent increases permissible in an existing contract, capping it at a maximum of 15% over a three-year period, rather than the 20% permissible to date. A raft of other cities and länder are set to rapidly follow suit.

Steinbrück’s rallying cry is the threatening urban social divide and how his party will counteract it. The SPD wants to go further than the already- agreed reforms coming into effect this week. New lease contracts would be capped at 10% above prevailing rents in a neighbourhood, no matter who is prepared to pay a premium way beyond that – effectively freezing rents; a more equitable spreading of the costs between landlord and tenant for compulsory energy-saving expenditure, further heating subsidies for tenants, more government and municipal subsidies for housebuilding, stronger local authority housing, and a reform of the outdated commission rules for real estate brokerage – a subject we’ve often reported on in these pages.

Not all these reforms are scary – and many of them will certainly appeal to a broad section of the voting public come September. Larger institutional holders of residential property might take alarm, though, at some of the less- publicised proposals which the SPD in Steinbrück’s heartland of North-Rhine Westphalia are cooking up. These include the introduction of compulsory board representation for tenant representatives in companies with upwards of 1,000 apartments – in much the same manner that workers’ councils in German industry have Mitbestimmung, or co-determination in the role of management.

Now, that’s not necessarily a dealbreaker for a German company like Patrizia or Deutsche Wohnen, who are steeped in the culture of social charters and respecting local housing traditions. But it might throw up another barrier to private equity buccaneers with roving eyes and dreams of lucrative exits via timely IPOs.

So it’s not by chance that we report in this issue on the collective appeals by Germany’s city representatives at the recent Deutsche Städtetag for more state intervention in the housing market. Many of the mayors and city councillors present are pushing hard for a capping of rents to placate angry and frightened voters, at least for a five year period to allow things to cool down. The more agitated politicians are threatening landlords in breach of the new reforms with financial penalties, or worse.

Of course, Frau Merkel is too canny a politician to miss an important opportunity like this to show the assembled mayors and city worthies that she shares their pain. She made a prominent appearance at the congress, and adopted a conciliatory tone in her speech and meetings with opposition city politicians. She too knows that housing has the potential to capsize her ambitions for re-election. With evidence of economic storm-clouds gathering, the economy might be looking a little shakier in September than it is now.

So, not surprisingly, the goal of plentiful “Affordable Housing” is now also a key plank of Frau Merkel’s CDU campaign heading into the election. The local CDU party in Berlin - facing disgruntled voters who are being squeezed out of their cheap flats as their neighbourhoods undergo gentrification, and who aren’t averse to street rioting to draw attention to their cause – seem to have got the message and have come up with a voter-friendly plan.

The plan is promising at least 30,000 new apartments to be built by 2019, in addition to the 6,000 being promised annually by the city’s SPD government. Interest subsidies for investors on up to 40% of the building costs for affordable apartments, and family-friendly loans to help owner-occupiers, are among the other bon-bons on offer to help take the heat off a simmering pot of resentment and potentially lost votes.

Smart meters, my boy. Smart meters. That’s the future.

Charles Kingston, Editor