Housing pressures making German voters see red. Or red-red-green.
The recent elections in Germa ny’s important industrial state of Lower Saxony have raised the political temperature by several degrees. What should have been a safe passage for the incum bent CDU prime minister David McAllister, a close ally of Angela Merkel, turned into a victory for rivals SPD and the Greens. The defeat is the latest in a long series of regional setbacks for the CDU party – and all of a sudden Merkel’s CDU/CSU grouping, despite its leader’s personal popularity, sees itself fighting for its political life in the federal election later this year.
The socialist SPD party now knows that it has a real chance of victory in September, as growing fear among the population about their economic prospects bolsters a shift to the left in voter sentiment. The SPD has one big problem, however. Having opted for Peer Steinbrück as their candidate for chancellor to go head-to-head against Merkel, the party increasingly recognises that it has chosen the wrong man.
As finance minister under Merkel in the last grand coalition government, Steinbrück was the confident crisis manager, wheeled out nightly to demonstrate the German government’s competence as world financial markets threatened to implode. In peacetime, Steinbrück’s patrician tastes and history of personal financial opportunism are now leaving a nasty aftertaste in the mouths of potential SPD voters. Party handlers have now effectively muzzled their man before he can jam his feet even further into his mouth after too many unscripted forays into voter interaction.
In business circles, the feeling is growing that Steinbrück may even be deposed before the election and replaced by a more unifying candidate – even by someone like party chairman Sigmar Gabriel, hitherto seen as more of a sweeper and playmaker than an aggressive goalscorer. A number of key party meetings scheduled for early February should clarify the party’s approach, but the party’s elder statesmen now know there is little time to lose.
The SPD’s election platform includes draconian reforms of the nation’s residential lease laws, playing on growing fears among the electorate that housing costs are spiralling out of control. Rents in Berlin, for example, have risen by 40% for new lease agreements since 2007, and sitting tenants in larger cities across the country have been sensing landlords’ willingness to impose the maximum rent increases permissable by law in annual reviews. The current CDU/FDP government signed off before Christmas on a package of reforms designed to level the playing field between tenant and landlord, but the SPD plans go much further than this.
The SPD reforms envisage capping the amount landlords can increase rents on existing lease agreements to a maximum of 15% over a four year period, and limiting new leases to a maximum of 10% above existing rent levels in a neighbourhood. Landlords are to be restricted to spreading at most 9% of the costs of legally-required energy-saving improvements annually on their properties to tenants. The standard practice of tenants and house-buyers automatically paying the broker commission is to be reformed. Social housing associations are to receive hefty new subsidies, while hard-pressed municipalities toying with the idea of selling their social housing are to be ‘encouraged’ to consider factors other than mere money in weighing up bidders’ claims.
These unabashedly populist moves by the SPD will appeal to a lot of voters come September, irrespective of who the SPD’s potential chancellor is. Steinbrück himself, who understands economic principles very well, was at the core of a triumvirate of senior SPD politicians who drafted the proposed reforms – so we must assume he’s weighed the consequences and still believes in the political advantages of campaigning on such a platform.
There have been myriad restrictions hindering the development of an owneroccupier ratio in Germany from becoming comparable to most other countries. These disincentives include the successive abolition of first-time buyers allowances, the imposition of a speculation tax to discourage house selling, the progressive increase of transfer tax or stamp duty on purchases from 2% to now nearly 5% in most German states, a multiplying of the property inheritance tax, and the reduction of the capping level on rents in 2001 from 30% to 20% over a three year period – and all this before the latest reforms.
Nonetheless, there have been signs in the past two years that the construction industry was responding to signals from the housing market that investment in new housing was now a worthwhile proposition again. If the SPD win in September, property investors will have to think hard about what advantages are left to them in taking property risk.
Germany has a long history of viewing any moves in the real estate industry to garner ‘above-normal’ returns as a licence to penalise the sector with fresh taxes. While German cities desperately need new and renovated housing to accommodate growing urban populations, investors will shrink from playing the role of social Samaritan if they find they might actually have to LOWER their rents to comply with the 10% prevailing rents clause in the SPD proposal. New construction can be expected to grind to a halt, and the housing shortage is likely to find a way to drive rents even higher, for those in a position to pay.
Affordable housing is a very emotional issue in Germany, and perceptions of profiteering by the investor classes have a habit of making voters see red. Or red-red-green, as it may turn out (which includes the dark red of the hard left). The maths may not work out, but it would be unwise to bet that the voters would care all too much about that, come election time.