AnnaStills/Envato
Germany’s recent election results have left the real estate industry with more questions than answers. Somewhat surprisingly, the burning issue of housing and building found itself hijacked from the parties' agendas in the latter stages of the campaign, with fears about immigration sweeping in to grab the top spot. Investors, developers, and landlords found their concerns brushed aside to make way for more immediately pressing issues.
Among the unanswered questions in the election's aftermath is, who will shape Germany's housing policy in the coming years and what will this mean for the future of property investment in Germany? With coalition negotiations likely to stretch out until at least Easter, clarity is likely to remain elusive until then. Still, at least we're down to a two-horse race, where the form of the two big centre parties is known, and largely quantifiable. Our gaze is drawn more to the two big opposition parties of the extreme Left and extreme Right, and how their politics could upset the whole applecart of German property.
The CDU/CSU and the SPD have a rocky path ahead in forming their programme for government, with the two traditionally big parties of the middle being sharply divided on key housing and energy policies. The SPD - now just about holding on to its description as a 'Big Party' - has long championed stronger tenant protections, rent controls, and public housing initiatives, while the CDU/CSU leans towards reducing regulation and boosting construction. Investors fear that instead of decisive action, the coalition may slip into familiar 'grand coalition' stagnation, with compromise leading to inaction rather than reform. Depressingly, given the enormity of Germany's other current economic problems, we're inclined to share this view.
The Greens’ (for them) disappointing result (12%) has pushed climate and energy concerns to the sidelines, to the unbridled delight of many. Still, voter fatigue with the Greens' costly climate policies further complicates discussions on housing regulations and emissions targets for buildings - an ‘accidental’ and unwelcome side-effect.
The (almost) soundless rise of Die Linke
But while migration and security dominated the election, Die Linke’s quiet resurgence went largely unnoticed, and under-reported. The party had been written off as also-rans up until about three months ago, but a late surge, propelled by millions of young people and newly-fearful pensioners, saw them gain nearly 9% of the vote. That performance was impressive, particularly in Berlin, where they secured an astonishing 19% of the vote. This gives them renewed influence, particularly on housing policy, an issue they have long weaponised against investors and developers.
Left-wing MP Caren Lay and party co-leaders Jan van Aken and Heidi Reichinnek are pushing an aggressive housing agenda, including a six-year nationwide rent freeze, stricter controls on furnished short-term rentals, and even state expropriation of major landlords. Their proposal to invest €20 billion annually into non-profit housing will almost certainly be a contentious issue, despite their not being party to the coalition talks.
With the SPD already advocating for stronger tenant protections, pressure from the Left could force the coalition government to lean even further in this direction, potentially tightening restrictions on landlords and dampening new development incentives.
The looming threat of expropriation
One of the most significant long-term threats to property investors stems from Berlin’s activist movement, among whose leaders is Polish-born Joanna Kusiak. Now a Cambridge-based sociologist and housing activist, Kusiak played an instrumental role in organizing the "Deutsche Wohnen & Co. Enteignen" referendum, which seeks to seize 240,000 rental units from large corporate landlords, and transfer them into public ownership. Her book, Radically Legal, explores how grassroots movements are leveraging existing legal frameworks to push through progressive reforms, and issues a clear warning about the movement's plans for Berlin. It's highly recommended reading.
What once seemed like a fringe movement has gained real political traction, particularly in Berlin’s leftist circles. The movement’s legal strategy hinges on a largely overlooked clause in the German constitution, allowing for property expropriation in the name of the public good. While the initial referendum was non-binding, recent legal reviews suggest a second, binding vote could move forward, making the prospect of forced property buyouts a serious consideration.
For investors, this presents a fundamental market risk. If Berlin proceeds with expropriation, compensation could cost the city anywhere between €15 billion and €54 billion, money which the city simply does not have. Even if full-scale nationalisation doesn’t happen, the political and legal uncertainty alone would be enough to spook capital markets and raise concerns over future regulations.
Other cities are watching Berlin intently
Although at the moment this is a Berlin initiative, the broader shift it represents isn't just rhetoric - it's a genuine market risk. Should it gain further political backing, activists and policymakers in cities suffering from similar housing bottlenecks, such as Dublin, London and San Francisco, to name just three, will be watching intently and reaching for their own radical solutions. Berlin, long so attractive for investors, is surely becoming a riskier bet.
With the political tide in Germany shifting, we'd say investors in German residential housing will have to contend with stronger rent controls and potential long-term price caps, increased regulation on short-term and furnished rentals, and a generally more interventionist state looking to impose new taxes and other housing clawbacks, among other measures.
The CDU/CSU may well hold firm, for a while. But we can't tell how strong the SPD will be in resisting the radical intervention called for by those further to their left, in pushing for expanded tenant protections and more aggressive social housing initiatives. But that pressure is coming—fast—as Germany’s housing crisis deepens.