“My apartment is now a commodity”: Berlin will vote on foreclosure of rental properties

House prices are rising in many large economies. This FT series explores whether these increases are sustainable.

Lorena Jonas has spent the past eight years battling rising landlord rents in her trendy Berlin neighborhood. Its latest battle, however, could affect not only its neighbors, but hundreds of thousands of tenants across the city.

Jonas is involved in a sweeping campaign urging the Berlin city government to expropriate 240,000 properties from Germany’s largest listed residential owners, accusing them of evicting low-income and long-term residents through a poor quality maintenance and increased rents.

After collecting more than 350,000 petition signatures, their proposal – which targets business owners with more than 3,000 apartments each – will be voted on in a local referendum in September. A poll suggests that almost half of Berliners support expropriation, which would force companies to sell their properties to the city government at a “fair” price.

FT Series: Global Real Estate Prices – Raising the Roof

House prices are rising in many large economies, but is it sustainable?

Part 1: How the pandemic sparked the world’s biggest house price boom in more than two decades.

Part 2: Buyers are flocking to smaller US towns, renewing concerns among policymakers about affordability and risk.

Part 3: The Netherlands is grappling with the social consequences of rapidly rising house prices.

Part 4: Why Berlin tenants want to expropriate their homes from listed German landlords.

Part 5: Should house prices be factored into inflation data and what can central banks do about the economic effects?

“What does it mean that my apartment is now a commodity on the stock exchange, where the goal is to make the most possible profit for the shareholders? Said Jonas, who lives on a property in Kreuzberg owned by Berlin’s largest listed owner, Deutsche Wohnen, the main target of the campaign. “These questions are now resonating across Berlin and beyond. “

While still small compared to the large publicly traded U.S. residential sector, business owners such as DW are on the rise across Europe, as the world’s largest real estate investors seek the stable revenues that business rental can provide.

As a result, the market capitalization of the European listed residential real estate sector fell from 3.5 billion euros in 2006 to almost 85 billion euros at the end of July of this year, according to the European Public Real Estate Association.

More than half of Germans rent their accommodation – the second highest among OECD countries – and as house prices rise globally, making homeownership less affordable, tenant ranks are growing elsewhere as well. In the EU, almost a quarter of households lived in rented accommodation at market price in 2019, the latest figures available, according to Eurostat.

“Unless we find a mechanism to continue to transfer ownership from landlords to tenants.[via home ownership]. . . you get a more unequal society, divided between people with fair housing and those without, ”said Yolande Barnes, professor at the Bartlett Real Estate Institute at University College London.

Few cities have yet proposed measures as drastic as those of the September ballot in Berlin. But many face similar issues: Businesses and entrepreneurs buy and renovate old properties, then sell units at lucrative margins.

Berlin, once known for its anarchist squatter towns and freewheeling techno clubs, has become an attractive investment. The rents of existing buildings have increased accordingly 43 percent in the past five years, which makes it more and more unaffordable for the 86 percent Berliners who rent.

Nearly 125,000 rental housing units in the city were converted to owner-occupied housing between 2011 and 2020, according to recent estimates released by the Berlin Senate. Last year was the most important to date: 19,310 units disappeared from the rental market.

Bar chart of the annual change in average rent, 2020 (%) showing that apartment rents are increasing in many major European cities

The expropriation initiative is based on article 15 of the German constitution, which states that “land, natural resources and means of production” can be recovered for public property, in exchange for compensation; it has never been tested before in practice.

The proposal will be adopted if at least a quarter of the eligible voters cast a majority of votes in favor. But even if the activists win, the Senate is only politically, not legally, bound to act. And since the clause has not been tested, it will spark a controversial debate over its constitutionality.

Critics argue that the expropriation is divisive, economically absurd and potentially illegal.

Tobias Nöfer, chairman of the board of the Berlin-Brandenburg Architecture and Engineering Association, said the city was divided by an idea he called “political extremism”. But he agreed that Berlin needed tighter regulations against speculation, noting that many buildings had been bought by wealthy investors and then left vacant.

Tobias Nöfer, Chairman of the Board of the Berlin-Brandenburg Architecture and Engineering Association
Tobias Nöfer, chairman of the board of the Berlin-Brandenburg Architecture and Engineering Association, warned of what he called “political extremism” © Gordon Welters / FT

“We need discussions about how you treat public lands – are you just selling it to the highest bidder? Because you could end up with an empty and very expensive city center, ”he said.

Deutsche Wohnen said the initiative was counterproductive: “Funds and resources would be tied up for decades in compensation payments and thus lost for the construction of urgent housing.” Its rental prices meet city regulations and 82% of renters surveyed are satisfied, he said.

City officials estimate that compensation paid to homeowners would cost around 36 billion euros. Activists say that between 8 and 18 billion euros would be fair.

Joanna Kusiak, an urban sociologist at Cambridge University, also a Berlin resident and expropriation activist, called it a “unique confrontation.” “This is about expropriating large-scale financial companies,” she said. “No one has ever done it before.”

Joanna kusiak
Joanna Kusiak, who supports the expropriation campaign, said rents should be used to pay for housing construction rather than going to shareholders © Gordon Welters / FT

She argued that the expropriation could stimulate the economy, using the rents to finance the construction of more apartments. “What we want is to use the rental income to build more houses, rather than using [it] to build shareholders’ fortunes.

A growing rental sector could create a long-term financial burden on governments in the form of housing assistance subsidies for retirees who have never made it to the housing ladder, warned Barnes.

The expropriation offer is not the first time that Berlin has been at the forefront of Europe’s battle to contain urban rental costs. Last year, the city tried to impose a rent cap, but Germany’s highest court recently overturned it, arguing that those powers belong to the federal government.

Critics ridiculed the attempt as an economically destructive flop, but it spurred a national movement for a federal rent cap.

And some activists argue that viewing housing costs in purely economic terms misses a fundamental point.

“Housing is not a luxury,” said Christian, an organizer for the Berlin Renters Union, who refused to reveal his last name due to legal battles with landlords. “It should be a human right, just like access to drinking water, education or health.

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