Expropriation and the battle for Berlin rents

Over one million Berliners have voted in favour of expropriating the housing stocks of large residential investors.

On 26 September 2021, alongside the Berlin state and German federal elections, Berliners participated in a public referendum on housing. During this plebiscite, over one million Berliners voted in favour of the expropriation of rental apartments from real estate companies – or corporate landlords – with portfolios of 3,000 or more units.

Context

In 2020, German Property Foundation (ZIA) calculations indicated that new tenancies in Berlin had increased by 27 per cent between 2013 and 2019. Similarly, a seven-month investigation, published by Der Tagesspiegel in April 2021, identified Berlin at the vanguard of real estate investment (primarily domestic) among European cities. A total of €42 billion was “spent on large apartment deals in Berlin and the surrounding area between 2007 and 2020”, eclipsing the combined totals of Paris and London.

A campaign to arrest this upward march of rental costs for Berlin apartments has successfully contested a referendum on a radical proposal to expropriate large corporate landlords.

Deutsche Wohnen and Co enteignen (Expropriate Deutsche Wohnen and Co), a campaign so named because Deutsche Wohnen (DW) is one of the largest corporate landlords in Berlin, possesses the stated objective of “socialising 240,000 homes [11 per cent of total apartments] in Berlin and transferring them into public ownership”. A significant portion of these apartments were once public housing units that had subsequently been sold to private investors.

Expropriation demands

With a projected cost to the State of between €8 and €14 billion, the campaign is pressuring the Berlin Senate to initiate “all measures necessary”, to enact legislation which would include:

• the expropriation of private, profit-oriented real estate companies that own more than 3,000 apartments in Berlin through Article 15 of the Basic Law in order to transfer their holdings into public ownership (excluding cooperatives);

• the compensation of affected companies “well below market value”;

• the creation of a public-law institution, Anstalt öffentlichen Rechts (AöR), to manage the socialised housing stock; and

• the management of socialised holdings via “majoritarian democratic participation of the community and renters” through AöR.

“It was an incredibly clear victory. A majority of Berliners in all but two [of 12] districts supported the initiative. Which means the whole city said: ‘We don’t want speculators to have a say in our housing’. And that’s a decision that political leaders simply can’t ignore.”

Kalle Kunkel, Expropriate Deutsche Wohnen and Co campaign

Constitutionality

Articles 14 and 15 of Basic Law for the Federal Republic of Germany, otherwise known as the German Constitution, establish a possible legal basis for the expropriation of property.

Article 14 (1) outlines: “Property entails obligations. Its use shall also serve the public good.” While Article 14 (3) determines: “Expropriation shall only be permissible for the public good. It may only be ordered by or pursuant to a law that determines the nature and extent of compensation. Such compensation shall be determined by establishing an equitable balance between the public interest and the interests of those affected.”

Meanwhile, Article 15 reads: “Land, natural resources and means of production may, for the purpose of nationalisation, be transferred to public ownership or other forms of public enterprise by a law that determines the nature and extent of compensation. With respect to such compensation the third and fourth sentences of paragraph (3) of Article 14 shall apply.”

Referendum

Between April and June 2019, 77,001 signatures were collected, 58,000 of which were validated, meeting the 20,000-threshold necessary for a legal review by the Berlin Senate. This review was conducted between July 2019 and September 2020. Then, between February and June 2021, a second signature collection garnered 350,000 signatures, exceeding the 175,000-threshold required to initiate a public referendum.

The success of the campaign hinged in achieving a simple majority of those voting, and at least 25 per cent of Berlin voters. Of a total of 1,749,923 votes, 56.4 per cent were ‘yes’ and 39 per cent were no, meaning that both the qualifying criteria had been met.

However, the result is not legally binding, and the campaign was opposed both by the largest party in Berlin, and now Germany, the SPD, alongside the major opposition parties (the CDU, the AfD and the FDP). On the other hand, it is supported by the Left and ostensibly by the Greens.

Earlier in 2021, Germany’s Federal Constitutional Court ruled that the rent cap imposed by Senat von Berlin – Berlin’s executive authority – was unconstitutional. This cap had come into effect in February 2020, fixing rental costs at their June 2019 level for five years for flats constructed before 2014 (90 per cent of Berlin apartments).

However, this state law was in contravention of an existing federal rent break imposed in 2015, enabling landlords to increase rents by 10 per cent above the local market level. The rent freeze was lifted in April, with the result that landlords can increase costs of existing leases and seek backpay on erstwhile frozen rents. The experience subsequently fuelled the rage of Berlin renters, culminating in the success of the expropriation referendum. Yet, undoubtedly, the precedent casts a shadow on the victory of the expropriation campaign.

Commentary

While the referendum result would be politically difficult for the Berlin Senate to ignore, it would also be legally challenging to pursue. Having vocally opposed expropriation during her campaign, leader of the Berlin SPD Franziska Giffey, now Berlin’s first female mayor, has conceded that legislation must now be drafted. Whether it can be rendered legally impermeable seems unlikely.

Speaking to ARD, Giffey reiterated: “I am still of the opinion that expropriations do not help to create even a single new apartment or solve the big question of affordable housing,” adding: “Such a draft then has to be checked and if it is not constitutional, then we cannot do it.”

In a move which establishes one of the largest institutional investors in Europe, a majority (50.49 per cent) of DW’s share capital has since been acquired by its nearest rival Vonovia creating a combined housing portfolio of 550,000 units worth in excess of €80 billion.

Interestingly, prior to the referendum, as part of DW’s Future and Social Housing Pact with Vonovia, it sold 10,700 homes back to the city of Berlin for €1.65 billion. Signposting their next move, the two companies have suggested voluntarily capping their rents in Berlin for the next five years, as well as building 13,000 new residential units. Such action is calculated to generate political capital.

Such developments are an indication that while large investors are quietly assured of the improbability of expropriation, they are cognisant of a growing disquiet among Berliners, which resulted in majority support for the radical measure.

Striking a conciliatory tone, following the referendum, Rolf Buch, CEO of Vonovia SE, asserted: “In the new legislative period, we’ll need far more mutual engagement than confrontation. Vonovia is ready to work closely with a new state government and the key social stakeholders in Berlin, so that, together, we can handle the challenges of the city’s housing market.

“Expropriation won’t solve the many challenges in Berlin’s housing market. In view of such major challenges, Berlin cannot afford years of deadlock which will now result as the newly elected Berlin Senate needs to set up a draft law on nationalisation in the face of some obvious constitutional concerns… By entering into a Future and Social Pact for Housing, we have sent a signal that we want to change something in the relationship between policymakers, society and housing companies in Berlin.”

In comments made on Euronews on behalf of the Expropriate Deutsche Wohnen and Co campaign, Kalle Kunkel insisted: “It was an incredibly clear victory. A majority of Berliners in all but two [of 12] districts supported the initiative. Which means the whole city said: ‘We don’t want speculators to have a say in our housing’. And that’s a decision that political leaders simply can’t ignore.”

Referencing Giffey’s opposition, Kunkel added: “You can tell she realised she can’t just be indifferent to a democratic decision. Sure, she’ll try to use all the legal and formal tricks at her disposal to delay or circumvent its implementation, but we have over 1,000 activists around the city and they’re not going to be robbed of this victory.”

As such, it is anticipated that the Berlin Senate will utilise the referendum result to leverage further concessions from the monolithic investors. Therefore, while the large landlords are likely to win the constitutional battle on expropriation, with public pressure on legislators, it is entirely possibly that it will be a Pyrrhic victory. For now, the battle for Berlin rents rumbles on.