Housing Policy

Berliners Endorse Creative New Housing Affordability Plan: Steal Buildings From Private Owners

The nonbinding ballot initiative encourages the city government to expropriate roughly 15 percent of the city's rental housing stock.

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reason-berlin | minnystock/Dreamstime.com
(minnystock/Dreamstime.com)

Facing a shortage of homes, Berlin voters have endorsed a plan to seize some of the existing stock from its private owners.

On Sunday, 56 percent of voters in the German capital approved a nonbinding ballot initiative that asks the city government to expropriate the holdings of landlords who own 3,000 or more units. That would municipalize roughly 240,000 units, about 15 percent of the city's rental housing stock.

"The majority of Berliners eligible to vote opted for the socialization of the large real estate groups and thus against speculation with living space," announced the organizers of the Expropriate Deutsche Wohnen and Co., according to Deutsche Welle. (Deutsche Wohnen is a large real estate company.)

Organizers of the referendum want Berlin's government to make use of an eminent domain article in the German federal constitution to seize the holdings of Deutsche Wohnen and other large landlords, pay "well below market value" for them, and then rent the apartments at more affordable rates to current residents.

The immediate practical effects of the vote are minimal. It does not require Berlin's government to consider an expropriation law, let alone to pass one. It nevertheless puts pressure on politicians to take up the measure.

"Ignoring the referendum would be a political scandal. We will not give up until the socialization of housing groups is implemented," Kalle Kunkel, one of the Expropriate Deutsche Wohnen and Co. organizers, told Reuters.

It's also a symbolic victory for a particular left-wing approach to solving housing affordability issues in large, high-cost cities—one that focuses more on redistributing existing housing stock than on building new units.

Elected officials from Canada to California see it as an example to follow.

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On the ground in Berlin, expropriation proponents face a number of practical hurdles.

It is unclear whether mass seizures of private apartments would be constitutional. In 2019, legal advisors for Berlin's House of Representatives have said that it would be, reports Deutsche Welle. But a real estate lawyer who spoke with the publication argued that the courts would quickly shoot it down, saying that the 3,000-unit cut-off is arbitrary and that paying below market value would violate the country's constitution.

The city's incoming mayor, Social Democrat Franziska Giffey, has said that an expropriation bill should be considered in order to respect the will of the voters. But she doubts the legislation will be constitutional, and she thinks the policy is a bad idea either way.

"Expropriations do not help to create even a single new apartment or solve the big question of affordable housing," she told a local broadcaster.

In addition to not creating any new housing, the plan would be very expensive. The Expropriate Deutsche Wohnen campaign has estimated that compensating the current owners of the targeted property would cost only €8 billion ($10.5 billion)—about €34,000 per unit. But Berlin's Senate has estimated it could cost €20 billion, and some estimates have come in as high as €36 billion (€150,000 per unit).

Earlier this year, the city agreed to buy 14,750 apartments from two large landlords for €2.46 billion (or €166,000 per unit), which is in line with top-end estimates. The city spent a similar amount per unit acquiring 6,000 units of formerly public housing in 2019. That all suggests the top-line estimates of expropriation's costs are more realistic.

And that money would come at the cost of new development for a city that is already suffering from a severe housing shortage.

The real estate company Guthmann Estate estimates that Berlin is short some 205,000 units. A study from the German Economic Institute says the country as a whole has been building only about 80 percent of the homes it needs to keep up with demand.

A socialist critique of Berlin's expropriation plan would be that it would give billions of euros to private real estate companies to purchase existing units when that money could be spent on building new, public housing to accommodate the city's growth.

A free marketer, meanwhile, could argue that seizing 15 percent of the city's rental housing stock would be a massive disincentive to developers to build new, private units. They'd have a very real fear that the state would expropriate their investment and not even pay market rates for it.

Tenants in newly seized units obviously benefit from the lower rents that would come from government ownership. Everyone else would be worse off, as they'd be forced to compete for a smaller share of private units.

This is in effect what happened with Berlin's brief experiment with a law that froze rents at apartments built before 2014. Rents did indeed stop rising in regulated units, benefiting the tenants who lived in them. But prices shot up dramatically for unregulated units. (In April 2021 Germany's constitutional court struck down Berlin's rent control.)

The number of regulated units on the rental market also collapsed, while new listings for unregulated units weren't enough to pick up the slack.

The rent control represented "a windfall to one group of tenants: those, whether rich or poor, who are already ensconced in regulated apartments," wrote Bloomberg columnist Andreas Kluth in March. "Simultaneously, they hurt all other groups—especially young people and those coming from other cities—by all but shutting them out of the market."

There is robust evidence that new housing, even expensive new housing, makes cities more affordable for everyone. Berlin's leaders should consider ways to boost housing production so the city can continue to grow and thrive, instead of just redistributing existing units to benefit a minority of incumbent renters.