Berlin: Why expropriations will remain very unlikely

Now it’s the Senate’s turn. 56.4 percent of voters in Berlin voted in a referendum on Sunday in favor of expropriating apartments owned by large real estate groups in the German capital. 39 percent rejected the proposal made by the initiative “expropriate Deutsche Wohnen & Co.”. According to the resolution text, the new Berlin state government (Senate), which will be constituted after the election to the House of Representatives, is called upon to draw up a corresponding law and “initiate all measures” that are necessary to transfer the apartments into common ownership.

This means that the new government and the Senate of the city of Berlin now have to deal with the issue and that its law takes the will of the people into account. It’s about 240,000 apartments that are still owned by companies that own more than 3000 units in the city. The initiative expects 15 percent of the apartments to become the property of the city of Berlin again. The hope is that the city will have more influence on the housing market and that rents will rise less quickly.

The result of the vote is therefore a success for the expropriation advocates. The heads behind them appeared correspondingly self-confident on election Sunday. “We do not accept delaying strategies or attempts to intercept them. Disregarding the referendum would be a political scandal. We will not give up until the socialization of housing groups has been implemented,” said Kalle Kunkel, the initiative’s spokesman.

Short joy of victory

It is already becoming apparent, however, that the joy of this victory will only last for a short time, also because the left, a strong advocate of housing expropriation, will probably no longer belong to the future city government. The CDU, FDP and AfD had already spoken out against expropriations before the election. Even now they are unlikely to have changed their attitude. The Greens, in future the second largest group in the House of Representatives, once called the matter the “ultima ratio”. They would rather see other political instruments at work, such as a “rent protection umbrella”. And the one who ultimately won the election in Berlin and could soon be the new governing mayor is against expropriations: the SPD politician and former Federal Family Minister Franziska Giffey.

Now it must rhetorically take into account the result of the referendum – but it will not be behind it. She announced that she would respect the successful referendum: “Such a bill must now also be drawn up”. “But this draft must then also be examined under constitutional law.” Means: The yes is. The only question is what it means.

Giffey’s cautious reaction is hardly surprising when you look at the emotional intensity with which the debates about the Berlin housing market are conducted. Giffey’s predecessor, the still incumbent Michael Müller (SPD), had already burned his fingers with the rent cap when the Federal Constitutional Court had again conceded it as an inadmissible interference in the market. It is therefore questionable whether the new government wants to get negative headlines again – because: It is considered certain that the Federal Constitutional Court in Karlsruhe would not tolerate expropriations in the capital.

Berlin doesn’t have enough money for expropriations

In any case, the question arises as to how realistic an expropriation would be. Most observers believe that this will not happen at all. In addition to the Constitutional Court, there are other reasons for this: “You would have to compensate at the market price,” says Michael Voigtländer, head of the financial and real estate markets competence field at the Institute of German Economy. Berlin could not afford the 30 to 40 billion euros that would cost.

This means that the vote for the initiative “Expropriate Deutsche Wohnen & Co.” may not be a winner after all. “I see the whole thing as a kind of vote of no confidence in the big real estate groups,” says Voigtländer. In other words: By agreeing to the initiative, the Berliners were more likely to express their frustration with a market, because many are watching with concern. And even if the goals of the initiative will probably not be implemented in the end – it gave the people of the city a weapon with which they could put pressure on politicians. And the discussion will continue. “Most of them didn’t really vote for expropriation, but actually for change,” says Voigtländer.

And these changes have long been visible in Berlin. Through the “Deutsche Wohnen & Co.” initiative the actors involved can no longer ignore the issue. The city of Deutsche Wohnen and Vonovia will buy 14,750 apartments and 450 commercial units. Three state-owned companies will put a total of 2.46 billion euros on the table. The goal of the red-red-green state government, which was voted out on Sunday, was to expand the municipal housing stock through the purchase and thus to be able to exert more influence on the tense market. The aim of the real estate companies was to take the wind out of the sails of the expropriation initiative by voluntarily selling it.

Yesterday’s mistakes, tomorrow’s mistakes

Like the expropriations themselves, this is also not without controversy, as the apartments were already in municipal hands in the past. The city of Berlin has sold around 200,000 apartments at ridiculously low prices today. What was then considered a way to get money quickly is now viewed with a shake of the head. Whether this means that it is now wise to compensate for the mistakes made back then with a lot of money is questionable.

One thing is certain: real estate prices in the capital have risen sharply since then. The buyers from back then would now make a lot of money with the apartments. In 2004 the city of Berlin sold GSW to Goldman Sachs and Cerberus for 405 million euros. Their “Whitehall Fund” contained 66,000 apartments that Deutsche Wohnen took over in 2013 for EUR 1.75 billion. The approximately 14,000 apartments from the deal in Berlin are now set to change hands for 2.4 billion euros alone.

The stock exchange apparently finds this attractive: While the “Expropriate Deutsche Wohnen & Co.” initiative is still in a state of frenzy, the share prices of real estate companies are rising. Vonovia shares even rose by almost three percent on Monday, and that could even be a consequence of the successful referendum. Because the money that the Bochum-based company would make by selling its Berlin apartments could be put into more lucrative business areas. In addition, the entire real estate industry is benefiting from the poor election result of the Left Party, which will no longer represent a power option at the federal level.

But even if it is rather unlikely that there will be expropriations in Berlin, it seems realistic that something will change on the market in the capital anyway. But now the future Senate is required to do this.