Berlin Rental Housing Referendum

September 21, 2021

German Housing Referendum

Germany heads into a much brighter year of 2022 when Covid 19 will finally recede and life returns to normal. Of course both tenants and landlords still face transitions and adjustments in the years ahead.

Besides the German economy, the rental housing market in Germany is also on the country’s 80 million resident’s minds. Immigration is set to increase and the prices of homes are rising. Most Germans rent their homes and when inflation grows, it can present stress and challenges for them.

For renters, the issue of affordability comes to the forefront, and when renters can’t pay their rent, they may turn to politicians to take action to restrict the market. Yet rent controls ultimately suppress investment. This summer, elections and referendums turned against rent controls and investment money started to flow into the German housing market.

While the German rental market is a golden one for landlords, being a landlord is increasingly difficult one due to regulations, taxes, and more.

Berlin Renters Frustrated with Too High Rents

The beautiful city of Berlin draws residents from all over the world. The growing tech community among other industries have made Berlin a big draw as a cool place to live and work. And Berlin is about to have its own state elections on that very same day.

Included in that vote, is a referendum on the Berlin rental housing market. This could potentially have a huge impact on corporations buying property in Berlin, other German cities and perhaps across Europe. The proposition amounts to what would be an expropriation of properties from large private property investors and landlords.

Berliners have been very frustrated with their housing market going back at least a decade, with rent prices considered too high and vacancy rates near zero. They’re also highly concerned about immigration, cost of living increases, and the national debt issue. The election may bring these matters to the boiling point.

The blame has been placed on huge housing corporations who own a significant share of rental housing, which apparently was acquired after the German unification decades ago. The belief of some is that by taking the apartment properties away from these big property owners that rents might be decreased.

The suggested solution for the rental housing crunch however is not in the best interests of future housing development in Germany and it sets a precedent that other countries might be tempted to follow.

Jakob Hans Hien, a lawyer at Knauthe, one of Berlin’s leading real estate law firms, believes an expropriation law would not be applicable in Berlin. „Hardly anyone believes that a law will really be passed…Legally and practically, this would simply not be feasible.“ But he says there are plenty of worries about the other consequences of a yes vote and how it will affect the housing market in the city. — from DW report.

This issue is on the election ballot. If it is enacted, and successfully does lower rent prices, it may result in other countries adopting similar socialist type policies on housing, regardless of cost or political challenge.

The Berlin Housing and Rental Market

Berlin is a unique German rental housing market. The wealthy live among the regular wage earners in Berlin’s trendy unique neighborhoods. 85% of Berliners currently rent their home according to a report in Euronews. Although many Berliners feel their situation is unique, a lack of availability and high prices afflicts almost all first-world, modern countries.

The issue in the US, UK, Australia and Canada too, is heavy immigration numbers combined with NIMBYism, along with government unwillingness to support new housing development. A low supply of rental housing pursued by too many people creates higher prices. It’s a supply/demand problem. And as immigration accelerates in Germany, UK, Canada, Australia and the US, so too is this issue of high rent prices for houses and apartments.

It’s a global problem stemming from global politics. And with more people unable to find rentals, they are forced to buy which can contribute to higher house/apartment prices, whether in Berlin or London or Sydney. This demand is from a growing number of less affluent renters who cannot afford the rental units currently being produced.

Even if the referendum fails in this election, which it may given legal challenges, the issue won’t disappear. There have been attempts to control Berlin rent prices before including rent controls, but the rent controls introduced in 2020 were repealed for constitutional reasons.

Since no housing solution is in sight, many investors would speculate in the German/Berlin real estate market knowing prices under these circumstances would rise. The situation itself invites even further demand pressure.

The Berlin Rental Housing Referendum

The Berlin referendum would ask that any landlord owning more than 3,000 apartments have their properties seized and converted into public housing. However, vacancy rates are very low in cities like Berlin, so to create lower rent prices, the government would have to buy them at high prices and then subsidize the rents because property and rent prices in the city will not stop rising.

The political group pushing for the change did acquire the needed 175,000 signatures to launch the referendum vote.

The proposal rests on an article in Germany’s Basic Law which states: „Land, natural resources and means of production may, for the purpose of nationalization, be transferred to public ownership or other forms of public enterprise by a law that determines the nature and extent of compensation.“

This suggests the appropriated, seized properties would be priced at well below market value, otherwise, what would be the point of it?

The German government would likely balk at buying all the properties at market value because the costs is in tens of billions of dollars. Deutsche Wohnen and Vonovia, two large German real estate companies appear to be the main targets.

Euronews reported that Berlin residents are divided on the expropriation solution the referendum covers. A survey found 47% of responders supporting the initiative and 43% were opposed to it. The SPD party, according to polls, looks like they are about to win the election but the advantage is very slim as of today. It’s said the SPD doesn’t support the expropriation referendum.

Berlin Landlords Still Playing Catch Up

Currently, a good percentage of Berlin landlords don’t use modern German property management software which will contribute to better efficiency, controlling costs, and lower operating costs.

There is also another referendum on the banning of combustion engines in cities, which would be quite a change for Germany if passed. However, these issues are often a ploy used by political parties to gain attention.

The legal challenges will likely keep this from being law in Berlin, however without new rental housing development, the frustration of Berlin renters will grow to create mounting political pressure in 2022.

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