Germany is one of the world’s biggest real estate bubbles, and it might pop in a spectacular way. Yesterday the majority of Berlin residents voted to nationalize 240,000 rental units. The move was driven by Deutsche Wohnen & Co. enteignen (DW enteignen), a housing activist group looking to cut large corporate landlords. The referendum isn’t binding, but it’s a step in the direction of pushing the issue to the Senate. More importantly, it tells policymakers how frustrated people are with housing.
The Majority of Berlin Voted In Favor of Evicting Large Landlords
Berlin residents voted in a referendum to expropriate homes from large landlords. If successfully passed, landlords with more than 3,000 units would be nationalized. This would result in 12% of the region’s rental stock returning to public ownership. It still has a few hurdles to pass to get done, but it’s pretty wild to see this measure get this far.
Institutional Landlords Are Generally Worse Than Mom & Pop Landlords
The measure doesn’t ban all private landlords, just those with very large holding. This is due to the model they have, which is often optimized to squeeze people for profits. Higher eviction rates, low-income renovictions, and poor maintenance are issues cited by the activists. Due to the size of institutional landlords, they also influence the market.
Comrades at the US Federal Reserve found similar issues with institutional landlords. They tend to be optimized for profit extraction. This is a really fancy way of saying they’re effective at beating people like a money pinata. Wait… companies want profits?
The Idea Is More Feasible Than It First Seems
The idea sounds like it’s an outlandish one, but is more feasible than it first seems. The state would borrow money to buy the properties, fueled by low rates. Those are the same low rates the property companies are using btw. Rather than rent going into profits, it would pay for maintenance and the loans. The idea is to create stable housing for the public, since it’s a core need for cities to operate.
The resolution is non-binding and faces a few hurdles, even though it might be feasible. The government still needs to follow through, and agree on a price that makes sense. Berlin’s Senate estimates the cost between €26 billion and €36 billion. The latter is the market price, which wouldn’t make much sense to buy. It would effectively mean paying bubble valuations and providing an exit for investors.
The DW enteignen argues the compensation should be much lower. Due to Germany’s Article 15 of Basic Law, the state can determine the compensation. They argue it should be based on a multiple of fair rent, which they estimate is closer to €18 billion. The act of socialization has never been invoked though, so it’s unclear how long it would take to execute.
Whether nationalization occurs or not, it shows how frustrated people are with housing. Germany is the second longest-running bubble in the G7, beating Canada by a quarter. As central banks sweeten the pot for institutional investors, institutional landlords expand. At the same time, the same factors create rising inequality.
It might be surprising to see people demand wealth redistribution, but it shouldn’t be. Central banks are already pushing for wealth redistribution. They’re just doing it in the opposite direction these activists are asking for.
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