Berlin has been making waves in the global news with a campaign to expropriate a large private owner of apartments. Some uncollected thoughts after the jump.
Deutsche Wohnen owns more than 100,000 rental units in Berlin, making it the city’s largest landlord. The majority of this rental stock consists of formerly city-owned apartments that underwent privatization in the 1990s and 2000s, mainly under a left-wing government.
The main question, i.e. whether expropriation is legally enforceable, is not for me to answer and will doubtlessly keep courts busy should a referendum succeed. The organizers of the campaign think it is in line with Germany’s constitution.
The other major question, i.e. whether such a move is financially affordable, is important for deficit-weary Germans. Germans’ obsession with the “black zero” is often used to make any major government expenditure look morally wrong due to the burden it places on future generations.
But of course nationalizing 100,000 apartments creates a cash flow, and interest rates are still very low for large-scale borrowing to be affordable. So the initiators of the expropriation campaign have crunched the numbers and suggest this transaction can be self-financing, i.e. do without government subsidies.
The major question relates to the assumptions you put into any model: Should you compensate Deutsche Wohnen (or other entities to be expropriated) at market prices or find a formula to separate general market price increases from the price appreciation due alone to the owners’ investments in the capital stock?
If we agree that prices have been seriously inflated — what is your baseline year for calculating market prices? When socializing land on a grand scale during the 1970s and 1980s, Singapore fixed land acquisition prices at 1973 levels because value creation had been primarily “socially, rather than privately created”.
(Singapore being of course a very special case with limited land. However, I think that our global urban future has to proceed with less private ownership if we are to confront some important sustainability issues. More on that later. Hopefully!)
Much of the recent past’s real estate value appreciation stems from zero interest rates by the ECB following the financial crisis. Does that mean 2009 offers a convenient base year? That would hurt property owners substantially.
The answer to this question obviously has a huge bearing on the eventual price tag for expropriating the major private players — will it “cost” EUR 28 or 38 billion, even more, or much less?
I have to admit that the campaigners from Berlin make a convincing point when they argue for a more aggressive re-pricing of the portfolio of apartments. This would allow renting these apartments out at a much more affordable price if the whole transaction were to be self-financing.
Then again, the boss of Deutsche Wohnen also has a point when he says that in the future, we will have to learn to live on less space in our cities. For him, that thought derives from justifying higher per-square-meter rental prices. For others, this is a sustainability issue, and unavoidable in an age of growing cities and climate change.
Finally, the head of the Young Socialists (JuSos), the “youth” organization of Germany’s Social Democrats has made a few interesting points recently. Besides calling for the collectivization of BMW, he suggested that no one should own more than the living space occupied by him- or herself. Unsurprisingly, the response was largely hysterical, even in his own party. I think it’s the way forward.
