You can either have rent control or you can have abundant housing.
You can't have both.*
From ZeroHedge, October 19:
Five years after Berliners voted to expropriate their landlords, the German capital finally has a government willing to do it.
On Saturday, Die Linke, the Greens and the SPD presented the 30-page exploratory paper that will underpin their coalition agreement for the next Berlin Senate, and buried among the usual promises sits a plan to socialize, under Article 15 of the German constitution, every apartment a private landlord owns in Berlin above the first 10,000. The compensation for this act of municipal generosity: a hard cap of €16 billion which works out to about €105K per unit, or 58% of book value... and even that cap is conditional on "fiscal sustainability."
The bond market did the rest: Adler Group's 10% notes due 2029 plunged 20 points on Monday to a record low around 59 cents on the euro (they dropped as 53 earlier in the session), as creditors scrambled to price in the possibility that 43% of Adler's yielding Berlin portfolio is about to be bought by the state at a 42% to 48% discount to book.
Regular readers will recall we flagged the direction of travel back in January, when we noted that the German capital had become a testing ground where socialism was on the rise in Berlin's real estate market. And on election night, September 20, when the results first came in, we tweeted the punchline...
....Four weeks later, the anti-capitalist party is about to run the city and the plan is on paper. So let's look at who is on the list, what Berlin is offering, and why the people most likely to stop this sit in Karlsruhe and in the Chancellery.
From "Deutsche Wohnen Enteignen" To "Vonovia, Mostly"
Some background first. In September 2021, Berliners voted 59.1% in favor of a non-binding referendum to expropriate landlords owning more than 3,000 apartments, about 240,000 units in total. The CDU-SPD Senate that followed sat on it, an expert commission concluded in 2023 that it was possible under Article 15 (an article which, for what it's worth, has never been used in the 77-year history of the Federal Republic), and that was that.
Then on September 20, Die Linke, whose roots lie in the East German communist party, won 25.7% of the vote, its best result ever, displacing Merz's CDU from the mayor's office. Its lead candidate Elif Eralp, who told Reuters that Zohran Mamdani's win in New York was "a big example for us", campaigned on expropriating more than 200,000 units. And in case anyone thought it was just rhetoric, the party's Berlin deputy chair Martha Kleedörfer helpfully told investors on Instagram that the Left would have no problem if they "finally go home".
The SPD, whose lead candidate Steffen Krach had categorically ruled out expropriations during the campaign, folded in the exploratory talks; the price of power, it turns out, was about 152,000 apartments.
What the three parties agreed:
- Threshold of 10,000 units per company (vs. 3,000 in the referendum), with each landlord allowed to keep the first 10,000; apartments built after January 1, 2021, cooperatives and non-profits are exempt
- Compensation capped at €16 billion, conditional on fiscal sustainability, meaning it can fall if financing conditions worsen
- A financing concept in 2027 which leaves open whether owners get cash or 100-year bonds, a bill in the Berlin parliament by mid-2028, and transfers taking effect one year after promulgation, i.e. mid-2029 at the earliest
Based on documented holdings, that means roughly 152,000 apartments (the Left's own spokesperson puts it at about 160,000 from five companies, adding the DVI Group): Vonovia 128K, Heimstaden 10K, Adler 7.4K and Covivio 7K. In other words, this is overwhelmingly a Vonovia story, as the 10,000 allowance shields almost all of the smaller landlords and leaves Germany's biggest landlord holding the bag on 93% of its Berlin stock.
Buy High, Expropriate Low
Now the fun part: the price. At €16 billion for ~152,000 units, Berlin is offering about €105K per apartment, roughly 58% of book value on a pro rata basis. That alone is a remarkable number, but it becomes even more remarkable when you recall that Berlin has bought these very same apartments before.
Back in September 2021, nine days before the referendum, Vonovia and Deutsche Wohnen sold almost 15,000 apartments to the city's municipal housing companies for €2.46 billion, or about €165K per unit. At the time, the expropriation campaigners slammed the deal as a "backdoor" purchase at "speculative prices". Five years, one property crash and one election later, the city wants the next batch for 36% less... and this time it won't be asking nicely....
That's not me asking, that's federally funded media, Deutsche-Welle.
First some background. Two posts from 2021, the second one five years-almost-to-the-day ago:
September 28 - German Politics and Policies:........So with all this running through my head, the first thing I saw regarding German politics on Monday was that the referendum to expropriate and socialize Berlin apartments from Germany's largest landlord had passed. Although the referendum is not binding on the Berlin government the result 57% ja/39% nein is one heck of an indication of the political zeitgeist.....And from D-W, September 23:
Could Berlin expropriate large real estate companies?....
....MORE, including earlier links
