
Karl Marx Allee in East Berlin, Germany, in 1971.
Source: Associated Press
As the German property market and its many international investors eagerly await details of the Berlin senate's draft bill to tackle spiraling residential rents, the threat of even more extreme measures to address housing costs continues to breed uncertainty.
The once unthinkable prospect of widespread nationalization of homes in Berlin has become a subject of debate. Interventions in the market by local authorities to prevent large purchases of housing stock by private landlords have made headlines, and Berlin Mayor Michael Müller, after one particularly notable transaction, said "it was and continues to be our intention to buy up apartments wherever we can, so that Berlin can regain control of its property market."
Meanwhile, the submission of a petition to the Berlin senate in June that calls for the expropriation of the assets of any private residential landlord that owns more than 3,000 units in the city claims to have collected more than three times the number of signatures required. If the senate's response is not to the activists' liking, they can force a referendum on the issue by collecting 170,000 signatures in four months.
With anger about rapidly rising rents and soaring apartment prices widespread in the German capital, it is unclear which way a referendum on the issue would go. Still, a significant nationalization program is seen as a highly unlikely outcome, according to seven senior figures working in the German residential market whose disciplines cover the equity markets, industry research, valuation and advisory.
"In the end, if it came to voting for the expropriation of units in a referendum, it won't cross the line because most Berliners know it will cost us a lot of money," Sven Henkes, CEO at banking and real estate consultant Ziegert, a specialist in the Berlin residential market, said in an interview. "It would be really crazy."
Red flag
The Berlin mayor's remarks on buying up apartments likely did little to reassure nervy investors facing the prospect of a five-year freeze on rents proposed by the Berlin senate in June. His comments came after local authorities announced in July that almost 700 homes in Berlin's aptly named Karl Marx Allee would no longer be sold to one of the city's largest private landlords, Deutsche Wohnen SE.
The units were instead acquired by state-owned housing company Gewobag Wohnungsbau-Aktiengesellschaft Berlin using what is known in German law as preemption rights, which allow municipalities to replace a buyer in a purchase agreement. The intervention, which followed months of protest from the affected residents, made headlines across Europe and appeared to be the latest push toward a widespread nationalization of Berlin's residential market.
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While Berlin municipal authorities have increasingly exercised preemption rights in the last two years, further transactions of the nature and scale of Karl Marx Allee would be surprising, said Konstantin Kortmann, head of residential investment at JLL Germany.
"Karl Marx Allee was a unique situation," he said, adding that the transaction was an obvious case of political "window-dressing" as the left-wing coalition parties that control the Berlin state government sought to protect their voter base. "Local politicians assembled a deal uniquely for the people in this property, who are quite left-wing, in order to show the electorate how good they are."
The industry appears convinced that much of the talk in Berlin around large-scale nationalization of housing units is mere political grandstanding by local representatives who know that such measures are unfeasible and counterproductive.
Nationalization would do nothing to address the core problem with the market, which is the shortage of new supply, said Kortmann. "Those with a decent Marxist education would know that because they're not creating anything on the supply side, nationalization will basically distort the market further," he said. "It doesn't make a lot of sense. And the political class in Berlin knows it doesn't make a lot of sense."
The Berlin state's ability to fund any such large-scale nationalization program, which would likely cost tens of billions of euros, is also widely doubted. "Berlin definitely has no money at all," said Andreas Polter, head of residential portfolio investment at real estate services firm Cushman & Wakefield Germany. "It's one of the poorest federal states in Germany. It's funded by the richest states in the southern part of Germany," he said.
Still, Berlin could seek to take advantage of historically low interest rates to fund such a program, Thomas Rothaeusler, real estate equity analyst at global investment bank Jefferies, said. "It's possible because financing for them is very cheap."
History repeating
Residents pushing for nationalization of housing stock should remember the lessons of Berlin's history, Polter said. Following World War II, East Berlin was part of the communist German Democratic Republic until the reunification of Germany in 1990. Much of East Berlin's housing stock was in a state of disrepair when the Berlin Wall began to fall in 1989.
"I don't think that the state or the senate would be a better owner of large housing stock," Polter said. "That was shown in the past already."
On the prospect of expropriating the assets of landlords owning 3,000 or more housing units in Berlin, called for by the petition submitted to the Berlin senate, there appears to be consensus in the industry that such a move would be unconstitutional, and almost certain to be blocked by the German courts.
What a political shock like those the U.S. and the U.K. have experienced in recent years might mean for the nationalization debate is another matter, some warn. The rise of the populist right and left in Germany means that "it is pretty tough to predict what is going to happen," Polter said.
But such a surprising political shift may be the only hope of the activists demanding the nationalization of Berlin's housing, said Kortmann. "Unless we see another unicorn entering the room such as Boris Johnson or Donald Trump, I don't see this happening."

