With the slogan “Expropriate real estate companies”, the Left campaigned in Berlin – and won. Experts explain what could happen now.
What Is the Left Planning in Berlin?
The Left wants to push ahead with the socialisation of large housing portfolios in Berlin. The party intends to present its own draft law after taking office, closely based on the model proposed by the “Deutsche Wohnen & Co enteignen” (DWE) initiative. This would cover around 200,000 to 220,000 flats owned by companies with more than 3,000 flats in Berlin. The properties would be transferred to a new state-owned institution under public law.
Is This Actually Expropriation?
Politically, it is usually referred to as “expropriation”, but from a legal standpoint, the proposal involves socialisation under Article 15 of Germany’s Basic Law. Unlike conventional expropriation under Article 14, the aim is to transfer land and property into common ownership. “That is different from expropriation,” economist Sebastian Dullien of the Macroeconomic Policy Institute (IMK) at the Hans Böckler Foundation told this publication. In 2023, a majority of the members of an expert commission appointed by the Berlin Senate concluded that such socialisation is legally possible in principle.
How Could Berlin Implement It?
First, the House of Representatives would have to pass a socialisation law. After that, the actual implementation would begin – along with the legal disputes. Affected companies could take legal action against the measures. At the same time, Berlin would have to determine which flats fall under the law and how much compensation would have to be paid. Among other things, the companies would have to provide information about their housing portfolios and ownership structures. The state would also have to set up a new administration for more than 200,000 flats.
Dullien therefore believes it would make sense to closely involve the existing state-owned housing companies. The new structure must neither overburden Berlin’s already strained finances nor slow down new construction, he warns. Socialisation could also be “at most a supplementary element” – it is no alternative to building significantly more affordable housing.
Why Is Socialisation in the Basic Law in the First Place?
Article 15 was deliberately included in Germany’s Basic Law. According to constitutional law expert Ulrich Battis, the SPD and the KPD were the main parties that pushed for socialisation to be enshrined in the constitution during the deliberations in 1949. The aim was also to preserve the option of transferring certain sectors of the economy more extensively into state or collective ownership.
However, the fact that Article 15 is part of the Basic Law does not amount to a blank cheque, according to Battis. Socialisation also interferes with protected legal rights and must satisfy the principle of proportionality. In its final report, a majority of the Berlin Senate’s expert commission concluded that the proposal could be proportionate.
Can the Socialisation of Housing Companies Be Proportionate?
Battis has considerable doubts. “I believe it is not a suitable means of addressing the housing shortage,” the constitutional law expert told this publication. The crucial question, he said, is whether socialisation is actually capable of achieving the intended objective – or whether other instruments would be more effective.
The dispute is therefore likely to end up in Karlsruhe. If affected companies or other parties take legal action against socialisation, the Federal Constitutional Court could examine the specific form of the measure and whether it is compatible with the Basic Law. Battis expects a lengthy legal process.
And What If the Federal Government Bans Expropriations First?
In that case, Berlin could not simply continue, according to Battis. Socialisation falls under concurrent legislative competence. This means that as long as the federal government does not exercise its legislative authority, the federal states can adopt their own regulations. If the federal government were to pass a corresponding law, however, Berlin would be bound by it and could no longer independently regulate socialisation on this basis. “Then Berlin can’t do anything,” Battis said.
That is exactly what the CSU has announced. Secretary-General Martin Huber told this publication: “We will ban the Left’s expropriation plans by federal law as quickly as possible.” Battis points out, however, that a federal law could not simply impose a blanket ban on all forms of socialisation. The federal government would have to create an appropriate legal framework. Moreover, Berlin’s Senate could challenge such a law before the Federal Constitutional Court.
How Expensive Would Socialisation Be for Berlin?
No exact figure can be given with any certainty. Real estate economist Michael Voigtländer estimates the market value of the affected housing portfolios at €35 billion to €40 billion. The DWE initiative and the Left, by contrast, want to pay significantly less, around 40 to 60 percent of the market value. According to Voigtländer, if compensation were paid at market value, Berlin would have to take on substantial debt. Significantly lower compensation, on the other hand, could undermine the confidence of private investors.
Ralph Henger of the German Economic Institute (IW) also arrives at widely differing figures depending on the model: with compensation of around €10 billion to €15 billion, financing largely from rental income could be feasible. If compensation were set at €30 billion to €36 billion, bringing it closer to market value, the state budget would face considerable pressure. In such scenarios, subsidies of around €700 million to €1 billion per year would be needed during the first ten years. According to Henger, however, it is still “unclear what discount from the market value would be constitutionally permissible”.
What Would the Consequences Be for New Construction and Investment?
Socialisation would not initially create any new housing. Although rents in the acquired housing stock could be stabilised, the uncertainty would likely discourage private investors. “So less new construction would be expected if public and non-profit actors do not make up for this possible decline,” Henger says. This could further exacerbate the strain on Berlin’s rental housing market.
Are There International Examples of Such a Step?
According to IW researcher Henger, there is no comparable case in which private rental housing companies have been socialised en masse and at short notice in a contemporary Western market economy. “International examples primarily show that a large public housing sector can only function if it is built up gradually and accompanied by substantial new construction,” the expert says.
His colleague Michael Voigtländer considers re-municipalisation a viable strategy only if the state purchases housing portfolios as a market participant. “But when the state expropriates, capital flight regularly occurs,” Voigtländer says. He points to the example of France, where banks and parts of heavy industry were nationalised in the early 1980s. The consequences – a significant loss of investor confidence and rising interest rates – were so severe that attempts were later made to reverse some of the measures. However, it took some time for interest rates to return to normal.