There's a short paragraph in the German Basic Law (the Constitution) that says "Land, natural resources and means of production may, for the purpose of socialization, be converted into public ownership or other forms of public service by a law governing the nature and extent of the compensation." It's Article 15 of the Basic Law.
In simple terms, it means that the government, the 16 states, and the cities of Germany....have the right to 'seize' or expropriation a piece of property or a building, in the interests of the people.
Berlin has reached a stage where they (the political players) believe that a housing crisis is unfolding. One can look over the past forty years, over various urbanized cities (Berlin, Frankfurt, Hamburg, Munich, etc), and realize that affordable housing has spiraled into a major mess. There are numerous factors to this, but I'll lay the blame to three central features:
1. From the end of WW II to the 1980s....public housing was built at a hefty rate by city governments. You could say that it was turboized in the 1950s, and grew at a lesser nature in the 1960s/1970s. Cities didn't really want to be the mover or shaker (the permanent landlord) over this regional empire. It meant you had to update/modernize/renovate, and frankly, the cash flow from 'rent' wasn't ever going to fix this problem. So to a great extent....the cities (having the right and ownership) sold properties to real estate holding companies. Those companies continued to rent the apartment buildings but the complaints to modernize continued on, and they renovated....passing the cost onto the renters, and escalating prices.
As you might imagine, some of the properties doubled up in rent prices, easily going from 450 to 700 Euro a month.....on up to 1,000 to 1,500 Euro a month. Naturally, people moved out, and looked for better affordable places. This escalation triggered competition, and fewer affordable places were to be found.
2. Added to this chaos....land speculation in the inner cities really took off in the 1990s. People bought lots and held onto them for ten to twenty years. In a city like Frankfurt, you can probably find 300 separate lots or older empty buildings.....waiting for speculation to reach some major profit. Without access to those properties, affordable housing simply won't be built.
3. Around twenty years ago, neighborhood groups and housing associations thought that they could 'force' cities to go and build affordable apartment housing. You can't find any major German cities who are enthusiastic about this idea. Sales taxes and property taxes are all limited in money-generated across the nation. So a city has limited options in getting loans to build major buildings like this, and if you say it's an affordable-rent project.....just how much money will you turn in....each month?
So where does this Article 15 lead onto? Well, there's this initiative in Berlin, where an association wants the city use legal means to seize housing. The number being discussed? 200,000 apartments.
You'd present a judge's order to some company (the owner of the building) and just say......your ownership just ended, and it's now city property.
But there's this compensation angle to this. German law also says that you can't seize without compensating the first owner. How much is this package? There's a discussion underway....at the bottom of the estimate, the city figures near 18 billion Euro (roughly 24 billion US dollars). The companies involved suggest it might be closer to 35 to 40 billion Euro (roughly 42 to 50 billion US dollars).
Who'd pay compensation? The city of Berlin (not the federal government). Course, this seizure would mean that some judge would have to get into the middle of each single building seized, and have some independent guy assess the value. So you could have a 1958-constructed 40-apartment building worth 7 million Euro, and a 1988-constructed 40-apartment building worth 10 million Euro. Values will differ on each building, the assessment officer, and the final tally.
Has this expropriation idea ever been done before, on housing? No. That's been mentioned a number of times. No one is sure if it's technically legal, and some say that bringing up one single case....might require two years minimum to go through the courts, and reach some national level. Each case being challenged? Well, that's been mentioned via journalists as well. So you could have well over 500 buildings seized and 500 court cases lined up.
Can the city even afford 18 billion Euro? That's another issue which several folks have talked about via news reports. The city does have a budget, and wing some bank loan. But there's a curious side to the finances here. The intent here is to seize apartment buildings, and then suddenly drop the rent (say from 900 Euro for a 2-bedroom, to 500 Euro). If you show up at a bank and demonstrate the numbers, suggesting that you need 18 billion, but that your rental 'profits' will never pay for more than 4-percent of the loan amount each year....bankers will just start laughing.
Then the issue of renovation comes up. Do you, as the city management, want the responsibility of renovating some building, but never get any real pay-back over the renovation done? I can't think of too many city government who'd want that responsibility.
The political punishment angle? Well, that's another part of the story as well. If you have 200,000 apartments under this city-game, who is the chief housing director, and just how political will that job become over a decade?
If you do go and grab the property.....what happens to potential future apartment construction projects? Are they now dead in the water? More than likely, no one will want to build any buildings for apartments for the next decade because you can't be sure about the future.
So just how likely is expropriation likely to occur? I suspect that a test-run will occur, and a dozen properties will be selected to see how the legal system will handle it, and how expensive this idea can get. From the start to the finish, I would speculate five years will be involved, and the price-tag for the buildings will shock a number of housing associations and banks. After that, it'll be dropped as a major project....just my humble opinion.
If this did go through, with 35-billion Euro flowing to the companies owning the properties? This is curious question left with this story. They might actually go and buy up property on the far outskirts of Berlin, and entice the middle-class with medium-value condo development.
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