The most common objection to the socialization of apartments owned by private real estate companies is the costs this process might incur. Most notably, in her campaign for the Berlin mayoral election, Franziska Giffey of the SPD continually emphasized that “expropriation would cost Berlin 30 billion euro”. She stated that she would instead prefer to put this money “to a more sensible use, such as building more housing and infrastructure rather than giving it to landlords who treat their tenants unfairly”.
Armin Kuhn is a political scientist and active participant in urban political movements. He works as an advisor for housing and rental policy at the Rosa Luxemburg Foundation’s Institute for Critical Social Analysis.
This article first appeared in LuXemburg. Translated for Gegensatz Translation Collective by Hunter Bolin and Louise Pain.
Yet at the same time, the Berlin branch of the SPD also gave its political blessing to a controversial merger between Vonovia and Deutsche Wohnen, and purchased some 14,750 apartments from the two real estate companies just days before the election. The total cost of this was projected to be 40 billion euro, extrapolated to the estimated 243,000 apartments earmarked for socialization.
After the referendum “Deutsche Wohnen & Co. enteignen” (German for “Expropriate Deutsche Wohnen & Co.”) was won with an overwhelming majority on 26 September 2021, the discourse surrounding the cost of socializing apartments owned by private real estate companies became tangible. But the aforementioned position upheld by Franziska Giffey and the Berlin SPD demonstrates just how impassioned and contradictory the nature of this debate really is. It is also clear that one of the most explosive and still unresolved points of contention in the ongoing debate centres around the question of compensation, in addition to the constitutional validity of the process of expropriation.
Conflicting Cost Estimates
The repeatedly cited sum of “at least 30 billion” for compensation is based on the official estimate made by Interior Minister Andreas Geisel (SPD) in March 2019. According to the estimate in question, the real estate companies would have to receive a compensation sum amounting to somewhere between 28.8 and 36 billion euro, plus “ancillary acquisition costs” of 180 million for the valuation, as well as further costs for the practical and organizational elements of its implementation.
Shortly thereafter, the Deutsche Wohnen & Co. enteignen initiative pointed out inconsistencies in the figures. While the upper limit of 36 billion was based on the annual reports of the affected companies, the department responsible for the calculations had assumed with regard to the lower limit of 28.8 billion that there was the possibility that deductions could be made on value increases that did not result from the companies’ earned profits.
The initiative criticizes the fact that only unearned profits resulting from increases in land value were accounted for in calculating these deductions, but not increases in the value of the buildings themselves. The initiative claims that if the latter were taken into account, and if the repayment and interest expenses were calculated correctly over a period of 45 years, the estimated value would only be 18.1 billion. This sum could be financed entirely from rental income — in other words, without any subsidies from public funds. Rents could even be reduced by almost one euro per square metre.
Fabian Thiel, Professor for Real Estate Valuation in Frankfurt, has pointed out some more fundamental shortcomings in the cost estimates. According to him, the rough calculations proposed by the senate are “clearly set too high”, and are “entirely inaccurate”; he claims the estimates were made “at random”. If nuanced distinctions could be introduced between residential and commercial properties, as well as between developed and undeveloped land, and if uniform appraisal procedures were implemented and plausible assumptions were made regarding value percentages and purchase dates, then this would result in “a compensation sum approximately 66–70 percent lower than the senate’s estimate for the cost of compensation”. This would only amount to a compensation sum of approximately 9.5 billion euro.
Socializing Housing at Market Value?
The Senate’s cost estimate must therefore be seen for what it really is: a politically motivated estimate whose purpose was to hinder the implementation of the petition for a referendum. By cravenly excluding the unearned profits from property price increases from its calculations, the senate itself has deviated from the market value — that is, the price that can currently be earned on the market. But is the market value even the right starting point for calculating compensation? After all, the process of socialization (under Article 15 of the German Basic Law) does not constitute a purchase, nor should it be confused with expropriation (under Article 14 German Basic Law), as is customary in motorway construction or coal mining, for example.
In expropriation proceedings, a compensation sum based on market value generally tends to be the default — in part because the livelihoods of the property or land owners directly affected by expropriation are often at stake. However, even in these cases, the German Federal Constitutional Court has indicated that a “rigid compensation based solely on market value” is not in keeping with the German Basic Law and that the legislature can “depending on the circumstances … also determine a lesser compensation sum”. Joachim Wieland argues that based on established case law, a distinction must be made between earned and unearned gains in property values. However, there are no guidelines for the method of calculation, nor for determining the form of payment. Everything else must be negotiated in the political arena; it cannot be established by looking to case law.
This political negotiation also applies to Article 15 of the German Basic Law, which pertains to socialization and refers to the “expropriation article” (Article 14 Paragraph 3) in the question of compensation. The article in question states that compensation “shall be determined by fairly weighing the interests of the general public and the parties involved”. However, unlike expropriation, in which ownership merely changes hands in the “interest of the general public” while leaving the fundamental system of ownership fundamentally unchanged, socialization means transferring land, natural resources, or means of production into a completely different ownership structure, namely “into common property or into other forms of common economy” (Article 15 German Basic Law).
This categorical, constitutional distinction must be taken into account when considering the question of compensation. In this respect, it would be worth taking a look at the early discussions that took place in the early 1950s around the interpretation of German Basic Law, which had only recently been introduced at that point. In the context of these discussions, constitutional lawyer Helmut Ridder described the difference between expropriation and socialization in the following words: in contrast to expropriation, in instances of socialization owners were “placed in a state of injustice vis-à-vis the emerging order”.
If applied to the implementation of the demands of Deutsche Wohnen & Co. enteignen, this would entail that from this moment on, the private ownership of large housing stocks would no longer be allowed. In other words, there would no longer be a market for the apartments in question, and the market value would consequently not be allowed to serve as a starting point for calculating compensation for owners. Compensation would still have to be paid, of course, but not as a “just subtraction from the full property value on the one side”, as is the case with expropriation, but as a “just addition to nothing on the other side”.
However, according to institutional economist Thorsten Beckers, compensation according to market value seems “absurd” from an economic perspective. Since the real estate companies — which own approximately 15 percent of the market share and have a disproportionately high degree of political influence — played an instrumental role in driving up real estate prices, a compensation sum calculated according to the market value would be tantamount to “paying out the cash value of power”. This, however, would constitute the exact opposite of a just balance of interests between corporations and the general public, as stipulated by law.
Paths Towards Fair Compensation
Since the article on socialization has never been applied, there are no precedents for how to adequately compensate the real estate companies impacted by the process. One thing seems certain: the sum cannot be so low that it drives the affected companies into bankruptcy, nor can it be so high that it approaches or even exceeds the market value. What is also certain is that everything else is subject to political negotiation.
In 2021, “AG Sozialisierung” (working group on socialization), led by urban sociologist Andrej Holm, developed a thesis paper that proposes four alternative models on how compensation might be calculated in the context of such a political negotiation: according to “affordable rent”; according to simplified net worth; according to investments made by corporations or according to their existing debts. All models are based on the assumptions that compensation 1) does not prevent socialization and thus sustainable management at affordable rents; 2) does not burden the state budget in the long term; 3) must not contradict the balanced budget amendment; and 4) may not be used to remunerate speculative gains. All models result in compensation amounts that are clearly below the 30 billion euro or more propagated by those who oppose socialization.
The approach of determining a generally affordable rental amount and using the resulting rental income as a basis for calculating compensation seems particularly promising. This is the approach advocated by the Deutsche Wohnen & Co. enteignen campaign. It uses a “fair rent model” that assumes that even people living on the poverty line should not spend more than 30 percent of their net household income on gross rent including heating.
According to these parameters, basic net rent is calculated to amount to roughly 4 euros per square metre. A compensation sum that makes “affordable rent” possible would be no higher than 8 billion euro. AG Sozialisierung also proposes the concept of “social management”, which is based on rental prices averaging 5 euro per square metre for basic net rent. This would then fall between the affordability limit mentioned and a rental price of 5.95 per square metre oriented to the Mietendeckel (rent cap), which still applies in the case of municipal housing companies). This would result in a compensation sum of 14.5 billion euro.
How to Finance Socialization?
In addition to the amount to be compensated, the form that payment will take, and how it will be financed also remain an open question. Contrary to what is often suggested in both public and media discourse, the compensation sum would not have to be obtained immediately and delivered as one lump sum. The proposal of the initiative Deutsche Wohnen & Co. enteignen to use longer-term bonds would be feasible, as would green areas or heritable building rights, which could be offset against compensation that can be paid off in the long term.
Most importantly, the compensation sum does not have to be financed by the public budget, because in the case of socialization the public sector also takes over the property assets and rental income, which can subsequently be used to finance the payment. There is also potential for a substantial “socialization dividend”, which would be created by transferring the apartments that are currently managed for profit to the public sector: for example, 37 percent of the rental income that Vonovia distributed to its shareholders in 2020 could be saved and used for rent reductions, for compensation payments, and, in the medium to long term, for acquiring and constructing new buildings.
However, loans would still be necessary, regardless of the amount and form of compensation. These could be taken out by an institution established under public law (A.ö.R.), which, according to the proposal text of the referendum, would take over the socialized apartments. There are two advantages to this approach: firstly, the debt brake does not apply to borrowing by state-owned companies organized in an independent legal form. This applies, for example, in the case of school construction by the state-owned housing association HOWOGE, or to underground train construction contracts by the Berlin transport company BVG, which is an institution established under public law.
Secondly, the new housing association, for which the state would have to assume liability, could benefit from the funding advantages of government institutions. This is because the institution established under public law, as a particularly creditworthy public institution, can borrow the compensation sum on the capital market at much more favourable conditions than, for example, the housing companies themselves, which also finance their housing stocks through debt. In this way, the interest and repayments could be financed from a lower level of rental income than is possible for the private sector.
Thorsten Beckers also makes this argument: “Due to the lower capital costs of the public sector, it would definitely be possible to reach a financial arrangement that does not burden the state budget, while allowing for lower rents”. The prerequisite for this remains that the calculation of the compensation sum does not overestimate future rental payments — in short, that speculation on rising rents is not factored in, unlike if the sum were calculated according to the market value.
Compensation and Financing: A Political Question
All of these considerations show that the cost of socialization is not a given; it is a question of political negotiation, and thus of the balance of social power. With more than one million votes cast in the referendum in favour of expropriation, the Deutsche Wohnen & Co. enteignen campaign has already significantly shifted this balance.
In order to actually implement the process of socialization, it is crucial that a compensation model be established that balances the "fair” interests stipulated by the German Basic Law in such a way that the profits for the many and for the common good clearly exceed those of corporations and shareholders. A sum that is set too high for political reasons will prevent exactly that from ever happening.
AG Sozialisierung, “Fachliche und politische Beurteilung des Vorhabens zur Sozialisierung größerer Wohnungsbestände”, August 2021, https://gentrificationblog.files.wordpress.com/2021/08/ag-sozialisierung_thesen_2021_08_19.pdf
Beckers, Thorsten & Lukas Vorwerk, lecture on “Entschädigungshöhe und haushaltsneutrale Finanzierbarkeit – die ökonomische Perspektive“, panel on “Enteignung – das geht?!“, Rosa-Luxemburg-Stiftung, Berlin, 7 September 2021, www.rosalux.de/dokumentation/id/44963/enteignung-das-geht
DWE (Expropriate Deutsche Wohnen & Co. enteignen) 2019, “Anmerkungen zur Kostenschätzung des Senats”, 28 March 2019, www.dwenteignen.de/wp-content/uploads/2019/12/DW-Enteignen-Anmerkungen-zur-Kostensch%C3%A4tzung-des-Senats-2.pdf
ibid.:, 2020, “Was Vergesellschaftung kostet. Zahlen und Mythen”, November 2020, www.dwenteignen.de/wp-content/uploads/2020/11/Papier_entschaedigung_final3_b.pdf
ibid., 2021, “Gesetz zur Überführung von Wohnimmobilien in Gemeineigentum (Vergesellschaftungsgesetz – VergG)”, May 2021, www.dwenteignen.de/wp-content/uploads/2021/05/Vergesellschaftungsgesetz.pdf
Peter, Erik, “Enteignen – aber wie?“, TAZ, 8 September 2021, https://taz.de/Vergesellschaftung-von-Wohnungen/!5799721/
Senate Department for the Interior and Sport, “Erläuterungen zur amtlichen Kostenschätzung”, March 2019, www.parlament-berlin.de/adosservice/18/Haupt/vorgang/h18-1701.A-v.pdf
Thiel, Fabian, “Entschädigungsermittlung bei der Überführung von Wohnimmobilien durch Vergesellschaftungsgesetz”, LKV – Landes- und Kommunalverwaltung, 31, vol. 9/21, pp. 385–432.
Thurn, John Philipp, “Vergesellschaftung als sozialstaatliche Entprivatisierung und als Grundrecht”, Kritische Justiz, 2/2020
Unger, Knut, “Der größte Vermietungskonzern Europas”, analyse & kritik 673, 17 August 2021.
Wieland, Joachim, 2019: “Verfassungsfragen der Vergesellschaftung von Wohnraum: Rechtsgutachten für die Bundestagsfraktion DIE LINKE und die Fraktion DIE LINKE im Abgeordnetenhaus von Berlin”, www.uni-speyer.de/fileadmin/Ehemalige/Wieland/Rechtsgutachten_VerfassungsfragenderVergesellschaftungvonWohnraum.pdf
ibid., 2021, lecture on “Entschädigungshöhe und haushaltsneutrale Finanzierbarkeit – die juristische Perspektive“, panel on “Enteignung – das geht?!“, Rosa Luxemburg Stiftung, Berlin, 7 September 2021, www.rosalux.de/dokumentation/id/44963/enteignung-das-geht