What Can Article 15 Do?

Now that the expropriation of Berlin’s biggest landlord, Deutsche Wohnen, has received the very public support of a majority of the city’s residents, it’s time to get down to business, both politically as well as administratively.

Some opponents of the referendum argue that it is illegal, perhaps even unconstitutional. But what does the German constitution, also known as the “Basic Law”, actually say? Barbara Fried and Armin Kuhn of LuXemburg magazine sat down with Franziska Drohsel and Cara Röhner to find out.

In a September 2021 referendum initiated by Deutsche Wohnen & Co. enteignen (DWE), close to 60 percent of Berlin constituents voted yes in support of expropriating housing from large private landlords. For the first time in the history of the Federal Republic of Germany, Article 15 of the Basic Law could be applied to socialize large real-estate portfolios held by private companies. But what exactly does Article 15 say?

FD: Article 15 of the German constitution states that “Land, natural resources, and means of production may, for the purpose of socialization, be transferred to public ownership or into other forms of public enterprise”. This means that Article 15 explicitly stipulates that certain areas of the economy can be withdrawn from the market and be socialized, organized to serve the public interest, and democratically managed, provided that legislators decide to do so.

How did Article 15 come to exist?

FD: In 1948-49, when the constitution was written, Article 15 was quite controversial. For the social democrats, however, it was of crucial importance, and they made their approval of the constitution conditional on the inclusion of Article 15. It was only later that the Federal Constitutional Court spoke about the “economical-political neutrality” of the constitution. This means that the German constitution doesn’t provide specific guidance regarding the country’s economic system to the extent that it doesn’t stipulate a capitalist market economy. Throughout the history of the German federal republic, there have been long periods in which areas of the economy were operated outside of the capitalist market economy, such as the postal service or the national railways. This could be conceivable for other areas of the economy today.

Such as?

CR: The commodities mentioned in Article 15 — “land, natural resources, and means of production” — are central to the organization of a society’s economy. It is precisely because they are so essential to an economy’s function that they should be capable of being transferred from private to public ownership by means of legislation. In essence, the aim is to democratize the economy by establishing public control over these commodities and resources.

In the 1980s, IG Metall attempted to socialize the steel industry. Why wasn’t Article 15 applied then?

CR: When the German constitution was created, the social democrats’ long-term goal was to be able to introduce democratic socialism by means of legislation - it was somewhat legalistic in its thinking but it was precisely this possibility that Article 15 was intended to protect.

However, then the wind changed: the East-West divide, the so-called “Miracle on the Rhine”, the expansion of the welfare state, and the trade unions’ collective-bargaining victories led to a situation in which demand for socialization no longer had any political weight. Later, under neoliberalism, the doctrine of privatization was added. In this context, socialization was no longer a conceivable option, for example as a solution to the crisis like the one faced by the steel industry.

Why has that changed today?

CR: It’s interesting that this debate has become relevant again at a time of growing social crises. Socialization first re-appeared in political discussions during the financial crisis of 2008-9. Back then, however, it was seen as a way of saving the banks — socialization as a constitutionally supported means of saving capitalism.

Obviously this isn’t in accordance with the intent and purpose of Article 15. The current housing crisis has led to a re-appraisal of Article 15 from a civil-society perspective. The level of suffering is so high in cities that people want housing to be organized differently and have also recognized that positive change can be achieved collectively by means of socialization. I see a real opportunity here.

How does it work with Article 14, then? After all, expropriation is taking place constantly. There are currently 140 active expropriation procedures being undertaken solely in connection with new highway construction. What’s the constitutional difference between these two articles?

FD: The two articles are actually not really comparable. While Article 15 is about bringing key sectors of the economy under public control, Article 14 is about protecting the fundamental rights held by individuals. For example, Article 14 protects people from losing their houses for the purposes of constructing a new coalmine or highway. This kind of breaching of the sanctity of private property requires legal justification and is only possible if it can be proven to be in the public interest, and requires that the owners be appropriately compensated. Article 14 codifies the right of the individual to defend themselves against state action.

CR: In the case of socialization as demanded by DWE, something different is being proposed: the de-privatization of large publicly listed real estate groups. This would result in a positive democratic transformation of the housing market in favour of tenants. In this respect, Article 15 can be described as the collective fundamental right to de-privatize.

In terms of objective, it is very different to the protection of individual rights. It is true that socialization may result in lower future profits for real estate companies, which may in turn mean that minor shareholders are also affected. On the whole, however, the socialization of housing will afford the vast majority of people additional freedoms, an aspect that so far has received far too little emphasis in the current debate.

How do things look in real terms with regard to the referendum? The new mayor of Berlin, Franziska Giffey of the SPD, considers the proposed expropriation unconstitutional. One contentious issue here is whether Article 15 is applicable in Berlin at all, since there is no provision concerning socialization in the state constitution. What are your thoughts on this?

FD: When it comes to the transfer of property into public ownership or other forms of social economy, we have a situation where state and federal legislature overlap and compete with one another. However, as the federal government has yet to invoke Article 15, the state legislature is able to step in. It is also incomprehensible that the protection of property as set out in Berlin state constitution should outrank Article 15 in the German Constitution, especially given that federal law overrides state law.

CR: I also see this as a smokescreen. A state constitution lack of provision for a given issue cannot nullify an article in the German Constitution that specifically enshrines the right to socialization. These kinds of arguments show that the opponents of expropriation are really grasping at straws.

Another argument that we’re hearing is that socialization is only permissible as a last resort. Can socialization only be enacted when all other means of attaining affordable housing have been exhausted?

CR: Whether a law is reasonable or not is always an integral part of any constitutional review. The state can only interfere with a given individual freedom when it is deemed absolutely necessary. However, that is not what socialization is about. Socialization is about the introduction of a new kind of economic system, about the democratization of resources, and the increased rights that this would result in for many.

Therefore, socialization shouldn’t be viewed as a last resort but conversely as a constitutionally legitimized democratic decision in favour of collective forms of ownership and communally oriented economic systems. It’s very important to understand that if lawmakers want to, they can go ahead with socialization. Full stop. All they have to do is provide adequate compensation.

FD: Yes, the lawmakers must decide if socialization is practicable. It is easy in this instance to argue that the purpose of transferring control of a part of the housing sector into public ownership is to create an economic system that is structured in the common interest, and that there is no better means of doing this than socialization.

In my opinion, if we are to alternatively discuss the proportionality of such measures there are also convincing arguments to be found in favour of socialization. Proportionality is established when the intervention is both for a legitimate objective and is appropriate, necessary, and proportionate to achieving this objective.

The goal of providing adequate affordable housing to people on low incomes is set out in Article 28 of Berlin’s constitution. Despite various attempts to create space in the rental market for low-income renters, rents have continued to rise, forcing poorer people out of inner-city areas. Against this backdrop, it is easy to argue that the socialization of housing is not only appropriate but also necessary and proportionate.

You have both emphasized that the goal of socialization is the democratic transformation of capitalism. How then can a minimum of 3,000 apartments in a given portfolio before a housing company is to be subject to expropriation be justified? People often bring up the idea of Sozialisierungsreife, the idea that an entity must be of a certain size to be subject to socialization).

CR: This has its roots in the fact that when proposals were historically made to socialize agriculture or large industry the goal was to expropriate large economic enterprises and not small ones with just a few employees. Were we to transfer this logic onto housing, the question of whether your grandma’s house would be expropriated could arise. This isn’t relevant in the current instance however because the DWE initiative has explicitly said that it would only affect the portfolios of large real estate companies.

FD: This notion of whether a property must have a certain economic relevance to be socialized is certainly a controversial one. However, it is my view that the 3000-apartment baseline for socialization proposed by DWE certainly meets this requirement. According to current estimates, 10-15 percent of Berlin’s housing would be affected, so one can already discuss these companies as having a degree of economic importance.

What about the housing cooperatives? Some people claim that they too would fall prey to socialization.

CR: The constitution states that what is equal must be treated equally and what is unequal must be treated unequally. Therefore, unequal treatment requires a good constitutional justification, which is given in the case of housing cooperatives as they are already democratically constituted and have as their goal that of providing their members with housing, not for profit, but at a cost-covering price. This is the relevant difference between private housing corporations, which seek to generate profits for their shareholders, and housing cooperatives.

FD: The initiative’s draft legislative proposal explicitly exempts housing cooperatives because, after all, they are already structured in the public interest.. They differ to profit-oriented real estate companies as they belong to their members and are not primarily concerned with generating a profit

How will this transition to public ownership be determined under constitutional law?

FD: Article 15 stipulates the transfer of assets into common property or collective ownership, i.e. a new legal form. What DWE is proposing is something fundamentally new and exactly what it will look like needs to be developed and discussed. I find the initiative’s idea of creating a public institution for this purpose, in which workers, tenants, and the municipal community are involved in decision-making, to be a very compelling one.

The amount of compensation is obviously a contentious issue. What legal guidelines could legislators use to determine compensation?

FD: It is clear that the “nature and extent of compensation” must be regulated, as that is what the constitution says. However, even in the case of Article 14 in the constitution, the Federal Constitutional Court has stated that it is not obligated to offer either a one-time-payment or a payment that is aligned with market value. Compensating for socialization at market value would mitigate its purpose. With a model focussed on affordable rent, DWE has made a good proposal that should be discussed in detail both politically and legally.

CR: In the constitution, it also says “establishing an equitable balance”. Evaluating this is up to the legislator, who has to make a political decision that must not be obviously unfair. However, it is obvious that a family whose home is expropriated for the sake of coal mining must be compensated differently than a DAX company. Reduced profit opportunities are less of an existential threat to shareholders.

Therefore, the Berlin senate will have to make a political decision about the amount of compensation given to large landlords and decide what it considers to be fair, taking into account a range of different motivations and concerns. It may decide to pay the maximum price but it could also understandably choose a different model, for example by taking up the suggestions of the DWE or Frankfurt professor Fabian Thiel.

Either way, a Vergesellschaftungsgesetz (Socialization Act) is likely to be contested in the courts. As there is hardly any indication in the constitution about how these courtroom battles will play out, what can we expect?

CR: As attorneys like to say, when in court or at sea you are in God’s hands. On the issue of compensation, legislators will have to plausibly justify their decisions and conclusively explain their motivations. However, the courts will also recognize that this is a political decision.

FD: That is the crucial point. In discussion around this issue it often seems like there is no wiggle room and an astronomically high one-off compensation payment must be offered. I find this extremely problematic.

CR: Yes, it also misleads citizens. I understand the caution after the negative ruling on the rent cap. However, there is more opportunity for success with socialization and the risks are considerably lower. The state of Berlin should take this opportunity to break new legal ground and actively shape the city’s housing market.

Yes, it is precisely because of the rent cap’s failure that many tenants are worried that socialization is a new and similarly ‘daring’ idea and may not be sustainable. How can the project be made watertight?

CR: There will certainly be challenges, at least while there’s no legal precedent. What is important is having a thorough detailed legal justification that meticulously explains the trade-offs and compensation, and also deals with counterarguments.

FD: The idea of setting up a committee of experts, bringing together knowledge from various disciplines, perhaps also including former constitutional judges, could be the right approach. However, it should not be used to delay or prolong making a decision that so many have voted on already.

CR: Exactly, it would be fatal to the cause to delay implementation because of a lengthy constitutional review. The referendum was an impressive demonstration of political will. Ignoring this democratic decision would make the red-green-red coalition government look very bad and could even provide an opportunity for right-wing populism.