Credit: PxFuel.com

Berlin voters: Hey, maybe it is time to seize property from the landlords

Honestly, why has nobody thought of a solution to high rents that was this simple before?

Voters in the German capital, Berlin, alongside casting ballots for the makeup of the new German parliament and for their local legislature, also took part in a referendum on whether to force large real estate companies to sell off most of their housing units.

The “yes” vote garnered 56.4% while the “no” vote received 39% in the non-binding referendum.

The idea is fairly simple: In order to reduce rents in the city, the proposal is that Berlin would issue compulsory purchase orders for every apartment or house owned by a company that rents them out for profit. Once safely in public hands, the apartments or houses would then be rented to ordinary Berliners, at significantly reduced rates.

The Compulsory Purchase Orders would not, of course, pay full market value for the properties. Indeed, campaigners explicitly campaigned on paying a price for the properties that would be “significantly below market value”. To qualify for targeting, a company would have to own in excess of 3,000 properties in Berlin. That is relatively common in Germany, where renting is often the de-facto state for citizens, and large property companies are commonplace.

The projected costs of acquiring 240,000 apartments have not been agreed. It’s the usual story: People campaigning for the measure claimed it could be done for a rock bottom price, and opponents said they were not telling the truth. Nobody, though, disputes that the cost would be, at minimum, in the tens of billions.

The referendum result was, it is important to say, non-binding. That means the final decision will come down to what Berlin’s reliably left-wing City Council has to say on the matter. The voters have issued a recommendation, nothing more.

The City Council, however, will likely have many challenges to face if it wants to enact the policy.

For one thing, the precedent being set would discourage investment in Berlin. Why would you, as a large company, invest money into Berlin, buying property and assets, if it was established that the Government of the City had the right to seize your property for a nominal price, if the mood took them?

Second, the cost of the measure would not be a one off. The City would not just be acquiring apartments. It would also be acquiring the cost of managing and maintaining those apartments for the rest of their lifespan: Every leaky sink would then be the responsibility not of a private company, but of the City of Berlin. It would require a massive expansion of staff and capacity, and costs.

Third, the City would be acquiring the properties to rent them below market value. This would reduce the amount of funding available for all of those things: Maintenance, staff, and so on.

Fourth, there is the issue of what to do with the people who already live in those apartments. Many of them, of course, can afford their existing rents. Some of them will actually be wealthy. Does the city give the wealthy a rent reduction, while homeless people are locked out of the market? Or would there, perhaps, then be political pressure to evict the well-off and house the homeless? In turn, what kind of turmoil would this cause in the rental market, especially in the case of those properties remaining in private hands?

Voters, of course, do not have to consider any of those factors. All they had to do is vote on whether they would like to rob from the undeserving rich. Being voters, of course, they were all for it. Actually delivering the policy is a different story.

But let’s hope that they do it.

For too long now, the west has been without a functioning example of the impact of socialist policies like this one on a major western economy. Very few young voters remember the stagnation of the 1970s, or the misery of East Germany. Lessons, it seems, must be learned over and over again with every new generation.

Implemented, this policy would be devastating for Berlin, both in terms of the destabilising effect on the city, and the capital flight it would provoke from investors, and people with wealth. The City would end up acquiring an expensive asset, and be forbidden by law from making a profit from it. It’s a recipe for economic chaos. At some point, we just have to let it happen. Because young voters, right across the west, just can’t figure out economics 101.

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