Housing crisis: The Berlin solution and the Vienna model

Angry Berliners have a radical solution, while Vienna has housing sussed

Reported by Derek Scally, Irish Times.

Anyone who lived in Berlin in the years just after the fall of the wall will remember a city – and housing market – that seemed to exist outside the laws of market economics. There were more apartments than tenants, and landlords often offered sweeteners – a free kitchen, three months’ free rent – to get a lease signed.

That was then. On Saturday morning, thousands of Berliners will hold a requiem march for the days of cheap rents and tenant security. The good old days ended a decade ago when the twin banking and euro crises saw nervous investors discover the Berlin property market as a safe and undervalued haven for their money.

In came German pensioners and pension funds, Irish builders, Israeli developers and US hedge funds. Berliners west and east, who had spent 40 years in a housing subsidy bubble, are still shell-shocked.

Birgit, a 56 year-old nurse from Berlin’s Kreuzberg neighbourhood, spends 30 per cent of her salary on rent. After looming renovation works, her investor landlord is raising the rent to 45 per cent of her take-home pay.

“I’ve lived here for 22 years but this really scares me, sleepless nights and all,” she said. “Affordable rents for Berlin are increasingly impossible. My very existence is in danger.”

Her apartment is owned by Deutsche Wohnen, a public company in which US investment group BlackRock holds a 10 per cent stake. But the company is the focus of Saturday’s march under the banner “Expropriate Deutsche Wohnen & Co.” The march is the start of a campaign in Berlin demanding that politicians seize the property holdings of companies with more than 3,000 apartment units.

The proposal has gathered momentum and, according to an opinion poll, is supported by 44 per cent of Berliners, with 39 per cent opposed. Similar marches against the spiraling cost of housing are planned in 23 other German cities on Saturday.

It’s a show of tenant power that politicians cannot ignore, given that Berlin is a city where 85-90 per cent of apartments are rented. The drastic rental market shifts of the past decade affect everyone: artists and students, families and pensioners.

Rents in some areas have spiked by 117 per cent since 2007, a knock-on effect of a 120 per cent rise in property prices since 2004. In 2017 alone, average property prices in Berlin jumped by more than a fifth – faster than any other city in the world.

As a result Berlin, from a comparatively low base, is catching up, at breakneck speed, with the rest of Germany and other European capitals. The main difference to Paris and London is that German wealth is not in its capital, but in Munich, Frankfurt and Hamburg. Berlin is traditionally a poor place, where locals earn just 94 per cent of the national average – €3,024 gross a month – meaning even a modest rent rise can break a household budget.

Housing crisis

And Saturday’s march is a vote of no-confidence in failed politics of Berlin’s city-state politicians – never the sharpest knives in Germany’s political drawer. For years they have tinkered at the edges of a growing housing crisis, but laws to crack down on Airbnb or slow rent hikes have fallen short of what was promised, due to inadequate resources or lobbyist-friendly loopholes.

Impatient for change, angry Berliners are taking matters into their own hands. Three decades after the Berlin Wall’s fall ended Germany’s 40-year socialist experiment, a fundamental debate is under way in Germany: should housing be treated as private Monopoly pieces, to be bought and sold on the open market, or a public good to be managed for the good of people and not for profit?

“Enough is enough,” says Rouzbeh Taheri, spokesman for the campaign against Deutsche Wohnen. “Its business model is based on speculation, constant rent increases and the use of every legal trick in the book.”

While Berlin campaigners accuse Deutsche Wohnen and its ilk of being real-estate vampires, it was their politicians who invited them in.

Through two world wars and one cold war, Berlin maintained – and added to – social housing stock that peaked at almost 500,000. Then 15 years ago, political mismanagement and speculation ripped a €64 billion hole in Berlin’s state budget. The city sold off almost half its housing stocking in a fire sale, and just 273,000 units remain.

– The cost of a massive apartment buy-back is unclear

Many of the apartments sold are now among the 110,000 apartments Deutsche Wohnen rents in the capital, on which it earned nearly €1.2 billion profit in 2017. Behind its profits, though, are hundreds of angry tenants who complain that winter isn’t winter in a Deutsche Wohnen apartment without their heating conking out for weeks at a time.

Whenever the company invests, tenants see a focus on measures where the cost can be shifted onto tenants, along with steep rent hikes.

Deutsche Wohnen disputes this, insisting its renovation works are not about rent hikes but about clearing an investment backlog in former state-owned apartments. Manuela Damiakis, a spokeswoman for Deutsche Wohnen, says the new campaign is not the right way to solve Berlin’s growing housing crisis.

“Expropriation would do nothing to change the situation that Berlin hasn’t enough apartments,” she said.

Berlin’s private landlord lobby group BBU warns the expropriation debate “would be a fatal blow to the investment climate” in the city. No one would invest in Berlin, it says, with the threat of expropriation in the air.

The cost of a massive apartment buy-back is unclear. According to a Berlin government study, buying back about 240,000 apartments would cost up to €36.6 billion. Campaigners claim the real cost would be half that, and could be stretched over several years.

And then there are the legal hurdles. The Berlin campaign focuses on Articles 14 and 15 of Germany’s Basic Law (constitution) which state that: “Property entails obligations. Its use shall also serve the public good”; and that expropriations “shall only be permissible for the public good” . . . with compensation “determined by establishing an equitable balance between the public interest and the interests of those affected”.

But the Basic Law also states that “land, natural resources and means of production may, for the purpose of nationalisation, be transferred to public ownership”.

Public pressure

Until now, these paragraphs have usually been used by governments issuing compulsory purchase orders, such as for infrastructure projects. But the Berlin campaigners hope to use these paragraphs to force politicians into turning the tables on the institutional landlords.

While not everyone agrees this is constitutionally water-tight, Berlin’s city state government has already begun to react to public pressure. A new law gives the Berlin state government first refusal on apartment blocks that come up for sale – allowing it to gazump private buyers such as Deutsche Wohnen and put apartments under public management.

Beyond the financial and legal questions is the historical burden around expropriation, a measure used by the Nazis as a punitive measure against Jews and other enemies

-We just need to scare the politicians into doing more for tenants

So what is the political road ahead? As pressure builds for a full referendum, Berlin’s three-way state coalition is divided. The Left Party – heirs to East Germany’s communists – is in favour of the campaign. The Greens are coming on-side, while Berlin’s Social Democratic Party (SPD) are nervous.

In power continuously since 1989, Berlin’s SPD oversaw the social housing sell-off, and is now facing the most heat to reverse the move.

With about 40,000 people moving to Berlin annually, the SPD concedes the city is already short one million apartments – above all in the affordable and mid-market segments. Müller’s government is casting around for new ideas: additional tax breaks or progressive housing models such as co-operatives and the Vienna model.

But, 15 years after Berlin wound down its building and planning departments, the city is struggling to get back into the housing business. For Berlin campaigners, Saturday’s march is about concentrating political minds.

“Having somewhere affordable to live is political, and there is a lot of political wriggle room in Berlin,” says Frank, a resident of Kreuzberg whose building has been sold three times in the past 15 years, most recently to a public Swedish company. “I don’t think it will come to expropriation. We just need to scare the politicians into doing more for tenants.”

The Vienna model: a functioning reality

Alongside its better-known attractions, Vienna welcomes 20 visitor groups annually – from Hawaii to South Korea – to the Karl-Marx-Court.

The pink-and-cream housing complex contains nearly 1,400 apartments and opened in 1930 as part of Vienna’s century-old Gemeindebau (public housing) programme. This arose from the ashes of the Austro-Hungarian empire, a drastic housing shortage and a TB epidemic.

“The city of Vienna saw 100 years ago where a lack of housing can lead and didn’t want to go back there,” says Markus Leitgeb, spokesman for Vienna public housing.

Today around two thirds of Viennese residents live in such publicly-owned apartments, based on a cost-rental approach, which links rents to incomes. This cuts the link between price and market values and insulates the city from property market extremes. Far from managing historical buildings, new buildings are constantly being added.

Unlike Dublin, Vienna never followed the British social housing example: neither in the rules of who qualifies and certainly not in the Thatcher-era sell-off.

Qualification depends on a means test – an income of €3,300 a month or less for a single person – but is also needs-based. Tenants can qualify for certain apartments if they are first-time applicants under 30. Growing families can apply for a move to a bigger flat; similarly, older tenants can apply to downsize or move to an apartment with a lift.

The Vienna public housing model is a functioning reality that is not short of foreign admirers. But Viennese officials admit they rarely hear back from visitors who have turned their admiration into action.

After a recent visit, Dublin City Council (DCC) has launched an exhibition and lecture series on the Vienna Model at CHQ in Dublin 1.

But is this just more talk or is DCC actually planning to act – and adapt Vienna’s model to Dublin’s broken housing market?

Deputy chief executive Brendan Kenny concedes huge differences between the two capitals, not least Ireland’s 82 per cent home ownership rate.

“But that culture is no longer sustainable; we feel we need a more radical model,” he said. “We cannot solve housing crisis by using policies of 20 or 30 years ago.”

Dublin councillors complain of mixed signals from central Government on whether it supports a Vienna-style public housing model. To overcome ideological inhibitions, DCC are pushing ahead with 800 cost-rental units in Ballymun and Inchicore.

Ciaran Cuffe, Green Party councillor for Dublin’s north inner city, is “cautiously optimistic” that a shift is under way as the Dublin housing crisis seeps into the middle classes.

“The cynic in me,” he says, “would say this could push things along.”

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