Social housing policy doesn't come for free

style="float: right; margin-bottom: 10px; font-weight: 600;"Thu 19th Aug, 2021

There is a shortage of around 350,000 apartments with affordable rents of less than six euros per square meter for social housing in Berlin. In addition, there are about 90,000 households of transfer benefit recipients whose actual rent exceeds the costs of accommodation paid by the state.Failed rent caps, hesitant new housing construction and financial limits on purchase and pre-purchase by the state-owned housing companies: The previous instruments of the red-red-green housing policy failed to meet the challenges of a social housing policy.

The initiative "Deutsche Wohnen & Co. expropriate", on the other hand, wants to socialize portfolios of large companies with an estimated 240,000 apartments. With then, more than 550,000 public apartments, about one third of all rental apartments would be under public control and could be used for social housing. This is one of the reasons why the initiative's concern has received great public support in recent months.

However, a number of questions remain unresolved in the ballot text: How high must the compensation be? How much of a burden will expropriation place on Berlin's budget? What refinancing costs can be expected in the long term? How will expropriation affect rental costs? Will there be sufficient resources for new construction after expropriation?

Socialization according to four principles

In our view, socialization should be guided by the following four principles:

1. subsequent rewarding of speculation on higher rents should be ruled out by compensation well below market value.

2. a constitutional implementation of socialization in accordance with Article 15 of the Basic Law includes recognition of economic interests, which must be taken into account in the amount of compensation.

3. socialization - i.e., transfer to common ownership - is not an end in itself, but is intended to enable sustainable social rent development. Compensation that can only be refinanced through rent increases misses the housing policy goal.

4. socialization must not become a permanent subsidy business and, in times of limited budgetary resources, is always in competition with other housing policy strategies and social policy spending.

There are no rulings yet on compensation for socialization under Article 15 of the Basic Law. We assume that, as in Article 14, compensation is to be determined "by fairly weighing the interests of the general public and those involved." The interest of the general public in permanently affordable housing must therefore necessarily be included in the weighing.

We have examined four models to justify a compensation amount: the loans on the stocks to be socialized (23 billion euros), the investments of the companies for the purchase and modernization of the stocks (16 billion euros), a capitalized earnings value calculation based on the rents of the state-owned companies (17 billion euros) and a capitalized earnings value calculation based on affordable rents for low-income households (14.5 billion euros). In all variants, we arrive at a result that is well below the official cost estimate of 29 to 39 billion euros.

Decisive new construction capability of the public housing sector

Up to a compensation level of around 17 billion euros, refinancing (without rent increases and additional financing) is possible from current rental income. For higher amounts, additional public funds would have to be raised annually over a longer period of time. Compensation well below the current market value is not only legally possible, but also required, because otherwise the socialization goal - the provision of permanently affordable housing - cannot be realized.

It is said that socialization does not build new housing. That is true. But it is also true that new construction by profit-oriented providers does not create affordable housing. The decisive factor here is the public housing sector's ability to build new housing.Unfortunately, the state-owned housing companies have so far fallen well short of the required completion of 7,000 apartments per year - the state-owned housing industry's own construction output is just 2,500 apartments per year.

Public housing can significantly reduce construction costs by building up appropriate capacity in serial housing construction - without sacrificing housing quality. But new construction capacity will only be built if a long-term public housing program ensures capacity utilization. Depending on the targeted construction output, between 250 million euros (for 7,000 apartments per year) and 350 million euros (for 10,000 apartments per year) will have to be raised each year.

From the profits of the Landowner such a sum not to finance, they fell from 352 million euros in 2015 to 259 million euros in 2019. The real economic performance of the state-owned companies cannot be increased with accounting tricks such as the conversion of the balance sheet to market-based valuation (IFRS).In order to achieve the goals of the Urban Development Plan Housing 2030, they will have to rely on additional public injections in the future if their debt ratio and financing burden are not to rise further. A social housing policy cannot be had for free - not in terms of socialization and not in terms of new construction.

Photo by LT Ngema


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