Study on Berlin socialization plans: Makes sense, but does not solve the main problem

The Berlin Left wants to combine large housing companies in order to make housing in the capital more affordable. Economists come to the conclusion that the measure could make sense. However, another problem would remain.

According to a study, socializing large housing stocks, as the Berlin Left is calling for, would not solve the housing shortage in Germany's major cities. This requires new construction on a large scale, according to a study commissioned by the union-affiliated Hans Böckler Foundation. Nevertheless, socialization could be useful as a “complementary element” to reduce the problem of rent affordability.

After its victory in the elections to the House of Representatives, the Berlin Left announced that it would stick to its plans to socialize large housing companies. The plans have met with sharp criticism across party lines. They could become a central point of contention in possible exploratory talks with the SPD and the Greens.

However, according to researchers from the Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans Böckler Foundation as well as the University of Mannheim and the University of Duisburg-Essen, the socialization of apartments could actually make sense from a socio-political point of view and - depending on the model - also be economically and fiscally viable.

The researchers estimate that the compensation that would be due to private housing companies if around 210,000 apartments were transferred to public ownership would be around 13.5 billion euros. According to their findings, if socialization were “smartly designed,” this could be financed without cuts in the Berlin state budget. At the same time, socialization must be implemented in such a way that the new building does not suffer.

When calculating the necessary compensation for private housing companies, the research team assumes that the affordability of rents should play a central role in socialization. They therefore use the so-called income value method with net rents and in their analysis arrive at an income value and thus the compensation amount of 13.5 billion euros.

Dampening rent increases

In Berlin, large private housing groups have extensive portfolios, including many apartments in the lower and medium rental price range. According to the study, if these were converted into public or community-oriented property, the public sector could quickly increase its influence on the rental market. Subdued rent increases in this portfolio would also dampen the overall rent increase through their effect on the rent index.

In addition, the public sector could ensure social mix and socially oriented renovation better than the large private housing companies do. "Transferring housing stock from private housing companies can help to increase the stock of public housing more quickly than through new construction and therefore have a stronger and faster influence on the rental market as a whole," write the researchers.

They examined three different models of socialization. Variant one envisages a new public law institution (AöR) to be founded that will take over the apartments. In variant two, the six state-owned housing companies (LWU) take over the apartments. In variant three, the six housing companies are integrated into a public institution and take over the apartments.

According to the researchers' analysis, option two is best suited to keeping the legal, financial and organizational risks of corporateization as low as possible. This variant relies on the existing structures of the public housing industry. The six existing LWUs already manage several hundred thousand apartments and have the necessary technical and organizational capacities. According to the study, the compensation would be financed through additional equity from the LWU provided by the state as well as external financing from the respective housing companies.

According to the researchers, additional apartments must definitely be built in order to alleviate the shortage of affordable rental apartments. The construction of new social housing and other long-term price-controlled apartments is particularly important. However, developments in recent years show that this is not happening quickly enough.