Will Europe’s housing crisis spark a socialist revolution?

Protesters attend a demonstration against rent increase in Berlin, Germany, Saturday, April 6, 2019. Slogan in the foreground reads 'Living Is Not A Product - Stopp Rent Insanity'. (AP Photo/Michael Sohn)
By John Cody
13 Min Read

Rental costs and housing prices have risen dramatically worldwide – if anything, the pandemic has only accelerated this trend. A potent cocktail of central bank money printing, increased institutional buying, and failed government policy have fueled another runaway housing crisis that governments are struggling to contain. As a result, not only is the dream of buying a house or apartment increasingly out of reach for many people, particularly the young, but even something as deceptively simple as paying the rent has become a widespread and intractable societal problem.

The German capital of Berlin is perhaps a window into what kind of extreme policies people may be willing to embrace in order to correct what they see as the excesses taking place in the real estate market. On the same day Germans went to the polls to elect a new federal government, Berlin also held a non-binding referendum on whether the city government should seize a significant number of rental property from some of the biggest real estate giants operating in the country. The groundbreaking measure, designed to force real estate companies to sell off their apartments, won with the backing of 56 percent of voters.

Berliners have seen their rents more than double since 2008, representing the starkest rental price increase of any major European city.

Before Berlin is written off as a left-wing anomaly, it is important to look at the global data and realize that anger over rising real estate prices is hardly going away. More and more people are paying increasingly disproportionate amounts of their income towards housing, many are cut off from the possibility of ever owning their own property, and a substantial number of those who once aspired to home ownership are now resigning themselves to a life of renting. In many ways, what was once seen as fundamental to the process of family formation and economic security — owning a home — is increasingly out of reach. This state of affairs has arisen at the same time that Europe and other Western nations deal with a demographic crunch. And, as has already been seen in the U.S., expensive and crowded cities are drivers towards a childless future.

Given the circumstances, many renters undoubtedly feel they have very little to lose, so when the simple question is put to them – Is it wrong to take the apartments from faceless investors headquartered in London, New York, Oslo, Moscow, or Beijing? – Berliners appeared to give the simple answer. They never thought about the slippery slope or morally questionable nature of property seizure, but instead looked at their steadily rising rental bills and picked what many others would pick in other major cities if they were faced with such a question.

Protesters attend a demonstration against rent increase in Berlin, Germany, Saturday, April 6, 2019. The slogan in the foreground reads “Stopp Deutsche Wohnen (housing company)” (AP Photo/Michael Sohn)

In the case of Berlin, people may have had even less compunction about voting to expropriate property, as only the largest real estate companies would be affected. The potential law would require the Berlin Senate to seize all real estate from companies with more than 3,000 housing units — which would only apply to a few major players, such as Deutsche Wohnen (mostly owned by Blackrock), which owns over 113,000 units, Vonovia (which is trying to purchase Deutsche Wohnen), and the Pears Group — but those few big players play an outsized role in the city’s housing market.

Conservatives should be concerned

The problem posed to conservatives, libertarians, free marketers, and others who find the idea of property seizure repugnant is how to stem this rising anger.

As Bloomberg has noted, governments across the world, many of them left-leaning, are looking into a variety of solutions to stem the crisis, including restrictions on foreign real estate investors in countries like Singapore, China, Denmark, and sometimes outright bans, as in New Zealand. Such restrictions are expected to stem prices, but it is unclear if governments waited too long to act. Other potential solutions involve the construction of affordable housing, rental caps, and taxes on landlords.

New Zealand Prime Minister Jacinda Ardern’s left-liberal government put a ban on foreigners buying up family homes in New Zealand. (Mark Mitchell/Pool Photo via AP)

If voters feel the left is taking action to tackle the housing crisis, or at the very least paying lip service to the issue, then voters may gravitate to those providing left-wing solutions. Take the case of the left-wing Sinn Féin in Ireland, which has seen a rise once thought impossible by the establishment. Once known as the political arm of the Irish Republican Army (IRA) and closely associated with terrorist activity, the party now has a 10-point polling lead mainly due to the party’s aggressive stance against rising rental and housing prices. Just last week, the actual Communist Party of Austria won control of the city of Graz after promising to implement a program to tackle the issue of housing. Although a small example, it shows that citizens are willing to vote for open communists if they believe it will offer some relief.

The real estate crisis is not being completely ignored by conservatives. For example, Tucker Carlson of Fox News has addressed the issue a number of times, and some conservative think tanks have also pushed to ban foreign real estate buyers. A limited number of European conservative politicians are also flexing populist solutions, including nationalization of industries, an anathema for free-market conservatives, but a position that could translate to votes in some countries. For example, while France’s National Rally leader Marine Le Pen has never called for seizing real estate, she has notably called for significant portions of the economy to be nationalized if she is elected, including the country’s highways.

Far-right leader Marine le Pen smiles during a press conference on immigration Tuesday, Sept. 28, 2021, in Paris. Presidential candidate for the 2022 presidential election Marine Le Pen announced plans for an immigration referendum. (AP Photo/Lewis Joly)

However, few conservatives are making the connection between mass immigration and rising housing and rental prices, which also remains a significant factor in many nations, especially in cities, which are where most migrants look to live and work. At the same time that migrants increasingly choose cities as their final destination, young people are also choosing the cities within their own countries, creating a recipe for competition and rising prices. Numerous studies have tied immigration to rising housing and rental prices. In fact, after the fall of the Berlin Wall, the large exodus of East Germans to western cities was tied to a significant increase in rents, and that was only a case of internal migration within one country and occurred before international migration truly took off. When some of the most desirable countries and cities in the world are exposed to the free movement of people in the present era coupled with a long-running loose monetary policy, the results are predictable.

While the left is afraid to touch the issue of migration and housing, conservatives could use that to their advantage and start speaking up.

What can Berlin tell us about the future?

Although the Berlin expropriation campaign conjures up images of socialist governments from the early 20th century seizing the property of the wealthy, the campaign always claimed that owners would be compensated for their property, albeit with an important caveat: the campaign never sought to pay market price for the units, writing on its website that companies would be reimbursed at a rate “well below market value”.

For now, it appears that despite the referendum results, there is little chance that housing units will be nationalized. Berlin has been ruled by a left-wing red-red-green coalition, but the Social Democrats (SPD) were always shaky on the idea of whether the government could actually force the real estate companies to sell. The SPD at the federal level also rejected the Berlin referendum, arguing that it was unconstitutional, and that is notably the biggest challenge to the measure actually coming into law.

Franziska Giffey, top candidate of the SPD for Mayor of the German city of Berlin, attends a press statement at the party’s headquarters in Berlin, Germany, Monday, Sept. 27, 2021. The center-left Social Democrats have won the biggest share of the vote in Germany’s national election. They narrowly beat outgoing Chancellor Angela Merkel’s center-right Union bloc in a closely fought race that will determine who succeeds the long-time leader at the helm of Europe’s biggest economy. (AP Photo/Lisa Leutner)

Proponents of the measure argue that it is constitutional and point to Article 15, which states: “Land, natural resources and means of production may, for the purpose of nationalization, be transferred to public ownership or other forms of public enterprise by a law that determines the nature and extent of compensation.”

However, the German Constitutional Court already has overturned a rental cap put in place by Berlin’s left-wing coalition government, and with the SPD winning during Sunday’s election in Berlin, the new expected mayor of the city, Franziska Giffey, said on Monday on RBB Inforadio that following the referendum, the government should respect the will of voters and “must now also start the drafting of such a bill, but this draft must then also be examined under constitutional law.”

Giffey had always spoken out against expropriating the property during her campaign, and when it became clear that her party would win, Vonovia’s stock rose 4.1 percent on Monday.

Regardless of the final outcome of the referendum, the housing crisis is not going away. Berliners have seen a dramatic increase in rents over the last decade, with prices more than doubling since 2008. In a city once popularly described as “poor but sexy” and where more than 80 percent of the population rents, popular anger is palpable.

How politicians respond in Berlin and elsewhere may be a deciding factor regarding which parties hang on to power and which parties are relegated to the opposition.

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