Merz says federal bill to block Berlin's housing socialization plan is finished

German Chancellor Friedrich Merz said on Tuesday that his government's draft law to block the socialization of large housing companies "is finished." Only one question is still open, he said: whether owners would have to be paid 80% or 100% of market value if their property were taken.

"I don't think I need to explain that we are in favor of 100% of market value," Merz said at a breakfast event of the Berlin Chamber of Industry and Commerce (IHK Berlin), according to Börsen-Zeitung, citing news agency reports. He said he expected that debate to end in the next few days, "then the draft can go to the cabinet."

The federal bill is aimed at plans in Berlin. There, the Left Party, the Greens and the Social Democrats (SPD) are negotiating a state coalition. They have agreed to take large private housing stocks into public ownership. Quotations from German-language sources are 567politics translations.

What Merz said

Merz said the governing coalition of his conservative Union (CDU/CSU) and the SPD had agreed on July 1 to pass such a law. Inside the government, he said, there were first discussions between the justice and interior ministries over which would take the lead.

He repeated his criticism of the Berlin plans. "When in Germany, when in the capital of our country, there is open talk of expropriation, that has effects reaching the capital markets in London, Paris and New York," he said, as quoted by nd. He called the protection of property one of the basic principles of the economic order. "Only those who reliably protect property preserve trust, and without trust there is no investment."

According to Börsen-Zeitung, Merz said the debate alone does "massive" damage to Germany as a place to do business, "regardless of any decision that may possibly be taken at some point." He said socializing housing companies would create "not a single new job, not a single new apartment."

What Berlin's parties have agreed

The Left won the Berlin state election on September 20 with 25.7% of the vote. Its leader in the state parliament, Elif Eralp, could become the city's first Left mayor. Our earlier story covers the start of the coalition talks and the objections of former SPD mayor Franziska Giffey.

In their exploratory talks, the three parties agreed to socialize the Berlin housing holdings of large companies above 10,000 units, with compensation of up to €16 billion, Börsen-Zeitung reported. The law would be passed in 2028 and carried out in 2029. The plan could cover up to 160,000 apartments, tagesschau reported.

The plan is less sweeping than the demand of the campaign group Deutsche Wohnen & Co enteignen, which wants holdings of more than 3,000 apartments per company socialized, according to nd. An expert commission set up after the group's 2021 referendum found that compensation below market value would be legally possible, nd reported.

The 2021 referendum

Berliners backed the campaign's demand in a referendum held alongside the federal and state elections on September 26, 2021. The vote asked the state government to take steps toward socialization, but it was not binding.

Yes

1,035,950

No

715,698

Invalid

46,660

Source: Berlin State Returning Officer, official final result

Show the numbers

Option	Votes
Yes	1,035,950
No	715,698
Invalid	46,660

According to the official result, 57.6% of voters said yes and 39.8% said no. The yes vote was far above the quorum of 611,900, a quarter of eligible voters.

Supporters now plan a citizens' initiative for a socialization law that would take effect at once if approved by voters, the legal news site LTO reported. That means the federal bill would matter even if no Left-led government is formed.

How the federal law would work

Germany's Basic Law has a little-used clause on socialization. Article 15 says land, natural resources and means of production "can be transferred into public ownership or other forms of common economy for the purpose of socialization, by a law that regulates the type and extent of compensation." It has never been used, tagesschau noted. It is separate from expropriation under Article 14, which covers taking specific property for public projects such as roads.

According to tagesschau, a key-points paper from the ministry of Interior Minister Alexander Dobrindt would allow socialization of rental housing only if a state proved a "compelling necessity." A state would have to show it had used every other tool, such as building and subsidizing housing. Compensation would have to be paid "directly in money" and at market value set by an expert appraisal.

The July coalition committee text, as quoted by LTO, said: "In order not to endanger private housing construction, a federal law will provide that the nationalization of private rental housing stocks through socialization laws at state level is no longer possible."

The legal questions

LTO wrote that the federal government relies on its power under Article 74 of the Basic Law to legislate on transfers into public ownership. Where the federal government fully regulates such an area, the states are blocked. But the law must also be "necessary" under Article 72 for equal living conditions or legal unity across Germany. LTO called that doubtful, because socialization in Berlin does not affect housing in Bavaria.

LTO also wrote that a pure ban would be hard to defend. It cited a 2021 ruling by the Federal Constitutional Court that a federal law may not serve only "to exclude the state legislature from legislation." Justice Minister Stefanie Hubig of the SPD told Handelsblatt in July that "a blanket ban is certainly not possible," LTO reported.

LTO noted that there are other ways to make socialization harder. Former Justice Minister Marco Buschmann of the Free Democrats had proposed a federal law limiting the socialization of housing companies to a state of defense, which would rule out all other grounds.

If the law passes, Berlin could challenge it at the Constitutional Court in Karlsruhe. LTO said the federal law would likely stay in force until a ruling. It added that no one can seriously predict how the court would decide.

The SPD's doubts

Some in the SPD have raised doubts. Hubig said last week that "there are still many question marks," according to tagesschau. "I take the constitutional and political concerns about the project seriously." She also said she considered the Berlin plans unsuitable, citing many billions in compensation and years of legal uncertainty. "It would be better to invest the money in building affordable apartments," she said. But she said all sides should take part constructively once the coalition committee had decided.

Cansel Kiziltepe, who chairs the SPD's workers' wing, told AFP that "the Union is putting the interests of large real estate companies above our Basic Law." She said Dobrindt wanted "a profit guarantee for the housing industry" instead of respect for a democratic decision.

Support from the right

Bavaria's construction minister, Christian Bernreiter of the CSU, urged a quick decision. "We need certainty for investors and banks quickly, so that building starts again," he said, according to tagesschau. If the federal criteria applied, "the spook in Berlin would be over at once, because in the end the capital cannot afford this socialist fantasy at all." The CDU's business council, the Wirtschaftsrat, also called for the law to be passed without delay.

Bavaria has also filed a motion in the Bundesrat calling for compensation of socialized housing companies to be "direct and equivalent," LTO reported.

Markets and companies

Shares of Vonovia, Deutsche Wohnen and Grand City Properties, which own the largest Berlin portfolios, have fallen sharply since the debate began in the Berlin campaign, Börsen-Zeitung reported. Christian Fladeland, co-chief executive of Heimstaden Bostad, which owns 20,000 apartments in Berlin, called Germany "not investable" as long as the proposal stands, according to Bloomberg as cited by Börsen-Zeitung.

The Left's response

Sören Pellmann, co-leader of the Left's group in the Bundestag, criticized the bill in a press release quoted by nd. "Merz's law will not build a single new apartment, will not take away any tenant's fear of a rent increase, and will not rein in any real estate company over rent gouging," he said. He said the only result of the "rushed law" would be to protect every cent of the large companies' potential returns from rent. "It is quite clear that the chancellor is acting 100 percent as a corporate lobbyist."

Left co-chair Luigi Pantisano accused the federal government of caring more about shareholders of large companies such as Vonovia than about tenants. He said the SPD must decide whose side it was on, "the side of the rent mafia or the tenants," according to tagesschau.

The path to the cabinet and the courts

Merz said the cabinet could take up the bill once the compensation question is settled. The Bundestag and the Bundesrat would then have to pass it. In Berlin, coalition talks between the Left, the Greens and the SPD are under way. LTO expects the issue to reach the Constitutional Court in any case, since affected companies would likely sue over any Berlin socialization law.

Our Germany country guide explains the federal coalition and the parties. Our profile of Left Bundestag group co-leader Heidi Reichinnek is also available. Our methodology page explains how we source figures.

Differing perspectives

Should the federal government block Berlin's plan to socialize large housing companies?

Each position is summarized as its supporters make it, with equal weight and in alphabetical order. A summary is not an endorsement; the evidence for each is weighed in the story above.

• No, the ban protects corporate profits

  Who holds it: Sören Pellmann and the Left

  Pellmann says the federal law will not build a single new apartment, will not ease tenants' fear of rent increases and will not curb rent gouging by large landlords. He argues its only result is to protect the potential returns of large housing companies, and accuses the chancellor of acting as a lobbyist for corporations.

  In their words: nd ↗

• Skeptical of both the ban and the Berlin plan

  Who holds it: Justice Minister Stefanie Hubig (SPD)

  Hubig says there are still many question marks and that she takes constitutional and political concerns about the federal bill seriously. She also considers the Berlin plan unsuitable because of billions in compensation and years of legal uncertainty, and says it would be better to invest the money in affordable new housing and stronger tenant law.

  In their words: tagesschau ↗

• Yes, to protect property and investment

  Who holds it: Chancellor Friedrich Merz and the Union

  Merz says open talk of expropriation in the capital affects capital markets as far as London, Paris and New York and harms Germany as a place to invest. He argues only reliable protection of property preserves trust, that socialization would create no new jobs or apartments, and that any compensation should be 100% of market value.

  In their words: Börsen-Zeitung ↗