The federal government is trying to stop Berliners from voting on housing

THE REAL story of Germany's housing crisis is not what Berlin voters approved in a referendum five years ago. It is what Chancellor Friedrich Merz's government is trying to do about it. On July 2nd the CDU/CSU-SPD coalition committee agreed to introduce a federal law banning the states from taking private rental housing into public ownership. The move is aimed squarely at Berlin, where citizens voted in 2021 to expropriate the apartments of large corporate landlords. After half a decade of political evasion, the federal government is now rushing to close the door before Berliners get another chance to try it again.

The referendum behind this row was held on September 26th 2021. Voters were asked whether companies owning more than 3,000 apartments in the city should be socialised (a German euphemism for transferred into public or non-profit hands). The "Deutsche Wohnen & Co enteignen" campaign collected the requisite signatures to put the question to the electorate. Around 56% support said yes, with a turnout that saw more than a million Berliners take part. The referendum was non-binding, but the result was emphatic. The apartments in question total approximately 226,000 rental properties, held by firms including Vonovia (which lets more than half a million flats across Germany), Deutsche Wohnen and the French fund manager Covivio. Berlin is an extraordinary test case: roughly 85% of the city's 3.9m residents live in rented accommodation, far above the European norm.

Five years later nothing has happened. The Berlin Senate, controlled by shifting coalitions of social democrats and greens, blocked implementation through delay, expert commissions and procedural manoeuvring. No date has ever been set. The campaign has now filed draft legislation for a new, binding referendum, timed to coincide with Berlin's state election on September 20th.

That timing is what has alarmed Mr Merz's coalition. The Left Party, which has made expropriation its flagship housing policy, currently leads opinion polls ahead of the September vote. Rather than allow the debate to gather further momentum - and potentially embolden other cities - the federal government has decided to remove the question from the table altogether. It is a political calculation dressed up as property-rights protection.

The trouble is the legal mechanism. Article 15 of Germany's Basic Law explicitly permits the socialisation of land, natural resources and means of production, subject to legislation determining the form and extent of compensation. Attempting to prevent the federal states from exercising that constitutional provision through an ordinary federal law - which requires only a simple majority in the Bundestag - strikes many observers as constitutionally dubious. Constitutional amendments in Germany require a two-thirds majority in both federal chambers. The ban would achieve the same result with fewer votes.

Anna Katharina Mangold, a member of Berlin's expert commission on socialisation, was unequivocal: the federal government cannot simply enact a law solely to block the states. The campaign behind the original referendum argues the proposed legislation would require a constitutional amendment and predicts it would be struck down by the Federal Constitutional Court in Karlsruhe. Perhaps most strikingly, even the AfD's legal affairs spokesperson, Marc Vallendar - an opponent of expropriation - described the proposal as legally questionable and almost certainly doomed to failure.

The coalition appears to be betting that the mere prospect of a federal prohibition will deter any state from testing the issue. Whether that assumption holds may depend on Berlin's September election. Left Party lead candidate Elif Eralp has already signalled that, if given the opportunity, her party intends to proceed. The ban may turn out to be a speed bump, not a roadblock.

For all its legal fragility, the federal move has been warmly received by the property industry. Iris Schöberl, president of the German Property Federation (ZIA), called it a strong signal for legal certainty and growth. Jens Tolckmitt, chief executive of the Association of German Pfandbrief Banks (VdP), argued that expropriation would not create a single additional home while deterring investment far beyond Berlin's borders. S&P Global Ratings, a credit-ratings agency, has signalled support for federal action, stating that it expects a law preventing state-level expropriations to restore stability to the housing sector.

Some of the alarm is genuine. The campaign's draft legislation proposes cancelling the land charges that secure bank loans against nationalised properties, which would effectively remove lenders' collateral and potentially force the recall of loans worth billions of euros. That prospect prompted several major lenders - including Berliner Volksbank, Berliner Sparkasse, DKB and the state-owned IBB - to commission reports warning of capital flight and higher financing costs. One went so far as to raise the prospect of American sanctions if US pension funds with exposure to Berlin property were affected, a claim that attracted scepticism even from historians close to the expropriation movement, who noted the resemblance to arguments once deployed against Salvador Allende's government in Chile. The banks themselves adopted a more measured tone about their own balance-sheets, acknowledging the direct impact would be manageable, if unpleasant.

The political damage to the coalition is more immediate. Several Berlin SPD Bundestag members criticised the agreement almost at once. Raed Saleh, a prominent social-democratic politician in Berlin, has attacked the ban, exposing the fault line between the party's federal and municipal wings. The SPD's coalition partner in the federal government wants to reassure investors; its allies in the Berlin Senate know that renters are still desperate. That contradiction will not be easy to manage.

The deeper problem, of course, is that the housing debate has been reduced to a constitutional argument while the underlying shortage worsens. Berlin's population has grown by more than 500,000 since 2010 - an increase of nearly 16% - to almost 3.9m people. In the same period, only around 159,000 new apartments were built, plus another 27,000 replacements. That construction activity is far short of what the city needs.

Rent pressure remains acute despite recent stabilisation. CBRE and Berlin Hyp, a property firm and a bank, report that new-contract asking rents in Berlin average €15.80 per square metre - barely up on 2024 but the product of double-digit jumps in 2022-23 that have locked in high prices. Existing rents held by large institutional landlords average €8.50 per square metre, creating a wide gap that benefits sitting tenants and leaves newcomers facing much steeper bills. The result is a lock-in effect: people rarely move, turnover is low and the market is paralysed. The coalition's own reforms this year have tried to ease construction planning and strengthen rent controls simultaneously, policies that pull in opposite directions, as Freshfields, a law firm, has observed.

The expropriation debate obscures a simpler truth. Seizing about 226,000 apartments would transfer ownership but would not solve a shortage. It might moderate rents in the affected stock, though the mechanism - below-market compensation via bonds - would impose costs on the city's budget and, indirectly, on other taxpayers. The better answer is to build, and to build faster. The coalition's planning-law reforms, which relax building restrictions and introduce an experimentation clause valid until 2030, point in the right direction, if municipalities consent. But they are not enough, and they have been buried in a package that also bans employees from taking sick leave without a doctor's note and raises the pension age. The political optics of housing reform have been sacrificed to a broader ideological project.

What should the federal government do? It should drop the expropriation ban and let Berliners vote. If the Left Party wins the September election and pursues the measure, the legal and economic consequences will become clearer than any federal law can make them. Article 15's socialisation clause has never been tested at this scale; putting it to the constitutional court would be a valuable exercise, not a catastrophe. More importantly, the government should treat housing supply with the urgency it deserves. A federal law that criminalises a popular policy while failing to deliver the homes that popular policy was a symptom of is not good governance. It is political panic.

The danger is not that Berlin will nationalise its housing. The danger is that the federal government has mistaken the appearance of order for the reality of it. Consumers pay first when policy ignores the mechanism that creates the problem in the first place.