Berlin's property-owning classes under attack

THE high cost of urban housing is one of the most divisive issues that many countries face today. Rising prices have created entrenched cadres of haves and have nots, but because property owners tend to be in the majority, renters are often the ones left shortchanged.

That's emphatically not the case in Berlin, where owner-occupiers make up just 15 per cent of the market.

Once a famously cheap place to live, rents in the German capital have doubled over the past decade and house prices have gone through the roof.

Berlin's "cool" reputation, burgeoning startup scene, and rock-bottom interest rates have all contributed to the boom. Because rent increases have outstripped pay rises, residents feel worse off.

Now the city's leftist coalition government has proposed a restriction of private property rights that would be unthinkable in most places: for the next five years, it wants to bar landlords from increasing rents at all. Such heavy-handed intervention will alarm foreign investors, for whom Berlin's real estate sector has become a favorite place to deploy capital.

It's also a wake-up call for landlords in other countries, where falling home ownership rates have buttressed support for greater intervention in the housing market.

In London, Jeremy Corbyn's left-wing Labour Party will be looking on with interest.

It's not clear whether Berlin's proposal is even legal but property investors clearly expect some kind of reckoning.

Shares in the listed German real estate firm Deutsche Wohnen have tumbled 17 per cent since the first details of the new measure were unveiled last week, erasing about 2.5 billion euros (S$3.86 billion) of its market value.

The company owns more than 115,000 residential units in the city, or 70 per cent of its portfolio. (Investors who bought the stock in 2008 are still doing fine. It's up about 1,300 per cent since then).

Berlin's rents and property prices are fairly reasonable by international standards, and by comparison to local incomes. Still, there's no question the housing market has become dysfunctional.

The local population has jumped by about 300,000 since 2011 and new construction has failed to keep up. Building firms are working flat out, but permitting is notoriously slow.

Some landowners hold back development plots in the hope that prices will continue rising, while obstructive local residents have blocked new developments.

At the same time, older tenants in large apartments with cheap long-term leases cannot move somewhere smaller because of the higher rents, so young families struggle to find anywhere suitable.

Capping rents - or seizing buildings from big owners, as has also been mooted - will not do anything to ease the shortage.

While the new law will not apply to new properties, it will deter much-needed investment nonetheless. Berlin might as well pin a sign on top of its famous TV tower saying owners are not welcome.

The German real estate market is already heavily regulated when compared with most places. Tenants have extensive rights, and in 2015 the federal government legislated to prevent rents rising more than 10 per cent annually above the local average.

That law has been widely ignored, if online property listings are a good guide. To prevent this happening again, Berlin is threatening 500,000-euro fines for noncompliance with its new rent cap.

Landlords complain of "class warfare" and are threatening to hike rents ahead of the proposal coming into force in 2020, which does not seem a good way to win friends. The policy will probably stop them spending on property upkeep, yet it's questionable if most Berliners will care.

Gentrification has long been a dirty word here - dilapidated buildings were all part of the city's "poor but sexy" charm.

Home ownership is well below historic highs in the UK and US and socialism is suddenly en vogue. Berlin's assault on private property rights shows what happens when you let the capitalist pendulum swing too far in one direction. WP