Investor uncertainty is growing in Berlin following a mayoral election victory for far-left party Die Linke, which recently secured 25.7% of the vote on a platform focused on the city’s housing crisis.
To combat rising rents and severe supply shortages, the party’s manifesto proposes introducing rent caps across almost 400,000 city-owned apartments, expanding municipal housing companies and socialising large real estate firms.
“In major cities across Europe, new construction alone has not achieved enough. This means we absolutely must regulate the existing housing stock,” said mayor-elect Elif Eralp of Die Linke.
Die Linke considers state-owned housing firms like Degewo, Gesobau and WBM to be “key players” in building new, affordable social housing, and the party intends to inject up to €2bn in equity annually into them to finance the construction of 7,500 municipal housing units per year, according to its manifesto.
Konrad Finkenzeller, head of client division and head of DACH at Patrizia, said that Berlin needs capital to address the housing shortage, but prolonged uncertainty around property rights risks making Germany less attractive relative to other markets.
Investors will allocate capital where there is sufficient long-term certainty, he said, adding that Patrizia would therefore be concerned by proposals to socialise or expropriate existing residential assets.
In a 2021 referendum, Berliners voted to transfer around 220,000 privately-owned apartments into public hands. Although the vote was never passed into law, Die Linke has promised to enact the legislation now that it is in power.
This week, chancellor Friedrich Merz announced plans to swiftly introduce nationwide legislation against the expropriation of large housing companies to reassure international investors.
Claudius Meyer, managing director of CR Investment Management, warned that investors are already withdrawing from the market as a result of the debate over expropriation and are acting cautiously.
“If expropriation is indeed pursued further, the impact will intensify, damaging the housing market and exacerbating current problems. Ultimately, this will come at the expense of tenants and, above all, those looking for housing,” he said.
Meyer considers the plan to build municipal new houses and state-subsidised housing and efficient building processes “sensible measures” put forward by Die Linke that can also be implemented quickly.
Simon Kempf, managing director of Periskop Development, said some of proposed measures could hinder new construction if they curtail the financial capacity of state-owned companies or unsettle private and institutional investors.
“Affordable housing can only be created through the combined efforts of the public sector, municipal companies, [housing] cooperatives and private investors,” he added.
Die Linke’s programme for Berlin primarily signals rising political and legal uncertainty for investors, while rent caps, threats of socialisation and additional regulation depress return expectations, complicate financing and lead to valuation discounts, Kempf said.
This, he added, creates a political paradox: “The very long-term capital from pension funds and insurers, which invests to secure retirement provision in the interest of the Left’s core constituency, is being driven out. The field is thus left to more opportunistic investors with a higher appetite for risk.”
Legally, some of the measures raise questions regarding selection, compensation and financing, said real estate lawyer Uwe Bottermann.
A rent cap for private landlords would be difficult to implement at the state level, Bottermann said, pointing to the ruling of the Constitutional Court in 2021.
At the time, Germany’s top court ruled that rent restrictions already exists in the Civil Code, a provision that limits the legislative power of federal states like Berlin.
For these reasons, Bottermann said, Die Linke’s plans primarily translates into higher costs associated with political and legal risks for large and institutional investors.
“They will not necessarily leave Berlin, but they will invest more selectively, demand higher risk premiums, and expand their due diligence processes,” he added.
Die Linke is exploring a coalition with the Greens and the Social Democratic Party, both of which oppose expropriation and instead favour a major construction programme targeting 100,000 new homes alongside greater rent transparency.
Vonovia is ready to engage constructively with any future Berlin state government, said the CEO Luka Mucic.
“What is needed is new construction, a reliable regulatory framework and cooperation – after all, socialisation does not create a single new apartment,” he added.
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