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The Secret Power of Bond-Rating Agencies

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Berlin—In March the bond-rating agency Moody’s issued a warning to the Berlin government: Should a proposal for housing expropriation become policy, it would downgrade the city’s rating. The threat made visible the power struggle between housing activists and an increasingly financialized real estate industry.

The expropriation campaign is led by the group Expropriate Deutsche Wohnen and Co, whose name references Berlin’s largest corporate landlord, Deutsche Wohnen, which owns more than 115,000 apartments in the city. The group is part of a much larger coalition of housing activists that wants the city to buy back more than 200,000 private rental units and turn them into affordable social housing. Specifically, the campaign is arguing that property ownership in Berlin should be capped at 3,000 units. Any entity owning more than 3,000 units, like Deutsche Wohnen, would be subject to expropriation.

The proposal is almost unimaginable in the United States, where homeownership is deeply entrenched and incentivized by government subsidies. Berlin, however, has a recent history of expansive social ownership. After reunification in 1991, the municipal government owned nearly 30 percent of the city’s housing stock. But around the turn of the century, the city sold around half of their apartments, more than 220,000 units, at a steep discount to raise short-term cash.

Furthermore, unlike the privatization process in the United Kingdom, Berlin did not sell homes to individual tenants; they sold entire apartment complexes to institutional investors. Goldman Sachs, for one, was in on a 2004 purchase of 60,000 units; Deutsche Wohnen later acquired that portfolio in 2013.

Moody’s and other opponents to expropriation argue that Berlin cannot afford to purchase and maintain so much housing, while proponents say it is the best way to cool an over-heated housing market that’s pushing out poor and working-class renters.

The legality of expropriation is still awaiting a definitive interpretation of Article 15 within the 1949 German Constitution. The law 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.” The provision comes from an era when Germany was more hesitant of market capitalism.

The cost of expropriation, too, is highly contested. The Berlin government estimates a price tag north of 35 billion euros ($38 billion), but activists and scholars claim the city could legally pay a fraction of that to avoid footing the cost of rampant land speculation. Berlin, as of last year, is home to the fastest growing real estate prices in the world.





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