Expropriation or the Next Raid?

From the Megamachine series · Signpost to the Megamachine

Nothing is taken from the rich. It is bought from them, for the second time.

I. A Cycle

The Left Party, the Greens and the SPD want to get serious in Berlin. Their exploratory paper for a new city government includes the socialisation of large housing stocks: anyone who owns more than ten thousand flats is to give them up. Vonovia and three other corporations would be affected above all. Compensation is to be capped at sixteen billion euros, subject to the proviso “that fiscal sustainability is ensured”.

That sounds like a break with the market. On closer inspection it is the opposite. It is the last step of a cycle that began more than twenty years ago and whose rule every trader knows: buy cheap, sell dear. The only new thing is that both times the same party sits on the wrong side of the table, namely the state of Berlin and thus its citizens.

II. Who Sold in 2004

In May 2004 the Berlin Senate sold the state-owned housing company GSW, with well over 65,000 flats, to funds of Cerberus and Goldman Sachs. Berlin was then governed by the SPD and the PDS. The PDS is the predecessor of the very Left Party that today leads the push for socialisation.

One has to be fair: Berlin was in distress at the time. The scandal surrounding the Bankgesellschaft Berlin had loaded the state with risks running into tens of billions, and the Governing Mayor issued the slogan that one had to save “until it squeaks”. The flats were the family silver, and the family silver was sold. The buyers paid little and took over the company’s debts in return. Other cities did the same. Dresden sold its entire housing company in 2006 and was debt-free at a stroke. Those flats, too, belong to Vonovia today.

What happened next follows a logic that has nothing to do with malice, only with business. The funds took GSW to the stock exchange, Deutsche Wohnen took it over, and Vonovia took over Deutsche Wohnen. At every step the value rose, because rents in Berlin rose. The returns flowed to the shareholders. The rising rents were paid by Berliners.

III. The First Buyback

In 2021 Berlin bought back. Three state-owned companies acquired almost fifteen thousand flats from Vonovia and Deutsche Wohnen for nearly two and a half billion euros, financed on credit. A simple comparison shows how expensive that was: for what Berlin paid for one flat in 2021, it had given away about five in 2004, the debts taken over already included. At first the Senate would not even say which flats it had bought and at what price. Only a court forced it to.

The pattern is not limited to housing. In 1999 Berlin sold almost half of its water utility to RWE and Vivendi, later Veolia. The contract contained a profit guarantee: if the private partners’ profits fell too low, the state had to close the gap. For years Berliners paid some of the highest water prices in Germany. Only a referendum in 2011 forced the Senate to disclose the secret contracts. In 2012 and 2013 the state bought the shares back. The buyback in turn was paid for through water prices. So citizens paid twice: first the guaranteed profits, then the buyback.

IV. What the Referendum Promised

In September 2021, 59.1 per cent of Berliners voted for socialisation. That is a clear democratic decision, and it had a real reason: rents had become unaffordable for many.

But what did they vote for? Many believed they were taking something away from the rich. The word “expropriate” has that ring. In reality nothing is taken from anyone. The Basic Law requires compensation, and so the corporations’ property is bought from them. The only question is who pays.

The initiative “Deutsche Wohnen & Co. enteignen” has given an answer that sounds clever. The state budget would not be burdened. A public-law institution would issue bonds at three and a half per cent interest, repaid over a hundred years out of current rents. One has to read that sentence slowly. It means: the tenants pay the compensation themselves, for a century. And whoever holds the bonds receives a safe income from their rents. The landlord is not abolished. He merely changes his role and becomes a creditor.

The exploratory paper takes a different route. It caps the compensation and ties it to “fiscal sustainability”. Then the budget pays, that is the taxpayer, in a state with nearly seventy billion euros of debt. Whether tenants pay or taxpayers: in neither model do the rich pay.

V. What the Compensation Really Buys

For sixteen billion euros not a single new flat will be built in Berlin. All that changes is who owns the old ones. Anyone looking for a flat today will find no more flats after socialisation than before. He merely helps pay.

And there is a bitter possibility hardly anyone talks about. Since interest rates rose, property values have fallen, and the large corporations have had to write off billions. If compensation ends up close to market value, which the courts may well require, then for shareholders expropriation is no loss. It is a sale to the only buyer who never goes bankrupt, in a market where buyers are otherwise scarce. Bought cheap from the state, sold dear to the state. The corporations would not be expropriated; they would be redeemed.

On top of this comes a third bill. When interest rates rose, Vonovia cut its spending on new construction and modernisation to less than half and preferred to use the money to pay down debt. What is not repaired in a building shows up as profit. Whoever buys it back takes over the maintenance backlog as a dowry. This is no Berlin peculiarity. Deutsche Bahn was trimmed for returns ahead of a planned stock-market flotation, and today the federal government pays for the general overhaul of its lines. In England the tracks decayed after privatisation until a train derailed at Hatfield and the state had to take the network back. Privatise, consume the substance, hand it back: in infrastructure this has long been the rule. Why should housing be any different?

This is the pattern we described in “Plunder, Lease and Inheritance”. Franz Oppenheimer distinguished two ways to wealth: the economic means, one’s own labour, and the political means, the appropriation of the labour of others. We set this out in “The Political Means”. No law is broken here. Sale and buyback are legal, and so was the contract with the profit guarantee. And yet in both directions the returns flow to the same people, and in both directions the costs stay with the same people.

VI. What You Do Not Sell, You Need Not Expropriate

There is a city that needs none of this. In the 1920s Vienna began building municipal housing and never sold it. Today about one Viennese in four lives in a municipal flat. The city has to expropriate no one because it never sold. Its housing stock dampens rents across the whole city without anyone having to pay compensation.

So the real mistake in Berlin was not the market. It was the sale. And the real lesson is not that one must buy back whatever the cost. It is this: what belongs to the public must not become the emergency fund of a government that is in a tight spot.

VII. What Would Help Instead

Two things would achieve more than the most expensive expropriation.

The first is building. The state owns land, and its companies can build. Every new flat expands supply; every socialised flat only changes ownership. It speaks for the exploratory paper that it exempts new buildings from 2021 and cooperatives. That way it deters no one from building. But it also shows where the money would be better spent.

The second is a lock. Flats owned by the state must not be sold again, and not merely by an ordinary law that the next majority can repeal, but by a rule as hard to change as the constitution. Otherwise the cycle repeats. The next budget crisis is sure to come, and with it the next buyer.

VIII. Who Pays

In the end the question remains that stands over every deal: who pays?

In Berlin the answer has been the same for twenty years. Citizens paid when the state sold, because they lost the flats and rents rose. They paid when the state bought back dear in 2021. And they will pay now that it comes round for the third time, either as tenants for a hundred years or as taxpayers, and their children will inherit the debt. In “The Structural Redistribution Between Generations” we described how such bills are passed on.

Whoever says “expropriate” thinks he is taking something from the rich. In reality he is only completing the second half of a deal whose first half his own predecessors concluded. Sell cheap, buy back dear. The basic principle of capitalism works flawlessly here. It just works for others.