Economic Research Institute Suggests Cities Sell off Their Housing Stock
At a time when municipal housing companies in many of Germany’s major cities, including Berlin, are prompted by city hall to beef up their property stock, the IW Economic Institute, Cologne, has joined the debate on the issue of public housing with an idea that implies the exact opposite. In a recent survey, the IW’s real estate expert, Prof. Michael Voigtländer, suggests that German municipalities are well advised to divest themselves of their housing inventories altogether.1
According to Voigtländer, a total of 2.3 million flats are held in municipal ownership, most notably in the major cities. The real estate would thus add up to a total carrying amount of nearly 138 billion euros. “By selling,” Voigtländer writes in the survey, “many municipalities could rid themselves of their entire debt with the stroke of a pen or in any case reduce them substantially.” The interest burden of the cities would plummet, and city governments would free up the capital they need to invest in new urban districts or in social infrastructure, such as the development of preschools or public mass transit. A sale of municipal real estate holdings could substantially improve “the economic conditions of the cities and thereby ultimately the living conditions” of local residents.
Proposal Finds No Backing
Voigtländer rejects the counterargument that the purpose of municipal housing companies is to preserve an affordable housing market and thus to play an important social policy role. After all, or so the IW survey observes, many municipal housing companies rent out on similar terms as private ones, on the one hand. On the other hand, only a minor share of households living in council flats are actually needy in cities like Berlin. In the latter city, only 16.9 percent of the municipal tenants are at risk of poverty, meaning they have less than 60 percent of the median income — whereas the same is true for more than one in every five households that are renting from private housing companies. At the same time, over 20 percent of the households living in municipal flats have more than 120 percent of the median income at their disposal. The survey therefore concludes it would be hard to argue that municipal housing companies are particularly important for low-income groups.The proposal made by the IW Economic Institute was criticised by the DMB German Tenant Union but also by real estate industry insiders. “The decision of whether or not a municipality ought to sell its housing company should not be inspired by any idea of short-term returns,” said Axel Gedaschko, President of the Federal Association of German Housing and Real Estate Companies (GdW).2 Nor is the body politic currently seeking to sell municipal housing stock — quite the opposite: Not only are municipal housing companies in the process of expanding their inventory, Berlin being a good case in point. In Dresden, an entirely new municipal housing company was set up recently, while plans for new municipal companies have also been reported from the states of Bavaria and Lower Saxony.3