Berlin's Renters Want to Show Landlords the Door --- Vote on whether apartments should be confiscated from corporate owners highlights risks of institutional housing investments

"Berlin's tenants are trying to evict large landlords. It is an extreme situation, but investors buying up homes in the U.S. should still keep a close eye on what happens.

On Sept. 26, voters in Germany's capital will decide whether to expropriate any landlord that owns more than 3,000 properties in the city. A clause in the German constitution allows for the move, but it hasn't been tested before. It would affect real-estate investment trusts including Deutsche Wohnen -- which owns 116,000 properties in Berlin and is currently the target of an 18 billion euro takeover bid, equivalent to roughly $21 billion at current exchange rates -- and its suitor Vonovia.

Berliners are angry about rising rents so there is a chance the vote will pass. The likelihood of the properties actually being confiscated is slim. The referendum isn't binding and landlords would need to be compensated to the tune of 36 billion euros for the 240,000 units likely to be affected, Berlin authorities estimate, which would push the city deep into debt.

But the tensions may force politicians to tighten rules in Germany's highly regulated rental sector, hitting returns in one of investors' favorite residential markets. Steady rent growth and increasing home prices have made German housing stocks a good bet in recent years. Deutsche Wohnen, Vonovia and LEG Immobilien have delivered annual shareholder returns of 17% to 20% over the past decade. The stock prices have been weak ahead of the vote, though, and imply an 8% fall in asset values, according to UBS real-estate analyst Charles Boissier.

Expensive housing has become a more pressing problem globally during the pandemic, as prices rose in many countries and people spent unusual amounts of time at home. Big private landlords are vulnerable to public anger if a lot of housing stock is in their hands. A wave of privatizations beginning in the 1990s means that 15% of Germany's rented multifamily residential housing is now owned by big companies, according to real-estate analytics firm Green Street -- unusually high for Europe. In the U.K., the number is just 2%.

By this yardstick, the U.S. is among the countries most at risk of a backlash. A full 37% of multifamily homes are owned by big institutions, the Green Street data shows, while their much slimmer share of rented single-family houses is growing. The steady income generated by residential real estate during the pandemic has made it more attractive than commercial properties like shopping malls or offices, which have a history of greater volatility and face threats from new technology. Investors, including family offices and companies, bought 16% of all U.S. single-family homes sold in the second quarter of this year, Redfin data shows, which was a record high since 2000.

Berlin's tenants are unusually powerful because 85% of the city's residents rent rather than own their homes. In New York, 46% of people rent, based on data from the U.S. Census Bureau, so tenants don't necessarily have as loud a political voice.

Still, tensions in the German capital are a reminder for investors piling out of shops and offices and into homes that there are regulatory risks. Keeping residential tenants happy may be good politics as well as good business." [1]

1. Berlin's Renters Want to Show Landlords the Door --- Vote on whether apartments should be confiscated from corporate owners highlights risks of institutional housing investments
Ryan, Carol.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 14 Sep 2021: B.10.