Movements against the Privatization of Municipal Housing in Germany

Context

By “PUBLIC HOUSING” in Germany we nowadays understand a juridical private housing company which is controlled by public entities like public services companies, public banks or pension funds, the state levels or especially municipalities. The business of these companies concentrates on the provision of housing, mostly on rental housing. The public control is guaranteed through a majority of shares owned by the public share holders and their representation in the general assembly and the board of the companies.

Even after the massive sales of the last years the number of housing units which are owned by public institutions is approximately 3 million housing units in total. This makes about 8 % of the total housing stock in Germany. But the importance is much higher than that figure shows. Nearly 40 % of the German housing stock is owner-occupied, another 6 % are controlled by housing co-operatives, and 27 % are owned by smaller landlords. The public housing sector has a very significant influence on the rented housing sector, especially on rents. The most important part of the public housing sector by quantitative means is the sector of “municipal housing companies”, local landlords which are owned by the municipality. The total number is approximately 2,6 million housing units.

Origins

The historical origin of many municipal housing companies lies in the 1920ies. Even before World War I some cities with a big lack of affordable house started to become active in the provision of flats for the poor, the badly housed or – on the other hand – of the employees of the local authorities. Originally the local authorities developed direct investments in the construction of rental flats or participated in the building of co-operatives or other forms of social landlords.

EXCURSE: The best known example on municipal housing – not in Germany but in a German speaking country - is Vienna, where the local authorities had started social housing programs in the late 19th century. After the revolution of 1918 the local authorities came under control of the Socialist Party which started a broadly based housing program to overcome the bad housing situation in overcrowded Vienna. They even aimed to develop new forms of emancipative housing for the working class, which expressed the will to workers’ autonomy. These socialist experiments are known as one of the most impressing results of the “Red Vienna”. In Europe its practice and theories (which were an integral part of the independent “Austro-Marxism”) became a model for the solution of problems in the re-production sphere by the local socialization of city production, the so called strategy of “communalization” (putting resources under the control of democratically managed local authorities/municipalities). The “communal” housing stock in Vienna as well as the large examples of the “Workers Housing” style with originally common kitchens, Kindergarten etc (e.g: the large “Karl-Marx-Court”) still exist.

After World War II it became more common to build housing companies which were controlled by the local authorities, because these companies could operate more independently. They were regulated by specific law, which allowed taxes reduce. For a period of time direct housing engagement of the local authorities coexisted with the company or the co-operative model. But more and more the housing stocks were integrated in the municipal companies.

Besides this sector other public entities developed their own housing strategies. The big public service companies of the railways and the mail/post had their own important company flats sector. Others like public pension funds and insurances developed in their own way. There were/are diverse regional types, including forms of cooperation with other stake- and share-holders. Even the federal states had and have their own housing companies which are often not only dedicated to the provision of flats but also to the solution of regional problems in spatial development like brown fields reactivation or bankrupts in the housing sector.

EXCURSE: After World War II the trade unions developed a huge social housing company called “Neue Heimat” (“new home”). It constructed huge complexes of affordable mass housing and continued construction of large scale housing schemes even after the beginning crisis of social housing sector in the early 1970ies. After heavy scandals because of corruption and mismanagement this company went bankrupt and was liquidated. The federal state of North-Rhine-Westphalia through its housing company LEG (Federal Development Company, see below) took over a large regional part of this housing stock as well as other stocks in “crisis”. These stocks today are partly difficult because of their size and the many social problems in the neighborhoods.

All the above mentioned housing companies until 1989 had been part of the so called sector of “housing for public benefit” which was based on a national law which reduced tax obligations on the one hand, limited rents and business activities on the other. In difference to private industries the public companies in many cases still feel obliged to the social principles and are obliged to public goals.

Further more: While regulated social housing is playing a less and less important role on the markets public housing companies can guarantee some continuation of its principles within their stocks.

EXCURSE: Nearly all houses constructed by the public sector after 1951 were supported by the social housing subsidies from the states. “Social housing” in Germany however is not related to the type of ownership. In principle it is/was a system of public subsidies for construction of affordable housing for the masses, since 2004 for the needy parts of the population. Subsidies – mainly in the form of cheap mortgage – allowed legally controlled cost-covering rents. Access to social housing was/is legally limited to households under a certain income level. Beneficiaries of the cheap mortgages could be all type of housing investors: public companies, co-ops, other types on non-for-profit companies like industrial housing companies, private institutions and even small landlords, which play a very important role at German housing markets. While the social housing support in the post-war years focused on reconstruction of the bombed towns and cities it later concentrated on the overcome of the huge lack of affordable mass housing by new urban developments. In late 60ies and 70ies social housing became synonymous to large scale developments at the outskirts of towns, which were criticized for their monotony and division of urban functions. Because of the globally high-interest rates on mortgage after the oil crisis social mass housing even fell into an economic crisis. New types of subsidies led to unaffordable social rents in new constructions. The reduction of new construction during the 80ies however gave reason to the huge housing crisis 1988-1995 when the housing stock was nor able to meet the needs of immigration. The crisis mainly was solved by a new age of social housing provision and within it the public sector played the most important role. Since late 1990ies the social housing support again decreased and investors more and more became disinterested because of changed market conditions and especially cheap mortgage at private markets. Within the sector of social housing the portion of home-ownership subsidies increased. Because social housing is based on mortgage and temporarily support on the construction costs the regulations on rents and access regularly end after 20-30 years. At the same time decentralization of social housing responsibilities and liberalization of standards let to a confusing complexity of mainly contract-based housing models. As a result regulated social housing is playing a less and less important role and will mostly disappear from the market within the next decade.

Role of public housing today

After the abolishment of the housing-for-low-profit law in 1989 and the fall of social housing subsidies the remaining public housing sector is the last remaining instrument for direct public influence on the housing markets. This role even gets more important with the challenges of shrinking populations and the invasion by the international financial sector into former social housing segments.

Having a flat in a municipal housing company normally is a very secure way of housing – as long as the flat does not get privatized. The rents often are below market level. The local housing companies play an important role in the provision of flats for poor and excluded persons. In many cases they cooperate with other entities to integrate homeless etc.

Some of the public housing companies are leading innovators in the development of cheap construction methods, integrated panning, ecological design etc. Some public housing companies have developed strong participation tools, e.g. for the improvement of deprived areas, for the improvement of public spaces, especially for children etc. More than that especially the LEG and some others have introduced institutionalized forms of tenants’ councils, which are elected and represent the tenants of a neighborhood officially.

From this background it is clear that the value of the public housing sector cannot only be measured economically. Tenants Associations as well as municipal experts and the municipal housing companies themselves use terms like “social return” and “urban return”. The provision of shelter for poorer parts of the population, the influence on affordability of the whole rental sector, the investments in social stabilization of neighborhoods etc. produce an extra-monetary “social return” for municipalities and states. Without these companies, states and municipalities in the long run had to spend more on subsidies for housing, construction, social work, security, re-integration of excluded and social repair of deprived neighborhoods. In many cases they even had to pay more for urban development, because private sector companies in difference to public institutions will hardly do anything without getting paid.

Forms of “privatization”

There are diverse forms of “privatization”:

• Sale of the whole company (it’s total shares) to a private investor, which at the moment is the dominating method (example: GAGFAH. NILEG, WOBA. See below).

• Sale of large parts of the shares to private investors which leads to a fundamental weakening of the public influence (many cases).

• Sale of the shares (or parts of it) to other public companies (banks, service companies) which weakens the direct public influence.

• Block sale of important (or all) housing stocks to one or diverse investors (This method can have the most crucial short term effects for security of the tenants, if the intermediate investor orientates on fast free owner ship conversion).

• Sale of smaller parts of the housing stocks to private investors and speculators (which sometimes seems to be a strategy to overcome financial crisis within the company).

• Sale of single flats or houses to the tenants or small entrepreneurs often combined with condo-conversion (which can be a normal part of social housing business).

• Sale of shares or housing units from the municipality to the company itself (they have to refinance it at the loan markets).

EXCURSE: The city of Wuppertal had been an example for a long existing direct engagement in housing. Until 1995 the local authorities directly managed a housing stock which mainly was constructed in the 20ies. Large parts originally were built for employees of the municipality. It includes some neighborhoods which are recognized as urban heritage. The city since a long time had not invested in modernization when the city council started its plan for sale to another mainly municipal housing company, the GWG, in 1994. The act of sale was only criticized by some tenants groups, one of the two local tenants associations and the PDS (Socialist Party). The Greens and Social Democrats finally agreed to the sale of the 5000 flats at a prize of 50 Mio. Euro.

The GWG (Housing Company fir Public Benefit) developed to the second municipal housing actor in Wuppertal after World War II. Before they took over the municipal flats they controlled about 5000 own flats, including many “modern” Social Housing schemes and former provisional shelter houses. The GWG during the housing crisis 1989-1994 had been a main actor for new constructions. At the beginning of the 90ies they were ready to learn from mistakes, developed innovative projects in the field of tenant’s participation, children planning, women’s shelter etc. But at they same time they were accused to behave unecologically by putting their housing schemes on green land in ecologically valuable regions.

The GWG – financially already weakened by their construction investments - had to refinance the prize for municipal houses at the market which lead to a heavy financial burden. More than that, a jungle of corruption around the management lead to financial flops like the construction of quite luxury apartment for elderly - which nobody wanted to rent and other nebulous real estate business. The same people responsible for the municipal flats-deal meanwhile had been accused for serious corruption in several cases. The whole management went to prison and was sentenced. Also the social democrat president of the GWG board, a green member of the city council, the urban development speaker of Social Democrats, the director of an important church welfare organization, well known architects and entrepreneurs, the chief editor of the local monopoly press, the mayor and many others were accused and mostly sentenced at the court.

The result of all these privatizations and corrupt business is a heavy deficit of the GWG. While a campaign initiated by the Service Workers Trade Union could stop the real privatization of the whole company, the company sold at least 2000 flats – partly to speculators.

Privatisations to Financial Investors

Privatizations today are heavily backed by the high interest of international financial investors who bed high sums of capital for the control on German housing stocks.

The sale of the majority of the railway housing units to the British based private equity fund TerraFirma marked the starting point for the invasion of international speculative financial capital. The housing stocks of the former public railways as well as of the mail services had been sold within the process of privatization of these services.

Thanks to the railway-housing-deal TerraFirma with its housing branch Annington developed the strongest German platform for buy outs of housing through private equity funds. As all private equity funds Annington orientates on the conversion of significant parts of the housing stock into free-ownership. Even after buying huge industrial flats owner Viterra (see other case) Annington is very keen to expand its housing portfolio up to one million units and is very interested in buying LEG NRW (more than 100.00 units).

In 2004 the housing company of the public pension fund, GAGFAH, against protests from trade unions and tenants associations was sold to the US-based investment group Fortress. In 2003 the national parliament decided to sell the housing company of one of the public pension’s funds with the objective to reduce the heavy deficit of the fund. Gagfah was a well managed company with over 80.000 flats in 80 cities and a good interest rate. The procedure for the sale started in spring 2004 and was managed – similar to other cases - by a private financial services company (Sal. Oppenheimer). The government wanted to get at least 2 billion Euro by the sale. Two international investment groups heavily competed for buying the company: Terra Firma/Annington and the US company Fortress. Tenants Associations in the Ruhr District and in Berlin protested. Finally Fortress made the run. The government was able to achieve some serious regulations for temporary protection of the tenants and employees. But in the long run Fortress plans to sell all flats to private occupants.

In 2005 the same investor FORTRESS bought NILEG (30.000 units) from the federated state Lower Saxony (Niedersachsen). In 2006 Fortress managed to buy the housing stock of the municipality of Dresden (WoBa, 47.600 units, the whole municipal housing stock in Desed).

While Fortress introduced condo-conversion and rent-increases into the housing stocks it at the same time is orientating on a fast exit form the investment. Via a holding in tax privileged Luxembourg FORTRESS plans to list the housing stocks at stock exchange, even if the introduction of REITs (Real Estate Investment Trusts) in Germany remains insecure.

The introduction of German Real Estate Investment Trust (REITs) which is planned for January 2007 will speed up the process. Observers from the financial sector expect that until 2010 about 1 Mio. Mainly public housing units will be sold to private investors.

Examples for local resistance against housing privatisation

ALL-BAU Essen

In 1998 the ruling Social Democrats in Essen (600.000 inhabitants, Ruhr District) planned to sell the local municipal housing company Allbau AG (18.500 flats). They expected a prize of 700 Mio. Euro – while the estimated value was 1,1 billion - which should improve the local budget. Against these plans a local initiative started to organize protests. Later the core group grew up to 60 persons and started to collect signatures for the petition for a local referendum through street action and house collections. It was supported by the employees of Allbau, parts of the Trade Unions, the Tenants Associations in Bochum, Dortmund, Witten, the Green, Socialist and Communist Party.

While the Social Democrats tried to divide the struggle by the founding of a new tenant association the referendum initiative with the support from Bochum, Dortmund, Witten tenants associations founded their own tenants association. This initiative for a new tenants association was supported by the German Federation of Tenants while the Social democrats’ initiative received support from its federal branch. This internal conflict leads to divide within the federal branch, which until today is not supported by the tenants associations in Bochum, Dortmund, Witten and the new in Essen. They built their own coalition, the Mieterforum Ruhr.

The initiative received 54.000 signatures from residents of Essen. The local authorities denied that they had to start the referendum because they said 32 valuable signatures were missing.

As a result of the struggle the company was not sold to a private speculator but to a new municipal holding which had to refinance the prize at the loan market. The credits now must be refinanced from the housing stock which inter alia caused a rent increase. The company even sells flats and stopped engagement in social housing construction while they became active in private ownership development. The deficit of the local budget today is higher than before the sale.

At the local elections in 2000 the Social Democrats lost their traditional majority in the city council. After the local elections of 2004 the financial office of the municipality tried to launch a new initiative for complete sale of ALLBAU. All parties in the city council directly disagreed to these plans after spontaneous protests.

In 2006 some local politicians again started discussion on the sale of shares of the municipal holding, because neither the holding nor the nearly bankrupt municipality is able the pay the interest rates for the loans. After protests, the plans soon disappeared. The movements and left parties in Essen are prepared to start a new referendum if necessary.

In 2006 a broad coalition which includes the trade union Verdi, left parties and the tenant federation “Mietergemeinschaft Essen” started an initiative for a referendum which disallows any privatization of municipal public services. This initiative followed the example of a for-runner in the nearby city of Mülheim. There, after experiences with the disastrous consequences of privatization in the field of water and other services a referendum against all kinds of municipal privatization ended with a success. However, a referendum is only binding the authorities for a period of 2 years.

Cologne

The conservative-liberal majority of the city council decided to sell the big local housing company. A broad coalition organized an appeal for a referendum. They easily received enough signatures, but the majority of the council denied the right to organize a referendum because the actors had not shown how the missing money could be organized. The local authorities started the sale process. But when the council had to decide finally, one conservative did not vote for his party. The sale was stopped.

Aachen

In Aachen the conservative-liberal majority of the city council decided to sell the municipal GeWoGe. A coalition supported by the Tenants Associations, Trade Unions, Churches – including Misereor – and Social Democrats organized an appeal for a referendum. After having received enough signatures the referendum itself failed because too few people participated in the poll. Now the local authorities planned to sell the company to an international investment group, but they made failures in the process. The social democratic major stopped the sale temporarily. Later a court decided that the sale was illegal because of legal regulations in the constitution of the company.

Siedlungsgesellschaft Witten

This is an example for a lower intensity conflict: Settlement Society of Witten“ is the local council housing“ company in Witten (Ruhr District) with about 1400 rental flats. The housing stock combines houses from different origins: council housing, co-operatives, new houses built after the founding of the company, some houses and land bought for urban development reasons. Though not very innovative in the field of ecological design, urbanism and social projects, the company today is the “fairest” landlord in Witten. The maintenance and services normally are good, and the rents are below market level. The company provides flats for marginalized, immigrants and former “registered” homeless which before had been sheltered by the city directly but without the legal rights of tenants.

The company shares originally were totally owned by the city. At the end of the 90ies the former city director tried to sell the shares to a new “holding” of municipal companies (similar to the Allbau-model above) while the right wing in the city council called for a real privatization. At this occasion the Witten Tenants Association started a press campaign which included accusations against the leader of the right, who had been active as a landlord demanding illegal high rents from illegal immigrants. This campaign helped the Social Democrats who promised to discuss all further decisions with the Tenants Associations. But instead of acting according to this promise the Social Democrats decided to sell a part of the shares to the city services company, the local municipal bank and the housing company itself. The Tenants Association strongly criticized this decision and called for a democratic process to discuss alternatives.

One of the results of that deal was that the refinancing of the shares bought by the company itself caused a serious deficit of the budget through the past years. Instead of paying an usual interest rate of 4,5 % to the share holders now profits were paid in one year and another year had to take the profits from the savings for renovation. The conservatives in the city council called for higher interest rates. The tenants association consequently criticized all these tendencies in the public communications.

The management started to intensify the selling of some single houses which in each of the known cases caused conflicts with the related tenant which –after advocacy by the Tenants Association, which meanwhile had a seat in the board – could be solved without serious worsening for the tenants.

To improve the profits the management of the company plans to increase the sales and at the same time tries to enlarge the business with new single owner houses, with bad success. The Tenants Association demanded to stop any plans for mass sales and to stop the development business as well. Instead of that the company should concentrate on the rental housing stock and its improvement, including buying housing stocks from the commercialized company flat owners.

During the election campaigns 2004 social democrats and greens publicly promised not to sell shares of the Siedlungsgesellschaft. But in 2006 both parties agreed with the conservatives to proof a strategy of privatization to the tenants. The tenants association was alarmed again.

DRESDEN

In Dresden (Saxony) the municipal company WoBa (47.600 units) controlled almost 17 % of the total housing stock. A majority in the city council 2005/2006 planned to sell the company in order to overcome the heavy deficit in the local budget. Political debates in Dresden became very controversy, especially after financial investors offered prizes which opened the chance to liquidate all debt of the local budget at once. The debates even lead to serious frictions within the post-communist PDS, which plays an important role in eastern German cities. Principally the PDS is strictly against privatizations, but not only in Dresden, even in PDS-co-governed Berlin, the principals become vague when they participate in power. Tenants Associations, initiatives, even the prominent speaker of the left in German parliament, Oskar Lafontaine, tried to intervene. Finally part of the PDS in the city council said yes to the sale to the US-based private equity fund Fortress.

This sale because of its dimensions and the political background showed an enormous echo even in national press and policies. While a part of the public welcomed the Dresden decision for freeing the budget others clearly stated that this cannot become a model. Prominent politicians as the Munich mayor and chair of National City alliance Uhde said, that Munich will never sell its remaining public housing and that municipalities should not copy Dresden. Even the Hamburg authorities said that they will keep their housing companies.

FREIBURG

In Freiburg (south-west Germany) the municipality (green mayor) plans to sell its municipal housing company and some thousand housing units which are directly controlled by the municipality. Against these plans an initiative called “housing is a human right” collected 15.000 signatures demanding a plebiscite. The plebiscite will take place later this year. There are even debates to transform the housing stock into a co-op or another form of social ownership.

LEG NRW

The LEG (Federal Development Company) is a company originally owned by the federated State NRW. It controls more than 100.000 housing units. The state government is panning a sale. Against this plan a country-wide initiative is collecting signatures on a formal petition (see extra case).

Proposal for a global strategy

Experience of the past years show that privatization of municipal housing is not the privilege of the liberals and the conservative party. Because of the heavy deficits of public budgets the maintenance of the public housing sector is permanently under pressure. In a couple of cases tenants organizations and social movements were totally on their own if they wanted to prevent privatizations. Referendum initiatives became a prominent tool in these struggles and even supported to some learning processes in the political sphere, especially inside the Social Democrats. This is important because plebiscites only can prevent privatizations for some time. A real prevention requires a changed consciousness on the value of the public housing sector.

After the mass sale wave to private equity funds 2004-2006 political conflicts on the issue are becoming hotter, even at regional and national levels. A clearly pro-privatization coalition is backed by the Liberal Party, parts of the conservatives and the financial lobby. The national organization of institutional housing companies as well as the national alliance of cities, important parts of Social Democrats, the Trade Unions, the majority of the national Left party/PDS and an insecure part of the Greens are very critical about the consequences and oppose privatizations at least as long as they see alternatives.

Thus, the situation is ripe to enhance campaigning at more general levels than local. This campaigning must not only focus on defense of the given structures. It even should put more effort in developing a strategy for the future role of municipal housing. Far away from being only housing provision for poor it gives municipalities a strategic tool for influencing housing situations and urban developments in their cities. It is indispensable, that the industrial nations keep a public and social housing stock, which is controlled democratically and which provides expenditure-bordered access to housing.