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HOUSING

German property giants Vonovia and Deutsche Wohnen merge to ‘tackle housing shortage’

Germany's top property group Vonovia has announced plans for a €19 billion merger with rival Deutsche Wohnen to form a giant in the sector.

German property giants Vonovia and Deutsche Wohnen merge to 'tackle housing shortage'
A protest march in Berlin after the Mietendeckel failed. The sign says: 'We only want affordable housing'. Photo: picture alliance/dpa | Christoph Soeder

“In order to tackle both the housing shortage and climate change more robustly and efficiently, Vonovia and Deutsche Wohnen are joining forces,” said a statement from the company released late on Monday night.

The proposed deal comes after two previous attempts failed to come off, the last having been rejected by Deutsche Wohnen in 2016.

But this latest offer prices Deutsche Wohnen shares at well above their current market value, which stood at €44.99 on close of trade Friday on the Frankfurt exchange.

The markets in Germany are closed for a public holiday Monday.

Deutsche Wohnen shareholders will be offered €53.03 per share: 52 in cash and the rest as the company’s dividend for the 2020 financial year, said the statement.

The previous purchase offer in 2016 saw Deutsche Wohnen oppose the merger, saying the proposed price was too low.

Around half the population in Germany rents. The merger will give birth to a giant of more than 500,000 homes in total. 

The two promised to work closely with political decision makers on the sensitive issue of housing supply and prices.

They pledged to limit rent increases until 2026 and to build new apartments in the capital Berlin, which has been hit for years by runaway rent and a lack of affordable housing.

READ ALSO: These are the reasons why so many Germans rent rather than buy

Private housing firms in spotlight over Berlin’s rent cap fail

In Berlin, where around 85 percent of residents are renters, Deutsche Wohnen and Vonovia play a premier role in the housing sector.

They have about 150,000 apartments in total in the greater Berlin area.

Recently both housing companies hit the headlines when Berlin’s Mietendeckel – rent cap – was ruled unlawful by the constitutional court in April after around a year of reduced housing costs.

After the decision, thousands of tenants in Berlin were hit with rent increases and back payments amounting to hundreds or thousands of euros in some cases.

Vonovia, which owns around 42,000 properties in the capital, opted to wipe the back payments for its residents, acknowledging the stress that the Mietendeckel debacle had put on tenants in Berlin. 

“The well-being of the people who live in our properties is our first priority,” said CEO Rolf Buch at the time.

“They should not have to suffer any financial disadvantages as a result of political decisions.” 

READ ALSO: Stressed and depressed: How Berlin’s Mietendeckel fiasco has affected foreign residents

But Deutsche Wohnen, which owns around 111,000 flats in Berlin and is the largest private housing provider in the city, said it intended to make tenants pay back the difference in rent.

“We are fully aware of the strained situation of the housing market in Berlin,” a spokesperson for the company told The Local in April.

“To completely forego the settlement of outstanding debts, however, would not meet our obligations to the company, its employees and owners.” 

READ ALSO: ‘Extraordinary situation’: What can you do if your Berlin landlord demands rent arrears?

The Mietendeckel fallout is likely to have boosted support for a campaign calling for a referendum on expropriating large property developers in a bid to deal with the housing crisis in Berlin.

The “Expropriate Deutsche Wohnen & Co.” initiative targets companies with more than 3,000 apartments in their portfolios.

READ MORE: How Berliner’s are plotting a radical ‘expropriation referendum’ to fight housing crisis

The aim is to bring these companies into public ownership in order to ensure enough affordable housing for people in the city.

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OPINION & ANALYSIS

OPINION: Sweden’s ‘historic investment’ has failed to solve the housing crisis

Five years after Sweden's government promised to solve the country's housing crisis with a "historic investment", things are as bad as ever, David Crouch argues. Radical action is needed.

OPINION: Sweden's 'historic investment' has failed to solve the housing crisis

Forced to move house 20 times in the past eight years, Maria’s situation was desperate. She and her daughter had arrived in Stockholm from Latin America in search of a better life. She found work, no problem – but housing was impossible.

“Sometimes I was paying 12,000kr in rent and it was very hard because I only had 15,000kr in monthly salary,” says Maria (not her real name). So she took a high-interest loan of 240,000kr and tried to bribe someone in the Housing Agency to get to the front of the queue for affordable housing.

But she was caught. Her fate is unknown. And she didn’t even get an apartment.

This recent story, in the excellent newspaper of the Tenants’ Association, sums up the problems facing people who move here to work. The market for rental accommodation is tight as a drum. Finding a home means competing with Swedes, but with all the disadvantages of being an outsider. So people find themselves pushed into short-term, insecure rental contracts at inflated prices.

It wasn’t supposed to be this way. Five years ago this month, the government announced a “historic investment in housing”, including subsidies for construction companies, easing restrictions on building permits, and making more land available.

The housing situation at the time was grim. Spotify had threatened to leave Sweden if things didn’t improve – how could the company attract skilled young people to a city where there was nowhere for them to live? More than half Stockholm’s population – 600,000 people – were in the queue for a coveted rental apartment, because strict regulation meant these rents were low. But it took as long as 20 years to get to the front of that queue.

The result was a thriving rental property black market, with large bribes changing hands. Many tenants exploited the situation by sub-letting their homes, or parts of them. “It is almost impossible for immigrants and new arrivals to penetrate this market – it is all about who you know and how much money you have,” said Billy McCormac, head of the Fastighetsägarna property association, in 2015.

READ ALSO: 

So what has been the outcome of the grand promises the government made five years ago? House-building at the time was already rising steadily, and it has continued to do so. Look around you in the big cities and you will see that new apartment blocks have sprung up here and there.

But we shouldn’t go only on appearances. To understand the reality, we need to look at some numbers.

The gap between demand for housing and the existing housing stock has indeed started to shrink. “As housing construction has gradually increased and population growth has begun to slow down, the gap has decreased since 2017,” Stockholm’s Housing Agency noted in December.

The Agency has broken records four years in a row for the number of rental homes it has provided. The proportion of young adults living independently has also increased somewhat, the Tenants’ Association found, probably due to the pace of construction.

But this smidgen of good news is outweighed by an avalanche of bad.

The average queuing time in 2021 for a Stockholm apartment was more than 9 years; for somewhere in the city centre you have to wait 18 years. Only 936 homes came with a waiting time of less than one year. More than three-quarters of a million people are now registered in the queue for housing – a big increase on five years ago.

The rate at which the housing shortage is shrinking is nowhere near fast enough to alleviate the huge accumulated demand.

Assuming that the current pace of construction can be maintained, it will be the end of this decade before any significant dent is made in the deficit of homes, according to Boverket – the Swedish National Board of Housing, Building and Planning. The current rate of construction is “only marginally more than the long-term need”, it says.

The challenge is even greater when it comes to producing affordable housing, Boverket says, especially for the young and those entering the housing market for the first time. Almost one in four young Swedes up to the age of 27 are forced to live at home – the second-highest figure since the measurements began.

There are already signs that housing construction is actually slowing down, owing to higher building material prices, rising interest rates and an incipient labour shortage. Construction prices rose by more than 8 percent last year, and there is concern in the industry that war in Ukraine will further affect costs, in turn slowing the pace of building.

There is another fly in the ointment, a consequence of the collapse of Sweden’s governing coalition in November. The new, minority administration was forced to adopt the opposition’s budget, which halted investment subsidies for house building, throwing the construction industry into confusion.

In short, the “Swedish model” for providing people with a roof over their heads is failing. The folkhemmet, or “people’s home”, has not enough homes for its people.

Swedes themselves understand this: in a survey last month, nine out of ten voters said they thought that politicians did not take the housing shortage seriously.

We have waited too long. It is time for fresh thinking and radical action to solve the housing crisis.

David Crouch is the author of Almost Perfekt: How Sweden Works and What Can We Learn From It. He is a freelance journalist and a lecturer in journalism at Gothenburg University

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