(de-news.net) – Political disagreements over property rights, public ownership, and the Federal Government’s strategy for expanding residential development are becoming more acute as a result of Germany’s housing crisis. While Berlin’s probable left-wing government wants to transfer about 160,000 privately held apartments into public control, Chancellor Friedrich Merz (CDU) is supporting measures to prohibit housing expropriations. As efforts to increase supply are hampered by high construction costs, analysts caution that housing shortages are limiting worker mobility and economic growth. Measures to expedite building approvals and a new housing corporation supported by the Federal Government demonstrate conflicting strategies for dealing with the situation.

Germany’s Federal Government is preparing legislation to make the expropriation of private housing companies more difficult, amid growing political disagreements over Berlin’s plans to transfer large residential portfolios into public ownership. At the same time, economists are warning that persistent housing shortages are restricting labor mobility and weakening economic growth, while rising construction costs continue to undermine efforts to expand the supply of affordable homes.

Chancellor Merz said the Government had completed its draft legislation to restrict the expropriation of housing companies. The remaining issue concerns the level of compensation for affected property owners, with policymakers considering whether payments should amount to 80 or 100 percent of the properties’ market value. Merz indicated that the Government favored full compensation, reaffirming its commitment to protecting private ownership.

The Chancellor again criticized plans by a potential coalition of the Left Party, Greens and SPD in Berlin to transfer substantial private housing portfolios into public ownership. He argued that discussions about expropriation could undermine investor confidence well beyond Germany, including in major financial centers such as New York, London and Paris. Reliable property rights, he maintained, were fundamental to the country’s economic system and essential for attracting investment. By contrast, expropriation would neither create additional jobs nor increase the availability of housing.

The proposed federal legislation has nevertheless raised political and constitutional concerns within the SPD. Sebastian Roloff, the party’s economic policy spokesman in the Bundestag, questioned whether the Federal Government could lawfully withdraw legislative authority from the states in an area of concurrent jurisdiction without intending to nationalize housing itself. He also expressed reservations about the political legitimacy of the initiative.

Berlin’s prospective coalition of the Left Party, Greens and SPD intends to address high rents by transferring approximately 160,000 apartments owned by major private housing companies into public ownership. Federal Interior Minister Alexander Dobrindt (CSU) has proposed legislation designed to make such measures more difficult. One of its central requirements would be proof that expropriation was strictly necessary and that no reasonable alternative existed.

Constitutional questions surround investment protection legislation

Real estate lawyer Carsten Loll of Latham & Watkins has defended the Federal Government’s proposed investment protection legislation, arguing that clearly defined conditions for expropriation could establish greater legal certainty. However, he also acknowledged the constitutional difficulties surrounding the initiative, particularly because Article 15 of Germany’s Basic Law explicitly provides for the possibility of socialization. The provision has never been applied, but cannot simply be removed from the constitutional framework.

Elif Eralp of the Left Party, a potential candidate to become Berlin’s governing mayor, has meanwhile described Dobrindt’s approach as unconstitutional. The debate therefore involves not only the political disagreement over public ownership but also the legal limits of federal intervention in state-level housing policy. Under the proposed legislative principles, affected property owners would receive compensation equivalent to the full market value of their assets, paid directly and in cash. Authorities would additionally have to demonstrate that socialization was strictly necessary.

Loll argued that these requirements, particularly the compensation provisions, could substantially complicate the prospective Berlin coalition’s plans. The legal assessment would also have to consider whether the proposed measures were proportionate and whether less intrusive alternatives could address the housing shortage. With Berlin’s socialization legislation not expected to enter into force until 2029, the resulting legal dispute could continue for several years, leaving considerable uncertainty over the future of the initiative.

Construction acceleration produces initial results, but financing remains difficult

Federal Construction Minister Verena Hubertz (SPD) has reported encouraging initial results from the so-called construction turbo, a legislative instrument introduced in October 2025 to accelerate residential development by reducing bureaucratic obstacles. The measure gives municipalities greater flexibility to approve housing projects, including developments that depart from existing zoning plans or take place in areas where no such plans are available. In certain cases, exemptions from noise protection requirements are also possible.

However, municipal participation remains voluntary, and the available monitoring data provide only a limited indication of the measure’s effectiveness. Just 393 of Germany’s nearly 11,000 municipalities responded to a survey conducted by the Ministry. The Government has acknowledged that the results are not representative, making it difficult to assess how widely the new instrument is being used.

The broader housing situation remains challenging. Estimates suggest that Germany faces a shortage of approximately one million apartments. Last year, only 206,600 residential units were completed, representing an 18 percent decline from the previous year and the lowest annual figure since 2012.

Although building permits increased during the first half of 2026 compared with the corresponding period in 2025, it remains unclear how many approvals resulted directly from the construction turbo. Hubertz expects the initiative’s first completed apartments to become visible in 2027, emphasizing that the granting of permits does not necessarily mean that projects will ultimately be completed.

Financing continues to represent a major obstacle. Construction costs have risen amid geopolitical instability, economic crises and higher interest rates, making new residential projects increasingly difficult to implement. Hubertz has therefore called for greater attention to the underlying cost structure of housing development, recognizing that accelerating administrative procedures alone cannot resolve the sector’s financial constraints.

The German Association of Housing and Real Estate Companies has similarly acknowledged that the legislation has accelerated approval procedures. Nevertheless, it warned that persistently high construction costs continue to prevent the financing of new apartments at affordable rental levels.

Housing shortages increasingly constrain economic growth

Germany’s housing shortage is becoming an obstacle not only to social welfare but also to economic performance, according to the Scientific Advisory Council to the Federal Ministry for Economic Affairs. In a recent assessment, the council’s 37 economists concluded that high housing costs, particularly in economically dynamic regions, restrict workers’ ability to relocate to more productive employment opportunities.

Council Chairman Felix Bierbrauer argued that people may be unable to accept better-paid positions when affordable accommodation is unavailable in the relevant location. Such constraints reduce opportunities in the labor market and result in economic potential being lost across the country. The assessment also identifies an increasingly close relationship between regional wage advantages and housing costs. Workers relocating to higher-wage regions frequently face corresponding increases in rental expenses, particularly when signing new tenancy agreements. Consequently, the financial advantages of moving from lower-wage to higher-wage areas have diminished, weakening incentives for geographical labor mobility.

To address these structural problems, the economists have proposed strengthening municipal incentives to designate additional land for residential construction. Local authorities currently face substantial follow-up expenditure when developing new residential areas, including the provision of schools, daycare centers, sports facilities and transport infrastructure. However, increases in land values frequently benefit private property owners, while municipalities bear much of the associated public expenditure. The council therefore recommends requiring property owners and developers to contribute more substantially to infrastructure costs. Possible approaches include an expanded infrastructure levy or a planning-related land value compensation mechanism designed to ensure that those benefiting from development also contribute to its associated costs.

Further proposals include allowing greater building density under older development plans and making moderate extensions within existing settlements easier to approve. Such adjustments could increase housing capacity without requiring every additional development to overcome separate local opposition. The economists have also suggested tax relief for employment-related relocations, potentially reducing the financial obstacles faced by workers moving to more productive labor markets.

Federal Government considers establishing a state-owned housing company

Meanwhile, senior representatives of the CDU/CSU and SPD alliance are negotiating the allocation of at least 1 billion euros to establish a federally owned housing construction company, according to media reports. Finance Minister Lars Klingbeil (SPD) is reportedly determined to secure full financing for the project, despite reservations within the governing coalition. Construction Minister Hubertz on her part envisages a company in which the Federal Government would hold a 51 percent stake, with external partners owning the remaining 49 percent. Rather than undertaking construction itself, the federal entity would commission projects from private-sector companies or municipal and state-owned housing providers. This arrangement would allow the government to participate in expanding housing supply without directly assuming responsibility for construction operations.

The Federal Government would use its strong creditworthiness to guarantee construction projects, thereby reducing financing costs. Rolf Buch, former chief executive of the real estate company Vonovia, is advising the Construction Ministry on the initiative. He has confirmed that he is contributing his expertise to the project without receiving remuneration. The proposal has caused unease within the CDU and CSU, which are also seeking funding for other initiatives planned for the coming year. These include adjustments to income taxation intended to compensate for differences in purchasing power and the almost complete abolition of electricity taxes for private households. Together, the measures could cost the federal budget nearly 8 billion euros.

Klingbeil has reportedly made their implementation conditional on the presentation of corresponding financing proposals. Conservative lawmakers have consequently questioned why funding appears to be available for a housing company proposed by an SPD-led ministry while other coalition priorities remain subject to strict budgetary constraints. The disagreement highlights competing spending priorities within the governing alliance, particularly as the Federal Government seeks to balance additional housing investment against other fiscal commitments.