Berlin Buys Apartments for $2.9 Billion to Quell Housing Anger

(Bloomberg) --

Berlin agreed to buy 14,750 apartments from Germany's two biggest landlords for 2.46 billion euros ($2.9 billion) as public pressure to counter rising rents intensifies.

Vonovia SE and Deutsche Wohnen SE are selling the units as part of their effort to merge. The deal includes a commitment from the two companies to limit rent increases until 2026 and build 13,000 new apartments to try to address a housing shortage and ease public concerns about rising living costs.

“The return to municipal ownership gives tenants the necessary security that their apartments will be permanently in the low-cost segment,” Matthias Kollatz, the city's senator for finance, said Friday in an emailed statement.  

“We are buying with care,” he said, adding that the three Berlin real-estate companies that will take on the properties “are in very good shape and able to successfully manage the purchase.” 

Read more: Street Protests and Rooftop Beers Herald Record Property Deal

The combination of Vonovia and Deutsche Wohnen to create a housing giant with more than 500,000 residential units across Germany is being closely watched in Europe's biggest economy, which has a larger share of tenants than in most other developed nations.

Affordable housing has become a hot-button political issue and particularly in the once-cheap capital. Surging rents in Berlin have sparked mass demonstrations and spurred a referendum seeking to force the city to expropriate large landlords.

The vote on the non-binding measure will take place on Sept. 26, the same day as the national and Berlin elections. Most political parties have vowed to try to control rent increases across the country, with the main focus on building more housing. 

What Bloomberg Intelligence Says...

“Timing the proposed deal during a key election year -- and with various politicians proposing to restrain rent rises -- seems controversial. Yet the two landlords have hedged their future by engaging early with key stakeholders.”

-- Iwona Hovenko, Equity Research Analyst. Click here for more coverage.

Berlin is particularly exposed to the issue because much of its social housing was sold in the aftermath of reunification. The city's population growth stemming from its emergence as a startup hub has created a squeeze and attracted investors.

Vonovia Chief Executive Officer Rolf Buch said the deal announced Friday will create “more affordable, needs-based and climate-friendly living space, especially for young families.”

“We will only solve the challenges on the Berlin housing market together with politicians and urban society,” he said in an emailed statement.

Organizers of the Berlin referendum said the deal shows its concept can work to restore balance in the housing market, but criticized the price and how the transaction was negotiated.

“Berlin needs transparent and affordable socialization and not gifts for real-estate companies hashed out in a back room,” said Moheb Shafaqyar, a spokesman for the referendum organizers.

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