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Indybay Feature
Crisis rent instead of debt trap
by Armin Kuhn
Friday Feb 12th, 2021 1:50 PM
Store closings, event cancellations, slumping orders, short-time work and job losses, especially in precarious employment, have left many unable to afford their apartments or rented commercial space. Despite initial easing, there is no end in sight. According to a recent survey, around 1.6 million households (in Germany) are already unable to pay their rent.
CRISIS RENT INSTEAD OF DEBT TRAP. FOR A SOCIALLY JUST RENT POLICY IN TIMES OF COVID-19
By Armin Kuhn
[This article published in April 2020 is translated from the German on the Internet, Krisenmiete statt Schuldenfalle. Für eine sozial gerechte Mietenpolitik in Zeiten von COVID-19 « Zeitschrift LuXemburg (zeitschrift-luxemburg.de).]

The Corona crisis has hit the real estate markets. The abrupt, almost complete halt to public life in mid-March 2020 has hit many tenants hard. Store closings, event cancellations, slumping orders, short-time work and job losses, especially in precarious employment, have left many unable to afford their apartments or rented commercial space. Despite initial easing, there is no end in sight. According to a recent survey, around 1.6 million households are already unable to pay their rent. Soon, one in five tenant households, more than 4 million households, could be dependent on rent deferrals. This threatens a time bomb in terms of rent policy. How are they supposed to pay off their rent debts in the face of already high rents? Without a courageous crisis rent policy that excludes terminations, reduces rents, allows landlords to share in the costs of the crisis and initiates the long-term, non-profit restructuring of the real estate markets, a social catastrophe threatens in the medium term.

Initiatives, associations and academics were quick to call for drastic measures to protect those affected.[1] DIE LINKE also took a stand, calling for an emergency aid program.[2] The German government reacted quickly and at the end of March launched a series of measures that will provide at least temporary relief[3]:

Emergency aid grants for the self-employed, freelancers and small businesses with up to ten employees, as well as loan commitments for medium-sized and large companies, which can be used to cover rent payments or even lost rental income, among other things. Companies are also allowed to pay taxes later.

A ban on termination for rent debts that accrue in the months of April through June. The debt must be repaid in full to landlords* within two years, by June 2022, with approximately four percent interest. Burdens from permanent debts such as electricity, gas, water or telephone connection costs can also be deferred. Apartment owners receive a deferral of payment for their loan obligations until June.

New applications for basic welfare benefits (Hartz IV) are processed without an asset and adequacy check of the apartment. Rental costs will be covered in full for six months. Low-income earners will also be able to apply for housing assistance more easily, by phone or mail, without extensive documentation and also without an asset check.

These unbureaucratic emergency aids are important and right. At a time when people are being asked to stay at home to protect themselves and others from infection, it must be guaranteed that no one loses their home or livelihood due to a loss of income. However, the aid that has been decided can only be a first step, but it must not stop there.

HOW HAVE OTHER STATES RESPONDED TO THE CORONA CRISIS?
With the mix of rent deferral and dismissal protection, simplified social benefits, mortgage moratorium and credit assistance for housing companies described above, Germany is in line with many other European and North American countries. The German Institute for Economic Research (DIW) counts 17 states that have issued notices for rental debt, and 13 states that have suspended mortgage payments for the duration of the crisis. Only seven states have imposed or planned a rent increase freeze, and assistance payments for tenants or landlords have been initiated by a full four countries.[4] Many U.S. cities, as well as Spain and Italy, also have bans on evictions. In Germany, there is no such ban, although many local courts have temporarily stopped issuing eviction notices. Denmark has pledged state aid only to companies that do not pay dividends or bonuses during the crisis and are not based in tax havens.

Spain, which was already hit by a deep housing crisis in the years starting in 2008, has responded to the COVID-19 pandemic to a similar extent and with similar means as Germany. Evictions are suspended there in rental and owner-occupied housing, tenants* receive interest-free microloans and have the right to cut rent payments in half or suspend them altogether if their landlord is a large property owner with at least eight rental buildings - but must pay them back in full later. "Small" landlords* are exempt, however. Because the crisis has hit Spain disproportionately harder than Germany, there is little protection under rental law anyway, and the government is essentially offering tenants to take on debt to get through [5]the crisis, some 200 initiatives and tenant organizations there have called a rent strike for April 1, 2020, in which up to 1,000 households have participated."[6]

RENT DEBTS AND THE DANGER OF CATCH-UP DISPLACEMENT
Many tenants* in Germany are also threatened by the debt trap. While so far mainly commercial tenants such as cultural institutions, restaurants and pubs, small stores, kindergartens or hairdressing salons have been able to defer their rents, many residential tenants were still able to pay the April rent. But a large part of the tenants has no right to the extended basic security despite income losses. They are threatened by the debt trap, because they will have to pay back their rent debts - in addition to the already high rent - in full and with interest.

If - as after the financial crisis of 2007/2008 - the surplus capital looking for investment opportunities flows back into the real estate markets after the Corona pandemic, tenants* will find themselves in a double predicament: On the one hand, rents could rise significantly again, and on the other, they will have to repay their rent debts in addition to the often already high rent burden. This threatens a catch-up wave of displacement, both residential and commercial. It is imperative that we prevent a wave of tenant evictions, and thus a renewed wave of displacement of tenants or small businesses.

The current rent debt regulation cannot solve the threatening aggravation of the rent crisis. But even for the goal of buying tenants* time, it falls short. Since the Corona crisis will not be over in July 2020, the scheme must be extended to cover the entire duration of the pandemic. In addition, terminations for other reasons, such as personal use, are still possible. In times when the most important recommendation is "Stay at home!", no one should lose their home. That's why any kind of termination must be ruled out, and that's why evictions are unjustifiable. They must be suspended by law. In addition, tenants must be given a right to refuse performance, as they already have for water, electricity or telephone connection contracts. This would mean that no interest would have to be paid on rent debts, and tenants would be protected from lawsuits for payment and from possible seizures.
To rule out abuse, access to rent deferral and rent debt relief must be tightened up. The examples of Adidas, Deichmann or H&M have shown that financially strong commercial tenants can also benefit from the current regulations. In order to avoid this, commercial tenants who make use of the rent deferral scheme should - as when applying for emergency aid - be required to make sworn declarations that their economic existence is threatened due to the crisis and that they will forego profit or dividend distributions, action buybacks or executive bonuses during the crisis.

Homeless people have so far been largely unprotected by the crisis. They are not only losing their few income opportunities due to curfew restrictions and contact bans. The two most important recommendations in the crisis: "Stay at home!" and "Keep your distance!", simply cannot be realized for homeless people or even for many refugees. Collective housing should therefore be dissolved and homeless people and refugees should instead be housed in vacant, vacation or AirBNB apartments or temporarily in hotels. Some municipalities have already started to do this, but they need financial support and the necessary legal powers from the federal states to seize suitable housing if necessary.

THE REAL ESTATE INDUSTRY'S DEMAND: PRIVATIZE PROFITS, SOCIALIZE LOSSES
But the real estate industry is not satisfied with the measures taken so far either; on the contrary, its lobbying associations have scandalized the supposed "rent moratorium" and, together with the CDU/CSU, achieved a weakening of it. Many landlords would prefer to rely on voluntary and "individual" solutions under which tenants can defer their rents. Some housing companies have also announced rent increases or even, like Deutsche Wohnen, a 30-million-euro "relief fund" (with an unknown goal).[7]

Although landlords do not lose money in the long term due to the rent deferral option, they can get into economic difficulties themselves due to the temporary lack of income. This is because they must continue to pay ongoing expenses for operating costs, employees, maintenance, etc. In particular, small private landlords with affordable rents and municipal and cooperative housing associations could be threatened with insolvency in two to three months.

Against this backdrop, the GdW[8], Germany's largest real estate association, called for a "secure housing fund" as early as mid-March.[9] But it should actually be called a "secure rental income fund". Tenants should be able to obtain interest-free loans there in order to be able to continue paying their rents in full. If necessary, the loans should be offset against housing subsidies or housing costs that are approved later, and in absolute emergencies (impending private insolvency, long-term unemployment) they should also be able to be converted into grants. This is intended to prevent landlord insolvencies and the resulting "chain reactions", but also to protect tenants from a high mountain of debt.

Unfortunately, the German Tenants' Association (DMB) has been carried away by this one-sided pro-business demand - even though the DMB at least demands that such assistance only be granted to landlords in economic distress.[10] Moreover, in addition to assuming the costs of housing for recipients of transfer payments, housing subsidies are supposed to absorb a large part of the burden of the crisis, at the expense of the public purse.

The real estate lobby thus answers the question of who bears the costs of the crisis with: the tenants and the state. With such a fund, rental income would be fully secured, while tenants would have to get into debt or the state would step in. While tenants would have to prove their neediness, the adequacy of the rent or the economic situation of the landlords would play no role. Landlords and housing companies, on the other hand, who have profited from rising rents over the years, could continue to make profits, if necessary, at the expense of the public purse. The same applies to large housing corporations, which have rightly been criticized for years for their uncompromising rent increase policy. None of the large housing groups wants to forego the distribution of the unusually high dividends again this year. To support them with public subsidies would not only be a waste of taxpayers' money, but also deeply unfair.

The German government is still reluctant to consider such a fund solution. The effects of the measures adopted so far are to be awaited before further steps are discussed in mid-May in a "Housing Industry Council" with the associations of the real estate industry and the Tenants' Association. Even in view of this composition, it is predictable: The crucial question - apart from tenant protection - of who will pay for the crisis costs will probably not be asked there.

AVERTING THE IMPENDING SOCIAL CATASTROPHE: CRISIS RENT AND SUPPORT FUND
The measures taken so far only have a postponing effect. Without additional steps, there is a threat of a new wave of displacement in 2022 that will change the face of many cities. Additional steps, such as those currently being pushed by the real estate lobby, are intended to shift the costs of the crisis onto the state and tenants, while guaranteeing landlords full rental income regardless of their economic situation. If the Corona pandemic is not to act as an accelerant to the rent crisis that has been worsening for years and the redistribution from the bottom to the top that goes with it, rent policy in times of crisis must instead follow a simple triad: Prevent housing losses, distribute crisis costs fairly, and do not subsidize high rents and private profits by the state.

The introduction of a crisis rent would meet the three criteria mentioned above. Those who lead from Corona-related income losses should be able to halve their rent as long as the measures to contain the Corona pandemic, as well as its economically severe consequences, continue. Such a statutory rent reduction would provide effective and unbureaucratic relief for the majority of tenants affected by the crisis.

In order not to punish landlords even more for taking a rather low rent anyway, there should be a lower limit for the crisis rent, which, however, must be clearly below the rent index rent, since many incomes also fall below the usual level. The crisis rent therefore halves the rent, but at most to the level of two-thirds of the local comparative rent for the apartment in question. An apartment that costs twelve euros net cold rent per square meter, but only seven euros per square meter according to the rent index, may therefore be reduced to six euros. On the other hand, an apartment that is rented out at the rent index value of seven euros per square meter may only be lowered to five euros, instead of 3.50 euros per square meter.

The crisis rent would also prevent high rents from people who are dependent on receiving Hartz IV or housing benefit due to Corona from being fully subsidized by the state. Instead, landlords* receive only the crisis rent, even from the Jobcenter, and thus share in the crisis costs.

Around two-thirds of all rental apartments are rented out by private owners, almost 20 percent by municipal or cooperative housing companies, and around 13 percent or about 2.9 million apartments by private housing companies (as of 2011). A large proportion of the apartments rented by housing companies belong to financial investors or the large listed housing corporations, which, given their high profits in recent years, are hardly in need of public assistance. But not every private landlord needs government subsidies to secure his existence either. A large proportion of private owners belong to the wealthiest ten percent. Many housing companies have built up sufficient reserves to survive the temporary payment defaults associated with the crisis rent.

Nevertheless, there will also be cases of economic hardship: Housing cooperatives and municipal housing companies, micro-landlords* who rely on rental income to make a living, non-profit housing providers who have little or no ability to build reserves. For these cases, where rent defaults mean real economic hardship, there must be a support fund that helps landlords* over the liquidity squeeze with long-term, interest-free loans. For special emergencies, e.g. for the craftswoman or the self-employed physiotherapist who bought one or two apartments in the course of his or her professional life to provide for his or her old age and now has to live on them in retirement, there must also be subsidies to cover the difference to the full rent. On the other hand, no support should be given to rental companies that pay out dividends or bonuses, finance share buybacks or have their headquarters in tax havens - as Denmark has done.

The crisis rent, supplemented by a support fund for landlords who are economically dependent on it, would effectively relieve the vast majority of tenants affected by the effects of the Corona crisis, limit public subsidies in the form of social benefits and targeted assistance for landlords, and in this way establish a fair equalization of burdens between tenants and landlords without driving even one apartment owner into economic ruin. The associated interference in existing leases and thus in the property rights of landlords is certainly constitutionally sensitive. However, the participation of landlords in the crisis costs by foregoing half of their rental income for a limited period of time is certainly justifiable when weighed against the impending social consequences of a mere rent deferral. The fact that some tenants who are not entitled to basic security benefits or sufficient housing subsidies, and whose rent is too high even after the reduction, still have to take on debt, thus becomes the exception instead of the rule, as is currently the case.

THE CRISIS AS AN ENTRY POINT FOR A NON-PROFIT HOUSING SECTOR
Since the last major economic crisis following the financial crash of 2007/2008, Germany has experienced an unprecedented real estate boom. Many property owners - whether private landlords, housing companies or financial investors - have profited from rising rents and property prices at the expense of tenants, who have had to spend an ever-increasing share of their household income on rent. Analysts at Deutsche Bank are already assuming that wealthy people will continue to invest their money in real estate even after the Corona crisis, and that the boom will thus continue uninterrupted. The asset manager Blackrock has already made provisions for this and set up a special fund worth billion for a buying spree on the crisis-ridden European real estate markets. Germany's largest housing group, the listed Vonovia SE, is once again considering a takeover of the second largest housing group, Deutsche Wohnen SE, in order to prepare for the foreseeable real estate rally after the end of the crisis.

That is why the course must be set now to absorb the economic consequences of the Corona crisis. This includes a rent cap in all German states to prevent a renewed extreme rise in rents and sustainably reduce particularly high rents. In addition, the introduction of a new housing non-profit and a public housing program based on the Viennese model is necessary, investing ten billion euros annually over a period of ten years in the construction, purchase and social-ecological refurbishment of non-profit and permanently low-cost housing.[11] Rent control and rent reduction through a rent cap, accompanied by investments in a non-profit housing sector with permanently low-cost housing, are an effective economic stimulus program as well as a sustainable contribution to solving the housing crisis and avoiding social hardship in future crises.

Another contribution can be the socialization of large housing corporations, whose business model consists primarily of increasing rental income from low-cost housing from formerly nonprofit or subsidized stock and distributing the profits thus generated in comparatively high dividends. They do not intend to deviate from this even in times of crisis. Should groups such as Vonovia, Deutsche Wohnen or LEG, Akelius, Grand City or Pears Global nevertheless suffer from liquidity bottlenecks in the course of the crisis despite high reserves, state aid for financial investors and listed housing groups should only be granted in the form of nationalization or in the form of compensation for socialization under Article 15 of the Basic Law. The housing stocks taken over in this way can be transferred to the New Housing Public Benefit [12] after the crisis and thus permanently secured as affordable housing.

NOTES
[1] Cf. the statement "Protection from Corona Needs a Home" by the nationwide initiative alliance "Action Alliance against Displacement and Rent Madness," http://www.housing-action-day.net/index.php/2020/03/17/schutz-vor-corona-braucht-ein-zuhause/, 17.03.2020; the press release of the action alliance "Housing is a Human Right! ", menschenrecht-wohnen.org/blog/verschiebung-des-bundesweiten-aktionstages/, 17.03.2020; the Open Letter of Scholars* on the Housing Question in Times of Corona "Real Estate Industry to Share the Costs of the Corona Crisis, zeitschrift-suburban.de/sys/index.php/suburban/announcement/view/72, 27.03.2020;
[2] Cf. the proposal for an "Emergency Assistance Program for Tenants*, the Homeless and Small Property Owners*," http://www.caren-lay.de/de/article/1506.soforthilfeprogramm-f%C3%Bcr-mieter-innen-wohnungslose-und-kleineigent%C3%Bcmer-innen.html, 17.03.2020, as well as the resolution of the party executive DIE LINKE, "Solidarisch aus der Krise. Menschen vor Profite!", http://www.die-linke.de/fileadmin/download/themen/Gesundheit_und_Pflege/20200402_PV-Beschluss_2020053.pdf, 28.03.2020.
[3] For an overview and further demands, compare Knut Unger, Das Recht auf Wohnen in Zeiten der Pandemie, http://www.rosalux.de/news/id/41847/das-recht-auf-wohnung-in-zeiten-der-pandemie?cHash=e101535fdfbfffeff292b2d9ac3df037, 27.03.2020.
[4] Konstantin A. Kholodilin, Housing policy in times of corona crisis worldwide: challenges and solutions, DIW aktuell 29/2020, http://www.diw.de/de/diw_01.c.745933.de/publikationen/diw_aktuell/2020_0029/wohnungspolitik_in_zeiten_der_corona-krise_weltweit__herausforderungen_und_loesungen.html, 02.04.2020.
[5] http://www.heise.de/tp/features/Mietenstreik-wegen-Coronavirus-in-Spanien-4694332.html, 01.04.2020.
[6] Ralf Streck, "Rent Strike over Corona Virus in Spain," Telepolis, http://www.heise.de/tp/features/Mietenstreik-wegen-Coronavirus-in-Spanien-4694332.html, 01.04.2020.
[7] Platform of Critical Real Estate Shareholders, "Reactions of the Housing Groups to the Corona Crisis, mieteraktionärin.de/reaktionen-der-konzene-auf-die-corona-krise, 28.03.2020.
[8] Federal Association of German Housing and Real Estate Companies e.V. (GdW)
[9] Press release of the German Housing Industry Association, http://www.gdw.de/pressecenter/pressemeldungen/dmb-und-gdw-fordern-einen-sicher-wohnen-fonds-solidarisch-in-krisenzeiten/, 18.03.2020.
[10] German Tenants' Association, "Establishment of a `Secure Housing Fund' to Avoid COVID-19-Related Rent Defaults," http://www.mieterbund.de/index.php?eID=tx_nawsecuredl&u=0&g=0&t=1588072875&hash=dd00fbb88c5ae5105657faf6b721fa9668544c76&file=fileadmin/Intranet/pdf/DMB_Sicher-Wohnen-Fonds_16042020.pdf, 04/16/2020.
[11] Armin Kuhn, Caren Lay, "No Social Housing Policy without New Construction," RLS Viewpoint 2/2019, http://www.rosalux.de/publikation/id/40050/keine-soziale-wohnungspolitik-ohne-neubau?cHash=601acbfc294c726856209c80a052a497, February 2019.
[12] Andrej Holm, Sabine Horlitz, Inga Jensen, Neue Wohnungsgemeinnützigkeit, http://www.rosalux.de/publikation/id/37380/neue-wohnungsgemeinnuetzigkeit/, May 2017.
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