The higher the rent, the higher the tax: A house interest tax could solve the housing crisis in Berlin – economy
The new edition of the red-red-green government alliance in Berlin is already under great pressure before the coalition negotiations are concluded. The people’s anger over constantly rising rents has aired parallel to the election of MPs in the expropriation referendum. After the rent cap failed, the majority voted in favor of owning private real estate companies with more than 3,000 apartments.
This is another dubious attempt to relax the Berlin housing market: Unclear compensation obligations of up to higher double-digit billions, uncertainty relaxes “good” investors and “fair” landlords – and with that not a single new apartment has been built, the problem will die permanently. It makes sense for the new Senate to put the issue on the back burner for the time being with lengthy audit assignments. But then he has to deliver on the building sites in the city.
Much of today’s debate is reminiscent of the Roaring Twenties – the actually not so golden 1920s, in which Berlin danced, grew and, above all, was bursting at the seams. Even in the emperor’s time, the living conditions for ordinary people were rather precarious – and after 10 years of construction freeze due to the First World War, post-war chaos and inflation, catastrophic.
The settlements of the “new building” thanks to the house interest tax
Then decided social democratic and left-liberal city politicians, together with the construction and housing industry, put huge housing programs on the lawn. In terms of structural engineering and urban planning, the projects in Berlin were often innovative and trend-setting: The classic “New Building” settlements emerged, such as the Hufeisensiedlung, the White City or the Waldsiedlung Zehlendorf – the architecture nerds and educated citizens still inspire today and continue to do so are popular residential areas.
Financing is provided by the “house interest tax” – a special tax on rental income, with which property owners’ capital gains were skimmed off. Because their debts had almost disappeared due to the hyperinflation in 1923. In return, the strict rental price brake from the war was gradually loosened. The house interest tax generated an annual revenue of up to two percent of the gross domestic product across Germany – that would be around 75 billion euros a year today, more than double the property tax, property transfer tax and inheritance tax combined.
Even today that would be an alternative to the The expropriation and regulation experiments of the past few years are largely doomed to failure. Motto: If expropriation, then right and the right people. We are all constantly expropriated – through taxes. And without direct compensation, in return there are public services.
Enriched without having done anything for it
Berlin apartment owners have been greatly enriched during the real estate market boom in recent years without having done much to help them. In general, Germany is a low-tax country for real estate. And even in the Corona crisis, rents held up quite well, not least because the state had helped out massively elsewhere and prevented loss of rent through extensive transfers. The fiscally battered middle classes and high earners quickly pay 30 percent income tax and solos on their earned income, plus social security contributions, plus indirect taxes on consumption.
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What could a rent tax also look like? The simplest would be a moderate burden on all property owners with a tax rate of, for example, 3 percent on the net rent excluding heating. This is easy to collect, there is no provision for an allocation of the ancillary costs. However, “fair” landlords with cheap rents and rental sharks would then be treated equally. Rents die below the local comparative rent would probably be passed on to the tenants in response to the legally possible increase.
Progressive rent tax as a fair way
A progressive rent tax would be better. This could make normal rents tax-free, up to about 110 percent of the local comparative rent. In contrast, excess rent would be more heavily burdened, for example above 110 percent of the local comparison above rent with 10 percent, 120 percent with 20 percent and 130 percent with 30 percent. The tax would be concentrated here on the high rents and thus the “land rent” that is realized with them.
About the authors: Stefan Bach (above) is a tax expert at the German Institute for Economic Research (DIW Berlin). Claus Michelsen is a real estate and housing market expert and was economic director of the German Institute for Economic Research (DIW Berlin)
In addition, it would hardly be possible to pass the tax on to the tenants, since the taxed rents are already based on the market rents. In these cases, the comparative rent law prevents a rent increase in current contracts. However, it is more time-consuming to determine the local comparative rent. To do this, one would have to abstain from the essential value-determining features.
According to our calculations with detailed data from official statistics from 2018, such a progressive rent tax in Berlin would at least generate an annual income of around 200 million euros, that would be percent of Berlin’s tax income in 2018. acquired or households in a precarious financial situation would be supported.
With the increase, for example, rents in 100,000 apartments can be reduced by 2.50 euros per square meter per month. The revenue could alternatively be used as equity to build around 7,500 apartments annually on communal land. After all, this corresponds to almost 50 percent of the current construction activity in Berlin or around 125 percent of the construction activity of the state-owned housing associations. This would relax the housing market in Berlin and thereby lower the rents for all Berliners.