This article examines the development of large capital market-oriented housing enterprises such as Vonovia SE, Deutsche Wohnen AG or LEG Immobilien AG as a specific expression of the financialisation of the housing industry (see Aalbers 2016), for which I propose the term financialized industrialization of the corporate housing industry. Because the real estate companies integrated into the global capital markets subject the trading, management, leasing and production of their apartments to standardized financial calculations and automated procedures.

(Note that this is a work in progres, it is still being updated and reviewed)

On the financialization and industrialization of the corporate housing industry

Knut Unger

Chapter for Prokla, Heft 191, 48. Jg. 2018 Nr. 2, 205 – 225

May 2018

(Translation Dec 2018 by

Since the end of the 1990s, the housing infrastructure created during Fordism and state socialism has been sold to private equity funds on a large scale in Germany. It was an "accumulation through expropriation" (Harvey 2005) with far-reaching consequences. The apartments and all their components have since then been in a process of progressive subsumption under the calculi, procedures and structures of the global financial industry (Busch 2012).

After a delay caused by the financial crisis, these private equity platforms were rescheduled and resold from about 2012 on, mostly in the form of IPOs. The management of the respective groups became more independent and thus able to systematically exploit the investment pressure of the international capital markets and the increased demand for housing in the German cities for the increase of the real estate values and the profitability of the housing management.

At the same time, there was a strong concentration process, which led to today's DAX-listed Vonovia SE as a market and innovation leader.

The core business of the resulting financial industrial housing groups is the use of the leased real estate for the construction of globally competitive financial investment products whose returns are mainly generated by rising leasing results. Using automated procedures, tenancy rights, rent differences and the social and mental disposition of tenants are exploited, as well as optimization potential in financing, taxation, housing management or corporate communications.

Through territorial expansion, insourcing and the development of new business fields, the companies try to expand and digitally network their control of attractive housing markets, supply chains and services.

In the following, I first outline a categorial framework for the analysis of the various stages of financialization of the housing industry and its industrialization. After a brief overview of the segment of the financial industrial housing groups in Germany, I name some fields and trends of their transformation. Finally, I throw light on the limits and contradictions as well as the prospects of social reappropriation of the financially industrialized housing system.

What are "financial industrial housing groups"?

In Germany and other industrial capitalist countries, since the first half of the 20th century, ownership of residential real estate has been ideally divided into four main segments: owner-occupied housing; individual, private small rental; state, cooperative and non-profit housing providers; professional, private housing companies. (*1)

The newly created segment of rented housing leases since the beginning of the 21st century is a special form of private housing company in which the elements of construction and marketing of financial investment products dominate the housing activities. In Germany, this segment currently has at least 1.2 million apartments (*2). It has developed directly from deregulation and privatization of former public and non-profit housing companies. (*3)

In Germany the "corporate landlords" (Fields 2014) were not a result of, but the starting point for the development of the financialized real estate capital. Housing in the financialized sector has generally been created under publicly regulated conditions and with the use of public funds from formerly non-profit housing companies or governmental organizations to serve broad sections of the population. With the abolishment of the Wohnungsgemeinnützigkeitsgesetz (Unger 2013) and the dissolution of the institutions of the GDR, the conditions were created in 1990 for these apartments to be privatized and traded on the real estate markets (*4). However, only ten years later, when the conditions for financialization were created, extensive privatizations and other sales occurred (see Kofner 2013).

Unleashing the commodity of the rented apartment

Unlike owner-occupied real estate and most consumer goods, the financialization of rental housing, regardless of the form of its financing, is already in its specific character created as lent commodity capital (* 5) (Brede / Kohaupt 1975) and as fictitious capital (* 6). The full development of these potentials, of course, requires a developed, free movement of capital and a favorable regulatory environment.

The unrestrained private power over the rented housing has historically increased the cost of reproduction of the labor force to a dysfunctional level for industrial capital. The resulting misery of residence has delegitimized the state power. For these reasons, private power over rented residential real estate has been restricted by the state and has been supplemented by framework conditions and subsidies for regulated sectors of a low-income new rental housing construction, in Germany by the so-called Wohnungsgemeinnützigkeit.

After the Second World War, rent regulation and tenant protection, public housing subsidies and the promotion of limited-income, non-profit housing actors became pillars of political regulation. The orientation on the housing supply of "broad strata of the people" (II Housing Act) was based on a specific class constellation. As the financial capital organized in banks largely controlled the goods industry, there was a strong all-capitalist interest in reproducing disciplined labor with the help of normalized nuclear families, which made it possible to increase the consumption of bulk commodities and the involvement of workers in social partnerships. The mass-produced auto-settled social housing was an important part of the reproductive conditions, which implied that its potential for financialization had been "frozen".

When mass production got into crisis in the late 1960s, the Fordist regulated mass housing supply became increasingly obsolete. With the end of full employment, one of the central motives for keeping apartments for the workforce was gone. The high-interest phase of the 1970s made the social and non-profit housing sector more expensive, which became increasingly unpopular due to its large housing estates. In the context of neo-liberalization, a process of repressing "mass social housing" and its institutions evolved out of this multiple crisis.

With the abolition of Wohnungsgemeinnützigkeit in 1990, the transformation of the housing infrastructure of the industrial society in marketable "concrete gold" was sealed. The mobilization of real estate capital "liberated" from its Fordist enclosure became one of the driving forces and arenas of shareholder value capitalism, which in the 1990s disintegrated the links between banks and industrial companies in "Deutschland AG". All components of the companies, including the company apartments, were checked for their monetary contribution to the overall result. Housing inventories now appeared as "quiet reserves" with a potentially high market value. The industrial-social infrastructure created within the Fordist accumulation became a separate field of real estate exploitation on the financial markets.

Financial industrial housing companies in Germany

Today, about 1.2 million homes in Germany are owned directly by 20 corporations or companies, which we can clearly classify as financial-market-oriented or financially-controlled landlords.

Around 748,000 apartments are owned by four major listed companies: Vonovia SE (375,000 apartments not counting holdings in Austria), Deutsche Wohnen SE (161,000 apartments), LEG Immobilien AG (129,000 apartments) and TAG Immobilien AG (83,000 apartments) ). I attribute these four companies to the group of financial-industrial housing corporations in the narrower sense, partly because they show striking overlaps with their largest shareholders. (* 7)

Another common selling point of the four companies is their strategic focus on growth in the low and mid-range price segment, which includes inventory investment ("modernization"). And finally, the sector is internally intertwined (* 8). By far the largest and most innovative financial industrial renting group is the DAX 30-listed Vonovia SE. It emerged from Deutsche Annington in 2015 following the acquisition of GAGFAH. Aggressive growth and the systematically pursued model of financial appreciation through housing industrialization make Vonovia SE a "prototype of an industrialized housing company" (Kofner 2018a) and a trendsetter for the corporate housing sector as a whole.

Housing industry as a transaction industry

A major difference between the financial industrial housing companies and the non-profit housing companies is their orientation on trade. When public-sector and industrial companies sold a large number of housing stocks to private equity funds between 2001 and 2008 and around 2012, this has led to continued transaction chains to this day. As of 2014/2005, the recently acquired real estate companies were resold by the private equity funds at a premium. Since no "fresh" apartments of the public sector or industry have come onto the market for several years now, we are now dealing only with resales, the real estate now circulating within the financial sphere. For tax reasons, in most cases, it is not the real estate itself that is traded, but the shares in the real estate holding real estate companies, now predominantly as equities.

Using market value calculations, the financial industry can also anticipate an anticipated trade gain, which is one of the main sources of "fictitious capital" formation. The market values of the real estate are updated annually in accordance with the international accounting standards of IFRS (see Serfati 2012: 536), based on a discounted cash flow from rents and other payments over the next ten years. At Vonovia, the non-cash gains from the revaluation of real estate in the three years from 2015 to 2017 totaled € 8 billion, or 83 percent of consolidated earnings before taxes. As these results are predominantly allocated to the revenue reserve, over the years a gigantic inflation of "equity" occurs. The balance sheet equity of Vonovia for 2017 is stated at 16.7 billion euros. If this is adjusted for the write-ups since 2011, the Group's equity is reduced to € 7.6 billion (see Kofner 2018).

At Deutsche Wohnen AG, the valuation gains in relation to their much lower balance sheet total are even more decisive. The fictitious property value increased by 1.7 billion euros in 2015, and 2.7 billion euros in 2016. The ratio of valuation gains to equity capital accumulated since 2013 is 66 percent.

Thus the "flow size" of anticipated rental payments becomes "fictional" real estate capital. However, this must not lead to the misconception that this fictional capital springs from mere balance tricks of individual companies or that it is "speculative exaggeration". The standardized capitalization of payment expectations in accordance with the discounted cash flow model corresponds to globally agreed accounting conventions of the financial industry.

Housing companies as financial market players

There is traditionally a close relationship between the rental housing and the financial sector due to the large financial needs of the rental housing construction, its suitability as a store of value and the great reproductive and infrastructural importance. During Fordism, this relationship essentially consisted of the banks 'and building societies' providing construction credits from their deposits that were repaid on strict criteria aimed at full and permanent repayment.

In the financial housing groups, the relationship with the financial industry has reversed. Loans are no longer raised and granted to cover financing gaps in the production or renovation of housing. Rather, apartments are acquired in order to "burden" them with interest and dividends. The goal is no longer the repayment of the loans on the housing burden, but the collateralization of a basically endless series of debts by the real estate assets. These debts exist only partly with external banks, but are predominantly bonds and securitizations, which are issued by the real estate group itself as securities. In a first phase in the mid-1990s, acquisition loans granted by banks were largely replaced by the issuance of CMBS (Commercial mortgage-backed securities, transl.) securitisations. The initiators of these securitizations with the landlords were, as a rule, not banks, but the management of the respective private equity funds or the housing companies themselves. (*9)

Like US subprime mortgage securitisations, which were largely responsible for the real estate crisis in the US from 2006, the CMBS papers of the German housing finance industry were "bankruptcy-proofed" by means of complex cross-border contracts and secured directly with the mortgaged real estate portfolios and pledged rental payments. In the case of a "credit default", ie the breach of the contractually agreed debt rules (covenants), which would deeply affect the scope for action of companies, an anonymous trustee company would have had the task of processing the real estate according to contractually stipulated rules for the bondholders.

Such a situation actually threatened in the wake of the financial crisis: Against the backdrop of global liquidity shortages, the rating agencies downgraded several large German real estate securitizations because it was feared that there might be difficulties in replacing the repayment, which would come mainly in 2013, of around 13 billion euros. At great expense, the financial managers of private equity-controlled housing platforms succeeded just in time to replace the securitization with cheaper and more frequently scattered loans, whereby they already benefited from the international competitive advantages of German real estate investments.

The replacement of the major securitisations at that time was a precondition for the IPOs of the real estate groups from 2013, with which the private equity funds realized their return - somewhat deferred due to the crisis. This was at the same time the second and still ongoing phase of refinancing initiated. It is heavily influenced by intermediate levels between equity and debt instruments such as hybrid bonds (Vonovia), convertible bonds and unsecured corporate bonds (*10).

The confidence in the relative safety of these indirect real estate investments is now so great, and the investment pressure so strong that even corporate bonds with relatively low interest rates are assumed. The new documents are not provided with strict credit conditions, such as the major securitization of the private equity phase. The corporations are barely limited in their entrepreneurial freedom of action. In addition to acquisitions, they can also finance existing investments and thus generate operating growth, ie, operate the "housing industry" again.

Financial industry submission

The subordination of the bought-up housing stocks and company components to the standards of transnational investors would not have been possible without the enforcement power of the private equity funds. Already in the course of the initial purchases, the corporate structures were adjusted. Essentially, a real estate finance group today consists of three categories of nested companies: Many property companies hold the ownership rights to the real estate. Legally they are the contractual partner of the tenants. The shares in the property companies are held over an often multi-level hierarchy by the central holding company in which the decision-making functions are bundled. The third category is companies for the functions of the actual housing management. In these, except for a few exceptions, the staff of the corporations will be employed.

Outsourced within the company From the increasingly automated housing management are staff-intensive operational tasks such as janitorial services, maintenance of gardes and surrounding areas, and minor repairs. These areas will be complemented by insourcing of productive services such as modernization and project development or the acquisition of residential services such as cable and power supplies.

The various components of the business are managed using a code system that is defined by the international standards IAS/IFRS. All components of the company must be geared to return targets. The portfolio management system locates value potentials and rent gaps (Smith 1984). Each apartment is assigned to a specific portfolio segment with different value retention or rent increase potential. This allocation, which is adjusted each year, determines whether a residential property will be sold as "Non Core" or "Non Strategic" (Vonovia) at the next suitable opportunity, or whether there is a pending "modernization" with strong rent increases in the foreseeable future. For the assignment, the corporations strive for standardized criteria and data collections, which are integrated into the IT-based control system.

Systemic compulsive rent growth

The key investment motive for investing in financial-industrial housing groups is the prospect of a growing return on rental income. The managers of the corporations therefore advertise their investors and analysts with prospects of long-term rent increases. The expected rent increases over the next ten years are included in the calculation of discounted cash flows, thus determining the annual book profits of the groups as well as changes in the balance sheet equity. The amount of the rents also has a direct impact on the Group-specific ratios for the operational coverage of the dividend distribution, the funds from operation (FFO).

In order to avoid a devaluation of the real estate and the impression of a deficit of the dividends, the corporations are also forced to enforce the expected rent increases to a substantial extent. For Vonovia SE, adjusted rents rose on average by 4.2 percent in 2017 (2016: 3.2 percent) (Vonovia 2017, 2018). At LEG Immobilien AG, the increase in "freely financed rents" in 2017 averaged 4.1 percent (LEG 2018). By contrast, the national average only increased by 1.7 per cent in 2017 (2016: 1.3 per cent).

The housing companies achieve these rent increases mainly by using the following methods: First, the corporations have acquired a larger number of rental apartments thast are still linked to public regulation, but the rental rates expire after repayment of public funds in the next few years.

Secondly, when tenants move out, companies can usually rent their apartments at a high premium. (* 11) These "market rents" then serve as orientation margins for value calculations and for rent increases for existing tenants.

Third, the corporations try to enforce rent increases above the local average by mass action, not always compliant with existing law. LEG justifies its rent increases partly with three particularly expensive comparative apartments from its own housing stock (Unger 2016). Most tenants shy away from legal disputes. As a result, where the companies dominate larger market segments, the groups raise the local comparative rents as a whole and thus create the legal justifications for the next round of enhancement itself.

Fourth, increases in rental income can be achieved through changes in the composition of housing stocks. In recent years, Vonovia has been able to sell considerable parts of its former company apartments in the impoverished northern Ruhr area to LEG, while in expensive "swarm cities" and especially in Berlin, apartments have been added to it. However, the highest rent growth is now achieved at B locations such as Dortmund or Essen. (* 12)

Housing modernization as a "predatory formation"

In the case of a rent increase due to modernization (BGB § 559), the housing company does not have to comply with the local comparative rent, but can raise the annual rent by 11 percent of the investment costs regardless of the amount of the previous rents and the market situation. Even for small landlords, this method is highly attractive in view of the low interest rates: money obtained for less than 2 percent interest, invested in a "modernization" pays out interest of up to 11 percent (*13). The bill is even more attractive for the financial-industrial housing sector, which has access to capital at even lower costs, and is not aimed at repaying loans and can carry out the construction measures on a large scale with reduced purchase prices and standardized procedures, but calculates "market prices" for the tenants. According to Vonovia Chief Financial Officer Kirsten, modernization is the most important "propellant of rent growth" (Vonovia 2017b) in addition to recompression.

The rental companies earn several times in the so-called modernization. First, they let the tenants pay for the renewal of their long-neglected fabric. Because the prevailing case law does not force so far that the age and the wear of old components are deducted in full from the recoverable investment costs. Tenants should even be required to prove that a "modernization" was used to repair damage and therefore does not increase the rent. Second, investments are capitalized and increased rents lead to higher market values. Third, corporations also earn directly from the exploitation of their workforce. Vonovia in particular has lbeen doing a growing amount of work by its own subsidiaries, which do not pay their employees to the tariff conditions of the real estate industry.

In the organization of the "modernization" the financialized renting industry shows itself as a "predatory formation" (Sassen 2017) of the real estate capital. Real estate capital drives tenants with limited incomes into poverty, plunders pensions and social budgets, and leads to crowding out and re-composition of tenants. Tenants who find neither resistance nor alternative opportunities, save the rent increases literally from their own mouth. The pace of this return increase at the expense of the tenants is high, but the potential is also great. Every year, 5 percent of the building stock is energetically modernized. (* 14)

In the meantime, in addition to the modernization, the expansion of the housing stock is being carried out by new construction. Buildings are increased or prefabricated housing modules are placed in the buffer strips. The newly created apartments are significantly more expensive than the old ones, although no land and development costs are incurred and although costs are saved with the serial prefabrication. For the investors, the "recompression" not only form lucrative new construction projects. Especially in urban areas with high demand, they also serve the targeted gentrification of neighborhoods, which allows further rent increases.

Cost reduction and standardization

In addition to rent increases, the systematic cost optimization of housing management and financing is a key feature of the financial market-oriented housing industry. The management uses procedures from industrial production.

In the nonprofit housing industry there had been construction restoration reserves, but these were not reinvested in the wake of financialization, so that the private equity funds took over housing stocks whose substance was already in strong need of renewal. As the funds were burdening the apartments with the debt of the purchase financing, there were no more reserves to reduce the maintenance backlog. At the same time, many of the acquired companies had experienced a sharp reduction in their workforce. From the middle of the nineties, many disinvestments became visible, which intensified in the course of the financial crisis. Numerous heating failures, mold damage, tenant complaints and negative media reports about the "grasshoppers" were the result. (* 15)

While some apartment platforms went bankrupt and got into tedious liquidations, the most strategically placed corporations, especially Deutsche Annington (now Vonovia), pulled the ripcord and modified their model for even more cost-effective inventory management. The financialization of housing portfolios has become part of the financialized industrialization of housing management.

The predecessor of Vonovia, Deutsche Annington, also played a pioneering role in this transformational step. After a change in personnel, a radical restructuring of the company's housing management started in 2008. The previously regionalized housing administrations were combined at a central location in Bochum. The central interface to the tenants was an extremely understaffed call center, in which work groups without personal access to tenants and locations processed the standardized orders (tickets) stored in the IT system (SAP) and, if necessary, accessed the fully digitized tenant files. The local support was replaced by a mobile field force controlled by the same IT system, which was also unrelated to local problems and people.

The consequences of this "digital industrial revolution" were immense for the residents and the group. At times nothing worked, from reporting of damages to the conclusion of the lease. The local newspapers were full of embarrassing reports, and the vacancy rates of the Germans Annington soared.

As early as 2009, another change of management was completed at Deutsche Annington. The principle of automated control centers and mobile field services was supplemented by stationary auxiliary agents of the IT system. For the apparent substitution of previously abolished local branches and janitors now "object caretakers" were employed, who were placed at a new subsidiary on conditions outside the tariff of the real estate industry. The extremely fragmented task and reporting system forces them to spend most of their working time safeguarding all measures necessary to guarantee traffic safety on their tablet computers (*16).

The algocracy of automated landlords

Bureaucratic standard procedures are not only cheap, they also create the necessary subordination pressure for the tenants to pay voluntarily. A widespread example of this is the large number of remittances sent to the tenants by the corporations. In special departments, rental payments are booked and reconciled with the rental receivables recorded in the system. Payment reminders are automatically generated in case of differences and processed according to a rigid scheme (for example, three payment reminders, debt collection attorney, court order). If the entitlement to a claim is denied, for example when checking the service charge settlement, claiming a rent reduction or objecting to a modernization rental increase, there is no technical possibility to identify the controversial amounts in the booking system. The housing administration can only temporarily block the system with a so-called dunning lock.

If she considers her subject to be processed, the algorithm will be set in motion again. Thus, the rental system has been immunized against the further dispute over the authorization of the rent increase.

According to exactly the same scheme, many rent increases and modernization procedures are handled. Simple non-response to tenant input is, in the majority of cases, the least expensive and most profitable "algorithm". The treatment of the associated reputational damage is left to the public relations department.

The primitive form of "algocracy" (Staab 2016) of the "automated landlords" (Fields 2018), which occurs in tenancies in Germany, is based on predigital principles: Many tenants have a deep-seated fear of authority towards the landlord. That the apartment, the core of privacy, as financialized goods are the subject of opaque structures, overburdened administrations, unresolved legal conflicts or even open-ended political struggles, only the least can endure without stress. Although the landlord is a completely anonymised machine, older tenants in particular believe that every payment reminder and non-response to it is personally minted. They fear that even inquiries about incorrect service charges or the non-acceptance of the rent increase can lead to sanctions. Shame joins in with the fear. Many have sleepless nights when landlords - completely unfounded - chalk them up with "rent debt".

This fear has a real basis in concrete experiences and structures. Because legally under certain conditions contracts can actually be terminated without notice, if one falls behind with the rent payments. Also in a rental process you have to bear the costs of the lawsuit, if one is subject. One can be condemned to the acquiescence of a modernization measure, which only reason it serves are higher rents. The supposedly "social" tenancy law contradicts a risk.

Economies of scale and value chains

Their size allows real estate companies to put enormous pressure on their suppliers, significantly reducing the cost of maintenance, refurbishment and construction. Vonovia has contract partners that deliver new windows cost-effectively and just in time. The housing companies can also achieve great economies of scale when purchasing energy and communication services. Certainly the most lucrative items are the cheap labor thanks to the tariff-volatile subsidiaries. Both Vonovia and LEG have set up their own companies to carry out repairs. These do not belong to the employers' association and do not comply with the collective agreements of the real estate industry. Wages and benefits are much worse. For many craftsmen and semi-skilled employment it is still attractive, because of the regular payment. The staff of the Vonovia handicraft subsidiary TGS has grown in recent years to almost 5,000 employees (Vonovia 2018). TGS has also been taking over modernization work for a long time, which will be included in the rent increase calculations at market prices.

In 2016, Vonovia's own contributions accounted for 57 percent of modernization services (Ibid.). Vonovia has also set up a "Modernization GmbH" (limited company, transl.) which, for example, calculates planning services for the rent increase. In the case of rent increases due to modernization, it issues inter-company bids for the calculation of the deduction of the repair portions from the modernization costs that have an effect on the rent increase. Of course, these offers are low. The potential misuse of internal contract awards and billing is virtually impossible for the tenants to control. The Vonovia refuses for years to disclose the personnel costs of the janitorial services, for which it converts opaque packages on the rent. In the meantime all costs of the external situations are handled by a separate subsidiary. If tenants want to check the costs of garden maintenance or winter maintenance, they receive invoices, which Vonovia issues itself. In some cases the work carried out according to the documentation did not take place at all. Most tenants pay for services that are not fully booked.

In the areas of fitted kitchens, transport and mobility, decentralized energy generation, insurance, maintenance, project development and, of course, "smart living" (see below) further "extensions" of the core business of the rental companies can be observed or expected. In 2017, Vonovia generated an operating profit of more than EUR 100 million in this segment, now called "Value Add" (Vonovia 2018).

Transnational expansion

However, the small-scale steps taken to expand business can never achieve the growth that would be possible for large corporations by acquiring majority ownership of other housing companies.

However, since there are hardly any "fresh" offers from the privatization of municipal housing companies, the prices have risen sharply and the capacities of a "consolidation" within the listed residential segment in Germany seem largely exhausted, the further expansion can only take place abroad.

Even though the Austrian stock exchange listed companies Conwert and Buwog have real estate holdings especially in Germany, with their takeover Vonovia has taken the step towards transnational operations. In 2017, a partnership was agreed with France's largest publicly-linked housing company, SNI (now renamed CDC Habitat). Officially the partnership only exists for the exchange of knowledge. Vonovia's boss Buch however makes no secret that he wants to be prepared for Macron's expected liberalization of non-profit housing construction in France (Vonovia 2017b).

In April 2018, Vonovia made a takeover bid of 900 million euros for the listed Swedish housing company Victoria Park with 14,000 apartments. The apartments should be in need of renovation and thus fit well with the large-scale modernization industry of Vonovia. The large non-profit housing stocks of the Netherlands also tease the imagination of the German group managers. The European rental landscape is threatened with a new privatization and globalization push.

The large non-profit housing stocks of the Netherlands also tease the imagination of the German group managers. The European rental landscape is threatened with a new privatization and globalization push.(for streamer)

State apparatuses as partners of the housing companies

Both for the generation of further growth and for the retention of their tenant-distant forms of management, the financial-industrial housing groups are dependent on the toleration and support of the state apparatuses. Housing companies, through their influence on housing associations and lobbying networks, have good access to 11 policy-making structures, and they are too large and systemic to allow the state apparatuses to ignore their interests.

In the face of tenant unrest and housing shortage, the corporations have every reason to be on guard. If, for example, the demand that was spread among rent activists for the abolishment of the paragraph on the modernization increase (BGB § 559) were implemented, their main growth driver would be lost. The lowering of the "surcharge" to 8 percent mentioned in the Coalition Agreement 2018 and its capping to three euros per square meter only slightly harm Vonovia. Their return target is only 7 percent. (* 17)

The financial-industrial housing groups can expect a great deal of political accommodation from the local to the federal level, especially if they are promising new housing construction. Where the state has no other partners for housing, it will have to come to the corporations and tailor housing development programs to their specific need. This has already been observed in some modernization areas in the Ruhr area and in recompression projects in Frankfurt am Main.

Perspectives of digitalization

On the construction sites of Vonovia and LEG from renter's point of view there is often planning chaos. Modernization announcements do not contain sufficiently concrete information on the content and duration of the individual measures. Tenants receive notifications of burdensome construction measures with deadlines of a few days. Windows are replaced in the middle of winter. Letters from the tenants' associations will not be answered. All this makes the processes vulnerable in many places. If tenants would consistently use these weaknesses and exercise their rights, they would be able to drive up the costs of Vonovia & Co.

The compulsion to "slim housing management" also leads to numerous annoyances beyond the modernization. Even after weeks large corporations like LEG are not able to repair defective heaters. The financial-industrial answer to all these shortcomings is not to improve the repair services, but the further automation of the management of the defect.

Instead of decentralized craftsman services, LEG CEO Hegel raves about the prospects for a "Housing Industry 4.0" in the 2017 Annual Report. This is nothing less than a further attempt to compensate for the reduction of real management services by digitally controlled object care, this time not through the exploitation of underpaid employees, but through the colaboration of the tenants themselves. LEG therefore does not want to limit themselves to the use of "tenant-apps". They work on electronic tenant contracts, indeed on the relocation of the entire housing administration to the Internet. As a next step, they want to equip the apartments with displays. As LEG CEO Hegel says, the landlord wants to "get to know the tenants better" (LEG 2018).

Thus, on the horizon of the financial-industrial transformation another possibility for the growth of the real estate companies seems to be: the perspective of a digitized "smart living" in which the flat becomes a datacatapult, the interface of cognitive "coproduction". But not only this scenario, the entire financial industrialization of the housing industry would be inconceivable without digitized global networking. Without digital data processing, i.e. without online stock exchange trading, digital portfolio management and accounting, the financial industry in its present form would be unimaginable.

It's not just about acceleration and efficiency. The innovations in digitally supported accounting play a key role in the construction of real estate investment objects (Bläser 2017). This also lays the foundation for the digitization of internal business processes, from the automated calculation of rent increase potential to the recording of virtual caretaker activities. The corporate headquarters also have access to hundreds of thousands of digitized tenant files and accounts. They can create a profile of the payment history or complaint frequency for each tenant. While we have little guidance yet on whether and how these data are used by corporations, they are in any case an enormous amount of data that, when integrated into portfolio management, could be used and traded for multiple return purposes. A parallel step is that the housing companies start to act in the digital supply of the tenants, particularly with broadband cable networks.

Both at Vonovia and LEG, the connection to a large cable operator (Telekom, Unity Media) is part of the tenancy agreement. This does not only involve a fee-based additional service for the tenants. It is also an infrastructural requirement for the next steps: the "smart home" and the "Internet of Things".

The "smart living" starts with the "smarter", i.e saving costs for staff, control of the heating and ends in the networking of the entire building services from the blinds to the interactive smoke detector.

In the segment of the financialized housing industry, it can be assumed that only a part of the tenants can or want to bear the costs of a comprehensively digitally upgraded apartment. This group of people is referred to a segment with reduced standard digitization. "Smart living" acts as an intensification of social division or even as a construction of gated communities (Morozov / Bria 2017).

Since the market leadership for digital technologies lies outside of the real estate industry and these can mostly be procured decentrally by the tenants, the actual chance of the financially industrialized housing industry lies in the linking of the data flows related to the different areas (financial, building, service, location and tenant) and their storage as "big data" for many objects. On the one hand, this link can bring productivity and cost advantages if, for example, energy procurement is coordinated with the usage profiles. At the same time, however, it also serves to control and open up completely new opportunities for value creation. These consist in particular in the inclusion of the everyday activities of the tenants themselves in the housing management. The tenants, who report a damage to the apartment via app or landlord-display, not only replace the caretaker. The technology also prevents them from making legally valid written objections. However, the realization of such fantasies requires a developed feedback system, which mass housing providers do not currently have.

The factual co-production of the tenants happens every day through self-help and neighborly cooperation of the tenants, that is not owned by anybody and which does not require any digital control and whose digital-industrial appropriation would be associated with enormous costs.

Perspectives of re-appropriation

The financialisation and industrialization of housing is - as shown - in many respects an "accumulation by expropriation" (Harvey 2005). However, there are opposing possibilities for the re-appropriation of the houses. The abolition of personal property of land in its financialized "socialization" creates room for maneuver and enables radical perspectives.

The tenants no longer have to deal with a landlord they personally know (with all sorts of interpersonal complications), not even with a real, on-site real estate owner class, but with an anonymous machinery that could as well be controlled by the public office, by a non-profit owner or a self-governing body. The financialized rental industry is "ready for socialization," as it was said in the 1920s.

Regardless of a "re-socialization through expropriation", residents can capitalize on the indifference of capital to the details of use in order to acquire the living space in practice. In the long term, the anonymous letting company does not have enough authority to force the tenants to cooperate. The standards of the machinery can be easily blocked. The automatic landlord is vulnerable to disruption, sabotage and simply disobeying the algorithms. Instead of cooperating with the landlord, the tenants cooperate with each other. The tenants can learn to ignore the automated landlord, the same way he ignores the local specifics of the place and the individual, concrete tenancies. The rent increases and modernizations lose the appearance of a cost allocation and are revealed as pure means of yield increase. This loss of legitimacy makes it easier to challenge tenants' anticipatory obedience and unconditional rental payments.

Thus, the financialized industrialization basically creates the conditions for their repeal. Whether this socialization succeeds depends essentially on political power relationships and not least on whether the tenants of the corporations are able to constitute themselves as "tenants" with collective claims against the corporations.


Even if one can never be sure of surprises in view of the high balance sheet valuation of the real estate and the strong intertwining of the financial industry, a sectoral crash of the financially industrialized housing industry does not seem to be imminent. Undoubtedly, limits will be reached for existing growth strategies in the foreseeable future, so that the surviving companies need alternative development perspectives. One of these perspectives lies in the expansion of state-subsidized neo-functional mass housing, another in the further development of the industrialization of housing industry 4.0, and a third in the takeover of large privatized housing actors in Sweden, France, and the Netherlands.

Even if demands for the expropriation of the corporations form themselves in some places (Berlin), the desirable organized exit from this destructive economy presupposes shifts in the balance of power that are currently hard to imagine nationwide. A more developed sectoral "countervailing" of organized corporate tenants alone will not be enough to break the dominance of financial-industrial real estate interests, but it would be an integral part of an alliance to reappropriate housing. The hour of such an alliance could strike at the latest in the next major crash.

Until then, tenants are not only involved in reproductive costs in the financial industrial housing groups, but increasingly directly exploited financially. This "class character" of tenancies should be the starting point for a reflection on the perspectives and methods of organizing in residential areas and in housing corporations. Because only on this basis can a transformation strategy for housing policy emerge, which is at the same time social and emancipatory.


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– (2018a): Geschäftsbericht 2018, Bochum


(* 1) Co-operatives, publicly-owned housing companies and non-profit institutions control about 22.7 per cent of the rental housing stock, with transitions to private companies (around 13 per cent), including financial industrial landlords (at least 5.2 per cent), fluent. (Assessment based on 2011 census).

(* 2) This assessment is based on a separate statement based on company publications and legal correspondence (as of March 2018). The sum of the registered apartments in Germany comprises more than 1.1 million residential units, of which more than 1 million residential units belong directly or via an intermediate holding to the property of listed housing companies. The assumption of an estimated number of nearly 100,000 flats owned by not listed financial market-oriented actors (funds, etc.) is cautious.

(* 3) In US cities and in Spain, financialized rentals are more the result of the acquisition of foreclosed apartments and settlement portfolios.

(* 4) To a certain extent, it is a "special German way" that in the course of neo-liberalization, mass housing was not predominantly privatized, as in England ("right to buy") or in many Eastern European countries, but sold directly to large investors.

(* 5) The rented housing is the commodity capital that is lent without any added value being generated in its use. The term "loan capital" used in parallel by Brede / Kohaupt (1975) is, strictly speaking, reserved for the production process.

(* 6) The term "fictitious capital" has at least three meanings in our context: Firstly, part of the capital embodied in rented housing is fictitious, because rents represent monopoly revenues far beyond the refinancing of the construction and maintenance costs. Secondly, the valuation of real estate is discounted by future rental payments. Third, the return claims of shareholders and bondholders are not associated with control of the capital invested.

(* 7) On 10 May 2018, MFS Investment Management was holding shares ranging from 3 (Vonovia) to 11.4 (TAG) percent in all four companies involved. Funds of the world's largest asset manager, BlackRock Inc. (over $ 6.3 trillion in assets under management), were key shareholders in the four companies on that day, with between 5 and 10.7 percent. The pension fund of the Norwegian state was represented by shares of 3.5 to 7.3 percent in Vonovia, Deutsche Wohnen and TAG (sources: Internet pages of the companies on 10.5.2018). In other words: the main "anchor shareholders" are all themselves capital collection agencies, institutional financial market players.

(* 8) Vonovia took a 5 percent stake in Deutsche Wohnen AG on 10 May 2018, the remainder of a hostile takeover attempt in 2015. There are also signs of an industry-internal division of labor, such as the takeover of housing stocks of Vonovia in the northern Ruhr area by the LEG.

(* 9) For the securitizations, the real estate companies set up single-purpose companies that provided time-limited loans and issued bonds of different rating agencies rated risk classes traded on stock exchanges (mostly the Dublin stock exchange) for refinancing purposes.

(* 10) At the end of 2017, Vonovia SE's long-term liabilities totaled EUR 14.1 billion. Of this amount, € 10.6 billion was accounted for by corporate finance, € 1.2 billion by bank loans and € 2.2 billion by mortgage loans (Vonovia 2018).

(* 11) Especially in urban neighborhoods, which have long been dominated by rent-based social housing, the gap between existing rents of long-standing tenants and achievable new lease rents is high.

(* 12) According to Vonovia CFO Kirsten, rent growth there should have risen from two to three percent to 10 percent in 2017. By contrast, the rates of increase in Berlin, Hamburg, Munich, Stuttgart, Cologne and Düsseldorf have fallen sharply (Vonovia 2017b).

(* 13) Kofner (2018b) calculates dynamic return on assets of between 7 and 8 percent.

(* 14) According to Vonovia CEO Buch at the general meeting of Vonovia SE on 9.5.2018.

(* 15) For the experiences with the finance-market-oriented see under the heading "landlord" (“Vermieter”) of the Mieterforums Ruhr dating back to the year 2003: Further reports and statements can be found on the website of the Renters' Association Witten "Reputational damage" is still considered the most important risk category in corporate reports today. (see, inter alia, Vonovia 2018)

(* 16) Amongst others observations of tenants in Witten.

(* 17) Vonovia-Chef Buch also clearly distinguishes himself from market radicalism in his public appearances. Market regulation is said to be necessary in order to create reliable framework conditions. At Vonovia, of course, this only includes measures that are compatible with their own business strategy, such as nationwide rental rates. As long as these do not reflect the low rents of past years, they are ultimately useful for justifying rent increases. If, in contrast to this, Deutsche Wohnen repeatedly attacks the Berlin rent index or endorses the reports from LEG to justify a "market rent" (re-renting rent), this not only shows ideological and tactical differences, but also differences in the interests. Not all corporations can cope well with a leveled rent increase-index.