0226.2 Property Entails Obligations ×

Hans-Jochen Vogel in conversation with Arno Brandlhuber and Christopher Roth.
Our special thanks go to Stephan Trüby, Chair of Architectural and Cultural Theory at the Technical University of Munich, for organizing the discussion.

ARCH+ Verlag, Birkhäuser
ARCH+ with Arno Brandlhuber, Olaf Grawert (station+, DARCH, ETH Zurich)
Arno Brandlhuber, Christopher Roth, Hans-Jochen Vogel
Next project: 0226.3 The City of Platform Capitalism, Berlin, 2020

Arno Brandlhuber: Mr. Vogel, you made a major effort [01] to reform land law in the 1970s. Playing an important role in this effort was the German Association of Cities in 1971, where the then-President of the Federal Republic, Gustav Heinemann, addressed land law reform in his welcoming address. [02] Can you describe the political context that made such an initiative possible?

Hans-Jochen Vogel: The motto of the 1971 Annual Meeting of the German Association of Cities in Munich was “Save Our Cities Now!” I remember that very well. Issues regarding land prices and land legislation played a key role in this context. The main focus was on the financing of municipalities, and municipal tax revenues. Federal President Heinemann’s welcoming address dealt mainly with the issue of land prices. The problem was blatantly apparent in Munich, where the cost of land had risen by 372 percent between 1950 and 1970. As a result, there were already considerable increases in rents at that time, although the share of social housing was still higher than it is today. This increase also meant that the city had to spend additional millions on land that it needed for public infrastructure. Gustav Heinemann recognized all of these problems and articulated them in his appeal.
That set things rolling. The Urban Development Promotion Act was passed that same year, in 1971. Although it didn’t include concrete regulations on land prices, it provided the municipalities with additional tools to develop new districts or districts in need of rehabilitation. For example, it gave public authorities the right to issue building orders, demolition orders, and other possibilities for intervention. My tenure as mayor of Munich ended in December 1972, after the Olympic Games. Then I became federal minister for Regional Planning, Building, and Urban Development. One of my central tasks was to amend the Federal Building Code by introducing the planning gains tax as a key issue. I wasn’t the only one who thought it was a great injustice that if a municipality had to compensate a landowner, it had to factor in the actual high land prices, which were partly due to planning decisions, yet if a landowner sold land, all the planning gains remained with him. Although Article 14 of the Basic Law is sometimes quoted (“property entails obligations” [03]), I would also like to draw attention to the Bavarian Constitution. It specifies that effortless land gains are to be used for the common good. The Bavarian state governments have hardly—or not at all—complied with this mandate of their constitution. [04] Instead, they claimed it was made obsolete by the Basic Law, which came into force later on.

AB: Can you explain the term “effortless land gain?”

HJV: Land gains are increases in value resulting from the fact that a landowner, for example, develops a piece of land or changes its use. The landowner provides a service and takes risks, by taking out a loan, for example. When owners provide benefits and take risks, they should also be entitled to the profits made from them. But if an owner doesn’t invest, and instead leaves the property to lie unused or continues to use it as before, and the land price rises, then this isn’t due to the owner’s efforts, but because the city is growing and demand is accordingly increasing, or because surrounding areas have been made available for development. Owners can skim off these land gains when selling or renting, even when they aren’t responsible for them.
The key element in my proposal for the Federal Building Code was that the municipalities should receive 100 percent of effortless planning gains. In addition to this law, there were ideas about laying claim to the steadily increasing gains through income tax or a special property tax arrangement. But at the time, the Ministry of Finance wasn’t interested in such a radical overhaul of the existing legislation.
Before I moved to the Ministry of Justice in May 1974, when Willy Brandt resigned and Helmut Schmidt formed the government, I presented my revised draft to the cabinet. It no longer provided for a 100 percent levy on planning gains, but only 50 percent, in response to objections by the FDP. But it was better than nothing. The draft was debated for two years, first in the Bundestag, then in the Bundesrat, then again in the Bundestag, and in various committees and parliaments. When it finally came into force, the planning gains tax had completely disappeared.

AB: In 1972, your article “Land Law and Urban Development” was published in the journal Neue Juristische Wochenschrift. [05] In it, you go into detail about regulations such as the planning value adjustment [06] The planning value equalization as a counterpart to planning compensation. Under the principle of equal treatment, there is no reason why a landowner can pass on losses resulting from reclassifications to the public, yet fully benefit from value increases resulting from reclassification or upzoning.”] and the land value supplemental tax. [07] These fiscal instruments aimed to reform legislation on expropriation and compensation. [08]

HJV: Yes, one of my suggestions was to address the land valuation issue, which continues to be the subject of debate even today. Taxation of real estate in the former GDR is still based on values calculated according to the status of 1935, and in the former Federal Republic according to the status of 1964.
Today the main question should be: What must be done to slow down price increases? Prices have been rising continuously, by up to 12 percent annually in recent years. On average, the increase is more than five or six percent per year in the whole of Germany, although lower price increases and decreases in the new federal states are taken into account.
In Munich—and I hardly dare say the figures—the price of land rose by 352 percent between 1950 and 1972, and has increased by about 36,000 percent to date! How can society remain silent about this? Why isn’t this issue on the agenda? Why doesn’t society put up a fight?
This deserves a small footnote: In the early 1990s, there was actually an amendment to the Federal Building Code, allowing municipalities to draw up contracts with building permit applicants. That’s practicable social land management. But only a few cities, Munich included, made use of it. It gave investors a certain amount of security for going through complicated procedures, and in return they provided the city with part of their planning gain, which was used for needed infrastructure construction. It’s such a simple approach, and easy to implement. And in individual cases, Munich has received considerable sums of money from investors as a result.

© Brandlhuber+ Olaf Grawert and Christopher Roth

Price development of residential land in Munich © Brandlhuber+ Team

AB: You made an explicit reform proposal in 1972. The reorganization you proposed would change the existing landownership concept by distinguishing between the right of use and right of disposal [09]—a rather radical approach. What made that discussion possible at that time? And how did you envisage its implementation?

HJV: Before addressing the issue of distinguishing between land and property ownership and rights of use and disposal, I want to mention the political situation surrounding the planning gains tax. It wasn’t only the SPD, but almost the whole political spectrum that was dealing with the issue at that time, between 1970 and 1972. At its party congress in 1973, the CSU also voiced its support of the planning gains tax and, at my suggestion, compiled suggestions in the Munich City Council. A commission then elaborated on these proposals, an approach that also received strong support from Oswald von Nell-Breuning, a main proponent of the Catholic social doctrine. The CDU executive committee supported the planning gains tax as well, but then it was rejected at its party congress in autumn 1973. The FDP’s Freiburg Program reflects some similar ideas. I just wanted to mention enough to make it clear that, at the time, the issue was being addressed across the board. Now, back to your question. At the time, I wasn’t alone in the opinion that we couldn’t solve the problem merely by levying a tax on planning gains. We had learned how in Stockholm, the city was the primary landowner, and only granted leaseholds. In the case of leasehold rights, the building owner is in possession of the building, but the land remains in the ownership of the municipality. In 1973, the SPD’s party congress accepted our suggestion to apply this model more frequently in Germany. Unfortunately, and I have to criticize my party in this as well, although the topic was pursued for a while, it was then more or less implicitly buried.
In 1989, I again took a step in this direction with a proposal to amend my party’s Berlin Program so that the municipalities, as landowners, would benefit from increases in the value of their land assets. The building owner, as the user, would benefit from the building’s value increase, but this wouldn’t grow as much as the land price. This partial expropriation wasn’t intended for the entire nation but was limited to certain problem areas and property that the municipalities already owned; after all, most municipalities had a certain inventory of land. It was then decided not to speak in terms of use and disposal rights, meaning a new ownership construct, but in terms of leasehold rights, which would essentially lead to the same results.
However, conservative circles succeeded in raising fears among owners of single-family homes and owner-occupied apartments—meaning millions of citizens, whose potential protest plays a significant role for all parties—that this reform was targeted against them. But it was never planned in the way that the public perceived it. From the beginning, the ownership of single-family homes and condominiums was explicitly excluded!
And there were no general rules for farmland, either. The provision would only take effect when the property was converted into a building plot. Because it is precisely this conversion that brings the highest gains.

AB: So was it a populist argument that prevented further debate about land law at various points, including within the SPD?

HJV: The fear of being accused of expropriation indeed prevented the SPD from pursuing the land issue. And I’m not denying that there were more urgent problems at the time: East-West tensions, the NATO Double-Track decision, German unification, and growing concerns about nuclear energy. To be fair, I must admit that those pressing issues made it difficult for other topics to catch on.

© Brandlhuber+ Olaf Grawert and Christopher Roth

AB: In the early 1980s, you moved from federal politics to the state level, and became the governing mayor of West Berlin. In that role, you continued to deal with the land issue, articulating in your policy statement: “Had we a land law that would treat property not as a commodity that can be arbitrarily multiplied, but as an elementary basic need, like water or bread, decisive focal points for the latent readiness to use force would disappear.” What was the situation you found yourself in, as you formulated this sentence?

HJV: The city, and especially my party, were in a crisis at the turn of the year 1980–81, brought about by squatting and the loss of the majority in parliament. It led my predecessor, Dietrich Stobbe, to announce his resignation. In order to avoid a political impasse, I agreed to stand for election and was elected governing mayor at the end of January 1981. At the beginning of February, I delivered the policy speech that you quoted. In it, I articulated what I had always drawn attention to: that land is not an arbitrary commercial object. On the contrary, no human being can live for even one second without the use of land. I put land on par with water and air. By that analogy, we would have to differentiate the rules of the market (and the market does have its merits, in the form of the social market economy) according to goods that can and cannot be multiplied arbitrarily. You can live without the use of a car, but not without land. That’s what my Berlin policy statement says.

AB: You also made a very nice comparison at the Bergedorf Round Table in 1981: “As far as non-violent offenses are concerned, they must also be dealt with by means of the law. But in doing so, it is important to maintain credibility in both directions and to consider proportionality. I have personally learned profound lessons about the extent to which our sense of justice is affected by trespassing, for example, and what negative con sequences this can have. I take such lessons quite seriously. Yet I sometimes wonder why this kind of violation attracts such sustained and emotional attention, while tax evasion, economic crimes, and fiscal issues, which are common to all democratic parties, provoke a far lower degree of emotional response. According to the penal code, the non-violent offense of tax evasion is rated significantly higher than the non-violent offense of trespassing. One would expect that the amount of public uproar, particularly in the media, would reflect the gravity of the violation.” Why did you emphasize proportionality so strongly?

HJV: There was also cause for the comparison in Berlin, because the public reaction to non-violent trespassing in the form of squatting, on the one hand, and to tax evasion, on the other hand, were drastically different. Tax evasion received little attention. Today this is different: the uproar about tax evasion is now stronger than it is about non-violent trespassing. Back then, we were busy addressing the squatting situation and the violence that accompanied it. It was in this context that I proposed a Berlin Line of proportionality, as I did after the Schwabing riots in Munich in 1962. Proportionality means that for the police to intervene, simple facts alone were not enough, and other factors had to be considered. In particular, what to do with the vacated buildings and the people involved had to be clarified. The Berlin Line was also recognized by the public prosecutor’s office in specific cases, and was essentially adopted by my successor, Richard von Weizsäcker.

© Brandlhuber+ Olaf Grawert and Christopher Roth

AB: You again managed to include the land issue in the Berlin Declaration of 1989. How could it be put back on the agenda today?

HJV: The land issue is a national responsibility and can therefore only be addressed at federal level. Nowadays, you must always keep in mind whether something might fall under the jurisdiction of the European Union, but that’s not the case here. Unfortunately, other problems are pushing their way to the fore again. I think it’s worth considering including Article 14 of the Basic Law and Article 168 of the Bavarian Constitution as a topic in the election campaign platforms. I can understand that my party is prioritizing other issues at the moment, especially since they aren’t being pressured about it by the municipalities or, as before, by the Association of Cities. I would like to see the land issue put back on the agenda. If I can still contribute to this objective, then I will give it serious consideration. At least I would ask the responsible bodies, mayors, or associations why this challenge is being met with so much passivity.

AB: What is the relevance of this issue today?

HJV: Rents are rising continuously. Cities must spend ever-increasing amounts on the land they need to build schools, hospitals, roads, and infrastructure for growing urban districts. Amounts that God knows could be better used for something more meaningful. In my view, there’s still no justification today for the enormous windfalls going to incidental landowners.

AB: It’s really a systemic issue that gains are privatized yet costs are socialized. For example, land gains are tax-free after 10 years. Why isn’t it possible to overhaul this system?

HJV: I find this criticism too general. Our tax system actually does skim off considerable gains. It’s not the case that gains are not taxed, and in fact, the current government is trying to close the loopholes. Your mention of the tax exemption of property gains after the 10-year period brings us back to the land issue. This is indeed a problem, but I don’t accept that it’s because of a problem with the system as a whole. Incidentally, there’s a lot of talk about raising the top tax rates, and there’s a ruling on inheritance tax by the Federal Constitutional Court. Meanwhile, precautions have also been taken to ensure that, in the event of future bank failures, the bank’s shareholders are called to task first, so it can’t be said that gains aren’t taxed while losses are socialized in Germany.

Christopher Roth: You mentioned the distinction between the building and the property with regard to ownership. Where would you start in addressing the land issue today?

HJV: If I do address this again, then it won’t be in order to focus on the question of use and disposal rights, but primarily on the issue of planning gains. I would build on what the SPD and CSU agreed on in 1973. I wouldn’t blame anyone— that would be the normal route, and too easy. No, I wouldn’t blame, but ask questions. And I would ask—since we have tackled and solved other big problems, our Eastern policy to name just one—whether we shouldn’t put the issue of the planning gains tax back on the agenda. Or whether we should discuss the reasons why this won’t happen in future, despite the dramatic increases and despite the fact that land is something indispensable that everyone needs in order to live.

CR: Won’t it be too late at some point?

HJV: Forgive me, but now that all this has been on the table for nearly 40 years, a delay of one or two years is probably not too late. You’ve only recently taken up the issue, haven’t you?

Hans-Jochen Vogel, “Bodenrechtsreform. Ein Modellfall für gesellschaftliche Reformprozesse,” in Heinrich Böll, Helmut Gollwitzer, Carlo Schmid (eds.), Anstoß und Ermutigung. Gustav W. Heinemann Bundespräsident 1969–1974 (Frankfurt: Suhrkamp, 1974), 21.
More on the German Association of Cities in Munich, 1971, in “Rettet unsere Städte jetzt! Vorträge, Aussprachen und Ergebnisse der 16. Hauptversammlung des Deutschen Städtetages vom 25. bis 27. Mai 1971 in München,” in Neue Schriften des Deutschen Städtetages, 28 (Stuttgart: W. Kohlhammer, 1971).
Basic Law for the Federal Republic of Germany, Art. 14: (1) Property and the right of inheritance shall be guaranteed. Their content and limits shall be defined by the laws. (2) Property entails obligations. Its use shall also serve the common good. (3) Expropriation shall only be permissible for the benefit of the common good. It may only be ordered by or pursuant to a law that determines the nature and extent of compensation. Such compensation shall be determined by establishing an equitable balance between the public interest and the interests of those affected. In case of dispute concerning the amount of compensation, recourse may be had to the ordinary courts.
Art. 161 of the Constitution of the Free State of Bavaria: (on land distribution and use): (1) The distribution and use of land shall be supervised by the state. Any misuse must be ended. (2) Any increase of the value of the land which arises without special effort or capital expenditure of the owner shall be utilised for the general public.
Hans-Jochen Vogel, “Bodenrecht und Stadtentwicklung,” in Neue Juristische Wochenschrift 35 (1972), 1544ff. Reprinted in Arno Brandlhuber, Florian Hertweck, Thomas Mayfried (eds.), The Dialogic City—Berlin wird Berlin (Cologne: Walther König 2015), 651ff.
Vogel, ibid.: “The following measures seem to be necessary for this purpose from a municipal point of view […
Vogel, ibid.: “A land value supplemental tax on extraordinary value increases that are not the result of reclassifications or own contributions (e.g. development) and which go beyond an appropriate return on the capital invested in the land. The tax should not be levied on building value increases but only on land value increases, irrespective of whether they have already occurred through sale or are unrealized gains. Limiting the tax to realized gains would reduce the inclination to sell and act as an additional market barrier.”
Vogel, ibid.: “A reform of expropriation and compensation legislation that facilitates expropriation, separates the compensation procedures, and introduces a price-limited right of first refusal. If this right is exercised, the agreed purchase price shall be replaced by the amount which would have to be granted in the event of compensation.”
Vogel, ibid.: “The previous ownership of land shall be divided into the right of use and the right of disposal. The right of disposal shall be transferred to the community. It establishes terminable or limited-use ownership of individual areas by means of contracts that stipulate the type of use, the usage fee, and the duration of the use. If this is not contrary to community interests, the right of use shall be granted by means of a public invitation to tender.”
Next project: 0226.3 The City of Platform Capitalism, Berlin, 2020