Lee Roach
@leevalueroach
Everyone knows real assets beat bonds in a hyperinflation. Fewer people know what the German state did about it afterward.
In 1923, hyperinflation wiped out mortgage debt in Germany. A landlord who owed 100,000 marks in 1914 could clear it in 1923 for what was, in real terms, spare change. Property owners came out the other side holding their buildings free and clear. Bondholders and savers came out with nothing.
The government noticed.
In February 1924, three months after the Rentenmark stabilized the currency, Berlin passed the Third Emergency Tax Decree. It did two things. First, it “revalued” old mortgages at just 15% of their gold value (later 25%), so creditors got a sliver back and owners kept most of the windfall. Second, it created the Hauszinssteuer, the house-rent tax, on every residential building built before 1918. The rate was set as a share of the building’s pre-war “peace rent,” typically 20–40% depending on the state.
The logic was explicit: the state saw a pool of unearned gain sitting in real estate, and it wanted it back. The tax was designed to replace the mortgage payments that had just disappeared. It also solved two other problems. The government was broke, and Germany had a severe housing shortage. A fixed share of the revenue was earmarked for subsidized construction.
The results were dramatic. The Hauszinssteuer became one of the largest revenue sources of the entire Weimar period, bringing in around a billion Reichsmarks a year by the late 1920s. It financed the famous Weimar housing estates, including Bruno Taut’s in Berlin and Ernst May’s “New Frankfurt,” and a large share of the roughly 2.5 million dwellings built between 1924 and 1931. Several of them are UNESCO sites today.
Politically, it was poison. Many of the owners were small middle-class landlords. Some had never held a mortgage and got no windfall at all, but were taxed anyway. Landlord associations became a permanent lobby, and the grievance fed into the middle-class resentment the right wing, including the Nazis, exploited. Private rental investment collapsed, since the tax plus rent control left no margin. Brüning cut it in 1931 during the Depression and allowed owners to buy their way out. The Nazi government abolished it entirely in 1942–43 through a final lump-sum redemption.
Nearly twenty years of clawback.
The lesson for anyone treating farmland, timber, or real estate as a hedge against a sovereign debt crisis: the hedge worked. And then the state spent two decades taxing it away, with the political cover to do so precisely because the gain looked unearned.