Frankfurters Aren't Rolling Out the Welcome Mat for Brexit Bankers

By William Wilkes and Patricia Kowsmann Features Dow Jones Newswires

A bigger tax base, greater clout and a boost for the local economy: The city that hosts the European Central Bank has several reasons to welcome London bankers looking for a new post-Brexit home.

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Residents, however, aren't happy.

Many longtime Frankfurt locals see a potential wave of deep-pocketed bankers driving up housing costs and even driving them out of a city that is already struggling to meet its housing needs.

The U.K.'s 2016 decision to leave the European Union sparked a race among the bloc's capitals to lure banks and its employees who want to keep the ability to sell their services across the EU if Britain leaves the single market.

Frankfurt's charm offensive on the banks is working, and several have said they would shift operations to the city.

But as Germany's financial hub steps up its campaign to attract bankers from London, residents -- already faced with rising property prices and many construction projects around the city -- are starting to say "nein."

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"The city shouldn't be spending my taxes to get bankers from London," said Almuth Mayer, a nurse who lives in central Frankfurt and has joined one of several protest groups that have sprung up demanding city officials act to curb spiraling housing costs.

Demonstrations are being planned outside luxury housing blocks to coincide with the national election campaign in September in which Angela Merkel's Christian Democratic Union seeks reelection.

Ms. Mayer said her landlord, property company Rohleder and Paz GbR, has refused to fix leaks and holes in the roof to encourage middle-class tenants to leave and make way for bankers. She also has criticized Frankfurt's mayor, Peter Feldmann, for personally going to London to woo banks.

"It's close to criminal," Ms. Mayer said.

A spokesman for the mayor declined to comment.

Edwin Rohleder, partner at Rohleder and Paz GbR declined to comment on the dispute with the company's tenants.

Development of middle-class housing is rising in Frankfurt, but the pace isn't fast enough to meet booming demand.

The city's 730,000 population has increased 15% over the last decade mostly thanks to immigrants attracted by Germany's strong economy. A low unemployment rate and subzero interest rates, meanwhile, have boosted demand for homes. But less than a third the size of New York City, Frankfurt land is scarce, creating a supply crunch that is driving up prices.

Rents have risen on average 45% over the last decade, according to real-estate firm JLL. Apartment prices have more than doubled over the same period to EUR4,550 per square meter.

While still much cheaper than European capitals like London and Paris, the rise in real estate costs has eclipsed the average 25% wage increase in the city.

"Too much available building land has gone to luxury housing already, [while] nurses and other lower earners can't afford to live here," said Jürgen Lutz, head of Frankfurt rental association MHM, a group that helps Frankfurt residents with housing issues.

Mr. Lutz called for the local government to tighten rental controls and build more homes.

A Frankfurt city government spokesman said authorities are aware of the residential shortage problem and are trying to address it by making more land available for construction, transforming office buildings into apartment complexes and helping lower-income residents with subsidized housing.

"We are more concerned about getting apartments for those on low incomes. We need to help those people," he said.

Estimates of how many bankers could move to Frankfurt with Brexit vary. According to Deutsche Bank analysts, a 5,000-person inflow could increase residential prices by an extra 4%. That figure could surge if more people end up coming, given the city already has an estimated shortage of 36,000 houses.

Frankfurt's housing problem hasn't spilled over nationally, but the topic is sensitive for both the local and national authorities. Berlin has largely held off in giving public support to Frankfurt's campaign to attract bankers ahead of September's elections. But behind closed doors, it is considering steps to make the country attractive to banks, including making more flexible labor laws for higher earners, according to people familiar with the government's plans.

The shortage of housing mirrors a dearth of office space in the city, where new building projects are snagged on Frankfurt's strict zoning laws.

"The greater the Brexit effect, and the more successful Frankfurt is in attracting British companies, employees and expats, the less equipped [traditional] housing policy will be to master these additional challenges," Deutsche Bank said in a report published in November.

At a quaint street near Frankfurt's center, residents complain a playground will soon give space to a new luxury development by property giant Vonovia AG. The company also is redoing surrounding buildings, which will result in higher rental prices for current residents including Robert Stojanoski, a 37-year-old logistics clerk.

"I was born in Frankfurt and would like to continue to live here," Mr. Stojanoski said at a recent residents meeting to discuss the higher rents. "But I can't afford to."

A spokesman for Vonovia said rent increases will be moderate. The company plans to build a new playground in the development, he said.

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com and William Wilkes at william.wilkes@wsj.com

(END) Dow Jones Newswires

August 16, 2017 05:44 ET (09:44 GMT)