Transcript eres2012_392.contentx

The Challenges of Slovak Rental
Housing Policies in Slovakia in the
Broader Context of Central Europe.
Koloman Ivanička
Daniela Špirková
Slovak University of Technology
Institute of management
Housing markets during the planned economy
period in Central and Eastern Europe
• markets almost did not exist except for illegal
black markets
• housing considered as a social rather than an
economic good
• single party political control over the housing
sector
• lack of competition among housing agencies
(bureaucratic coordination), and broad control
over the allocation of housing services
Housing construction
• During the times of centrally planned
economy the new housing construction was
funded mostly by the state and built by the
public companies or by the people
themselves.
East European Housing Model before
1990
• Production, consumption and allocation of
housing dominated by state, functioning of
market subordinated
• Housing- the social right serving the housing
needs, but not commodity (Hegedus, Teller
2006)
• Public rented housing – at the forefront of
socialist housing model
Creation of housing markets after
1989
• Privatization and the restitution of the housing
stock
• Properties were sold for low prices that were
quite distinct from the economic
fundamentals
• Only after several years the prices on the
residential markets became more realistic, but
the problem of the adequate supply and
demand is still not solved
Transformation to market economy
• At the beginning – the general decline of incomes
of population
• Existing housing funding mechanisms were
mostly dismantled, and the new forms of the
housing finance and housing subsidies were not
existing
• Construction of the new housing units dropped
substantially, while the prices were growing
• In Nineties the housing reforms were not
considered to the priority
New dilemmas
• Actual outcomes of housing privatization and
restitution in CEE countries are modest and far
from excellent
• Growing homelessness
• Decline of housing production
• Inadequate upkeep of the public rental
housing and insufficient funding
• No renovation subsidies for private landlords
New dilemmas
• Lacking institutions for private rental housing
(with some exceptions)
• TBS – Towarzyszstwa budownictwa
zjednoczonego – TBS – Poland
• Nonprofit housing organizations in Slovakia –
that are rather marginal, however
• The new experience with social housing
developers in Montenegro
Subsidies of interest rate for private
landlords in Slovakia
• These subsidies existed for very limited period
(approx 3_4 years) at the beginning of 21 th
century, howeve later they were abolished.
The impact of these subsidies on housing
rental production was negligible
• The private landlords were not interested to
build such housing, perhaps because the
expected profits were too low for them
High homeownership rates
• The very high homeownership rates in CEE transition
countries are a relatively new phenomenon, which emerged
in the early 1990’s.
• After the abolition of communist regimes, the new
governments sought to move away from highly centralized
economies with collective ownership towards liberalized
market economies. In the housing sector this was achieved
by rapid privatization of publicly-owned property through
the sale of dwellings to tenants at low prices.
• As pointed out by Clapham (1995), this was done without
any explicit debate about privatization and its merits or
demerits. The general belief at the time was that
privatization of publicly-owned dwellings and housing
construction enterprises would relieve public expenditure,
create much needed funding, and lead to new housing
construction.
The changing structure of
homewnership after 1990 in Slovakia
100
90
80
70
60
Cooperative property
50
Rental dwelling
40
Other property
30
20
10
0
1991
2001
2008
Cooperative
property
22,12
14,92
3,64
Rental dwelling
26,76
8,12
2,71
Other property
51,13
76,96
93,65
Sustainability of the Market with High
Rate of Homeownership
• Market with the very high rate of homeownership is not
very sustainable
• Homeownership can be insecure. The property market now
sees a clear downturn, and prices decline. Residential
property prices in Slovakia fell by 8% in 2011, according to
the Global Property Guide, and flats in Dublin, Ireland, are
62% lower today than in 2007.
• In Spain the average price of a home has fallen by 35%
since 2008. The result is that many new homeowners, often
young families, have been forced to sell with a great loss. --http://ecahousingforum.eu/2012/04/rental-housing-as-akey-to-housing-crises/
Support of rental housing sector in Slovakia
(directed on low income people)
• Rental housing sector in the Slovak Republic in
comparison with developed countries of
Europe is considerably undersized, as
illustrated by the percentage of GDP support
2,5
1,93
2
1,7
1,5
1
(%)
1,1
1
1
0,56
0,5
0,28
0,24
0,09
Slovakia
Austria
Germany
France
Finland
Estonia
Denmark
Czech
Republic
Belgium
0
Rental Housing. Mobility and
Unemployment
• Character of labor market depends very much
from the well functioning housing market
that enables higher geographic labor mobility,
which in turn enable to reduce the
unemployment rate
• Structural change may be more difficult
without well functioning rental housing
market
Rental Housing Sector and Mortgage
Market
• Competition in the form of rental apartment houses
could push up the interest rate on housing loans. In an
environment where people have no alternative and the
demand for loans for their housing is growing every
year, the banks do not have the incentives to reduce
the interest rates on housing loans.
• While the euro area housing loans grew year on two
percent, in Slovakia it was about more than 18 percent.
Strong demand for mortgage credits allows Slovak
banks (which are foreign owned) to ask higher interest
rates than their counterparts in the euro area.
Living conditions of young people
• According to Eurostat statistics in Slovakia, 60
percent of youth aged 18 to 34 years live with
their parents, the highest share in the
European Union. Approximately forty percent
of households are overcrowded.
• The reasons for such a high share should be
studied however more in detail (other factors
than the lack of finance may play here its
role).
Social housing
• In most transition countries, social housing is not
really defined in the legislation, however, public
rental housing gradually assumes this function.
However this sector is often quite limited unlike the
situation in the developed countries – se the graph
Holland
36%
Sweden
22%
Austria
17%
16%
20%
0%
10%
25%
20%
Social rental sector
30%
40%
50%
Private housing sector
60%
Affordability of New Condominium
Housing
• Yet problems: prices for the new condos rose
in CEE capital cities to levels above Western
European capital cities. In many Western
European countries the average condo costs 4
to 5 average yearly gross incomes, but in many
CEE countries , this ratio was above 10 in
some cases even above 20 (Amman 2011)
Homeownership and Unemployment
• High share of homeownership may be one of the main
reasons for high unemployment in Europe.
• According to estimates (Oswald), every 10 additional
percentage points of homeownership increases the
unemployment rate by 2 percentage points.
• Homeowners in the event of job loss are less willing to
move into rental housing due to higher costs of
relocations (which includes the costs associated with
the sale of an apartment and paying for two housing
units until the original one is sold).
• In case of losing the job, the period of their
unemployment is longer than for tenants.
Homewnership and unemployment
• Based on his research Oswald also shows that regions
with higher share of homeownership have generally
more rigid treatment of land use planning and
legislation that restricts the development of business
activities (Oswald, A.J.,1996).
• negative impact on labor supply elasticities with
respect to wage and unemployment differences,
making regional disparities more profound and
persistent
• Later research has shown that the impact of
homewnership on unemployment is less strong than
was found by Oswald, nevertheless it is substantial
Misdirected consumer choice in
Eastern Europe
• Misdirected consumer choice, because of insufficient supply of
affordable rental housing
• Rental housing should be the option in housing markets especially
for young households and domestic migrants. In the past, house
price risks were increased by giving out mortgages to households
that could not really afford them
• Legislation on rental housing, social housing, maintenance and
related topics is inadequate and needs the new solutions
• The hostile legislation toward social rental housing in Hungary
(Erdossi, Hegeduss): The subsidies are channelled to ownership
sector (housing construction benefits, interest subsidies, local
subsidies, employer subsidies as well as tax relief (purchase of
privately owned housing, savings linked subsidies)
• It is more expensive for households to rent than to buy or build
housing
Rental housing in Slovakia
• Rental housing in Slovakia is often understood as
housing for people with the lowest incomes, the
marginal groups who have different social and personal
problems. Ensuring rental housing development is
currently primarily the responsibility of municipalities,
whose main source of financing are the state grants
and a loans with a low interest rate.
• Despite subsidies from the state and affordable
housing loans from commercial banks there remains a
group of people with average to low incomes, for
whom the provision of separate accommodation is
unattainable. They are often well educated young
people.
Share of municipal rental housing units from total number of
completed dwellings in Slovakia (%)
28,4
30
25
19,1
20
16,9
15
12,1
10,4
13,7
15,3
14,8
12,2
12,7
2009
2010
10,6
10
5
0
2001
2002
2003
2003
2005
2006
2007
2008
2011
The lack of rental housing was and is
the result:
• improper implementation of the concept of privatization of
housing,
• problems of economic transformation (slow transformation
of the housing sector) - rent deregulation was done slowly
to avoid disruption of social peace,
• improper incentives for the development of rental housing
(for rent private apartments and lack incentives to social
housing - unsustainable system of subsidies)
• missing tax breaks and preferential credit conditions mainly
commercial banks,
• absence of a non-profit developers to a greater extent,
although the legal preconditions for it are created.
Changing attitudes to rental sector in
Czech Republic
• The Czechs are retreating from their mortgages, and
cast into regular monthly payments to their home. The
Realtors Association of the Czech Republic reports that
the rental housing business grew, roughly by one fifth.
• Czech real estate brokers have noticed increased
interest in the rental housing, not only among people
who are afraid to tie on home loan repayment. And
there is growing demand for good rental apartments
for managers with parking. The growing interest for
renting the family houses is also observed
• Before: The young people consídered the rental
housing as the very bad option.
Availability of capital for rental sector
• There is hardly any long term investment
capital available at attractive conditions for
rental housing ( UNECE 2005)
• PPP schemes for housing: are almost not
developed
• Some succesful initiatives were realized in
Slovakia, however the further dissemination
of these initiatives did not obtain the poitical
and gocvernmental support.
Recommendation (OECD)
• Remove obstacles to the expansion of a private
rental market
• •End the right-to-buy policy or make it less
attractive by adjusting conditions closer to
market prices.
• •Increase the taxation of real estate by basing it
on actual property prices and by raising the tax
rate to neutral levels.
• •Further reduce the subsidization of owneroccupied housing.
Recommendations
• Consider bringing the rent level in public housing
apartments closer to market levels. At the very
least, tenants who no longer fulfil the eligibility
criteria should pay market rents. (This is the
marginal problem in Slovakia, however in some
contries it is the serious problem)
• •housing supply policies are needed to be
developed in addition to to labor market policies
aiming at the same thing.
Recommendations
• •Consider phasing out the tenant protection for indefinite
rental contracts.
• A common feature of the housing allowance is its marginal
significance (OECD research). Its role is limited to income
maintenance for the lowest income families, rather than
being an effective demand-side housing policy instrument.
The many restrictive conditions apply to the possibility to
receive the allowances (income ceilings)
• Consider raising housing allowances, make them more
widely available (also to persons in work) and take into
account regional differences in housing costs when setting
the amounts.
Conclusions
• Rental housing sector in CEE countries is really
emerging sector, that is still in infancy
• The majority of subsidies are regressive in nature,
supporting access to homeownership, while little
government funding is directed to public rental
housing, means-tested support or assistance of
low income households
• There is the necessity to study and research
above mentioned problems in detail and based
on them to propose the incentives for teh
develoment of the rental sector