The C hallenges of Slovak R ental H ousing P olicies in Slovakia in the B roader C ontext of Central Europe .

1. TheChallengesof Slovak RentalHousingPoliciesin Slovakia in theBroaderContextofCentralEurope. Koloman Ivanička Daniela Špirková Slovak UniversityofTechnology Instituteofmanagement

2. Housingmarketsduringtheplannedeconomyperiod in Central and EasternEurope • marketsalmostdidnotexistexceptforillegalblackmarkets • housing consideredas 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

3. Housingconstruction • 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.

4. EastEuropeanHousingModel before 1990 • Production, consumption and allocationofhousingdominated by state, functioningofmarketsubordinated • Housing- thesocialrightservingthehousingneeds, butnotcommodity (Hegedus, Teller 2006) • Publicrentedhousing – attheforefrontofsocialisthousing model

5. Creationofhousingmarketsafter 1989 • Privatizationand the restitution of the housing stock • Propertieswere 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

6. Transformation to marketeconomy • Atthebeginning – thegeneral 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 • Constructionof the new housing units dropped substantially, while the prices were growing • In Ninetiesthehousingreformswerenotconsidered to the priority

7. 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

8. New dilemmas • Lackinginstitutionsforprivaterentalhousing (withsomeexceptions) • TBS – Towarzyszstwabudownictwazjednoczonego– TBS – Poland • Nonprofithousingorganizations in Slovakia – that are rathermarginal, however • The new experiencewithsocialhousingdevelopers in Montenegro

9. Subsidiesofinterest rate forprivatelandlords in Slovakia • Thesesubsidiesexistedforverylimitedperiod (approx 3_4 years) atthebeginningof 21 thcentury, howevelatertheywereabolished. Theimpactofthesesubsidies on housingrentalproductionwasnegligible • Theprivatelandlordswerenotinterested to buildsuchhousing, perhapsbecausetheexpectedprofitsweretoolowforthem

10. Highhomeownershiprates • 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.

11. Thechangingstructureofhomewnershipafter1990 in Slovakia

12. SustainabilityoftheMarketwithHigh Rate ofHomeownership • Marketwiththeveryhighrate ofhomeownershipisnotverysustainable • 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-a-key-to-housing-crises/

13. Supportofrentalhousingsector in Slovakia (directed on lowincomepeople) • Rentalhousing sector in the Slovak Republic in comparison with developed countries of Europe is considerably undersized, as illustrated by the percentage of GDP support

14. RentalHousing. Mobility and Unemployment • Characteroflabormarketdependsverymuchfromthewellfunctioninghousingmarketthatenableshighergeographiclabor mobility, which in turnenable to reducetheunemployment rate • Structuralchangemaybe more difficultwithoutwellfunctioningrentalhousingmarket

15. RentalHousingSectorand MortgageMarket • Competition in the form of rental apartment houses could push upthe 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 yearontwo percent, in Slovakia it was about more than 18 percent. Strong demandformortgagecreditsallows Slovak banks (which are foreignowned) to ask higher interest rates than their counterparts in the euro area.

16. Livingconditionsofyoungpeople • According to Eurostat statistics in Slovakia, 60 percent of youth aged 18 to 34 years live with their parents, the highest sharein the European Union. Approximately forty percent of households are overcrowded. • Thereasonsforsuch a highshareshouldbestudiedhowever more in detail (otherfactorsthanthelackoffinancemayplayhereits role).

17. Socialhousing • 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

18. AffordabilityofNew CondominiumHousing • 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)

19. Homeownership and Unemployment • Highshareofhomeownership maybeone 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.

20. 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 andunemployment differences, making regional disparities more profound and persistent • Laterresearch has shownthattheimpactofhomewnershipon unemploymentislessstrongthanwasfound by Oswald, neverthelessitissubstantial

21. Misdirectedconsumerchoice in EasternEurope • Misdirectedconsumerchoice, becauseofinsufficientsupplyofaffordablerentalhousing • Rentalhousingshouldbetheoption in housingmarketsespeciallyforyounghouseholds and domesticmigrants. In thepast, housepriceriskswereincreased by givingoutmortgages to householdsthatcouldnotreallyaffordthem • Legislation on rentalhousing, socialhousing, maintenance and relatedtopicsisinadequate and needsthe new solutions • Thehostilelegislationtowardsocialrentalhousingin Hungary (Erdossi, Hegeduss): Thesubsidies are channelled to ownershipsector (housingconstructionbenefits, interestsubsidies, localsubsidies, employersubsidiesaswellastaxrelief (purchaseofprivatelyownedhousing, savingslinkedsubsidies) • Itismore expensiveforhouseholds to rent than to buy or buildhousing

22. Rentalhousing 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.

23. Shareofmunicipalrentalhousingunitsfromtotalnumberofcompleteddwellings in Slovakia (%)

24. 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.

25. Changingattitudes to rentalsector in CzechRepublic • 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: Theyoungpeopleconsíderedtherentalhousingastheverybadoption.

26. Availabilityofcapitalforrentalsector • Thereishardlyanylong term investmentcapitalavailableatattractiveconditionsforrentalhousing ( UNECE 2005) • PPP schemesforhousing: are almostnotdeveloped • Somesuccesfulinitiativeswererealized in Slovakia, howeverthefurtherdisseminationoftheseinitiativesdidnotobtainthepoitical and gocvernmentalsupport.

27. Recommendation (OECD) • Removeobstacles to theexpansionof a privaterentalmarket • • End theright-to-buypolicy or makeitlessattractive by adjustingconditionscloser to marketprices. • • Increasethetaxationofrealestate by basingit on actualpropertyprices and by raisingthetax rate to neutrallevels. • • Furtherreducethesubsidizationofowner-occupiedhousing.

28. Recommendations • Considerbringingthe rent level in publichousingapartmentscloser to marketlevels. Attheveryleast, tenantswho no longerfulfiltheeligibilitycriteriashouldpaymarketrents. (Thisisthemarginalproblem in Slovakia, however in somecontriesitistheseriousproblem) • •housing supply policies are needed to bedeveloped in addition to to labor market policies aiming at the same thing.

29. Recommendations • • Considerphasingoutthetenantprotectionforindefiniterentalcontracts. • 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 thepossibilitytoreceivetheallowances(income ceilings) • Considerraisinghousingallowances, makethem more widelyavailable (also to persons in work) and takeintoaccountregionaldifferences in housingcostswhensettingtheamounts.

30. Conclusions • Rentalhousingsector in CEE countriesisreallyemergingsector, thatisstill in infancy • The majority of subsidies are regressivein nature, supporting access to homeownership, while little government funding isdirected to public rental housing, means-tested support or assistance of lowincome households • Thereisthenecessity to study and researchabovementionedproblems in detail and based on them to proposetheincentivesfortehdevelomentoftherentalsector