1

Rental Housing in Poland – Rental Housing in Poland – private and public financeprivate and public finance

W. Jan Brzeski

2

Rental Housing as Reform ComponentRental Housing as Reform Component Housing reforms should begin with “rent reform”

Housing effort ratios very low in Soviet economies Need to accept higher effort ratios -> higher pre-privatization rents Political economy against higher effort ratios / rents / payments Political economy for give-away micro-privatization instead

Primacy of housing choice: type, standard, location, tenure Rental choice for non-beneficiaries of privatization:

young and mobile (students, yuppies, dinks) urbanizing migrants and intra-urban “nomads” vulnerable groups in need of emergency housing permanent urban poor expats, divorced, life-style choice

3

Rental Housing as Market ComponentRental Housing as Market Component Demand for rental housing tends to:

Decrease with income and age, with increase at retirement Increase with income uncertainty, job search, divorce, mobility Decrease with household size, influenced by household type Decrease with better access to mortgage financing Increase with growing propensity to consume (rather than save) Strongly correlate with building stock composition

Supply / investor categories active: Public municipal rental including social Subsistence micro-landlords Small /medium private landlords including restituted Cooperative rentals Non-profit new rental apartments Institutional portfolio investors Lenders financing private and non-profit production

4

Figure 3 Home-ownership by Age in Some Market Countries

0

10

20

30

40

50

60

70

80

90

25-29 30-39 40-49 50-59 60-69 70-79

Age Group

Ho

me

Ow

ner

ship

Rat

e%

USA France

United Kingdom Germany

Source: Chiuri and Jappelli (2000).

5

Figure 2 Building Structure and Rental Tenure in Some Market Economies

0

10

20

30

40

50

60

70

Apartment & hostel buildings Non owner-occupied tenure

Source: Authors’ calculations using National Agency for Enterprise and Housing (Denmark): Housing Statistics in the European Union (2003), UN-ECE (2004a), Joint Centre of Housing Studies (2004).

6

As the number of households who did not benefit from the privatization continues to grow – especially the young, the mobile and the poor – the lack of accessible and affordable formal rental housing is pushing them into informal rentals with little tenure security, discouraging higher residential mobility and thus labor market flexibility.

7

Young, Mobile and PoorYoung, Mobile and Poor

8

Governments are increasingly recognizing that sustainable homeownership for all is neither financially and fiscally possible, nor desirable for all household groups and life-cycle stages.

9

Figure 1

Building Structure and Rental Tenure in Some Transition Economies

0

10

20

30

40

50

60

70

80

Hungary

Serbia

Roman

ia

Armen

ia

Slova

kia

Czech

Rep

Lithuan

ia

Poland

Russia

Apartment & hostel buildings Non owner-occupied tenure

Source: World Bank LSMS study, Lithuanian Household Survey, national statistical offices. Note: For the Czech Republic and Slovakia all units in housing cooperatives were counted as non-owner-occupied because of the lack of detailed data on renting

10

Tenure-Stock Structure in PolandTenure-Stock Structure in Poland Public rental:

Total housing - 14 % Capital city - 21 % Rural areas - 2 % Urban areas - 20 %

Private rental: Total housing - 17 % Capital city - 29 % Rural areas - 6 % Urban areas - 22 %

Overall homeownership rate: 66% Share of multi-family apartments: 70%

11

Tenure-Income Structure in PolandTenure-Income Structure in Poland

Ownership and income (by quintiles): I - 9.9 %; II – 15.5 %; III – 19.5 %; IV – 24.7 %; V – 30.3 %

Public rental and income (by quintiles): I – 16.4 %; II – 21.1 %; III – 21.8 %; IV – 21.3 %; V – 19.4 %

Private rental and income (by quintiles: I – 21.2 %; II – 20.6 %; III – 21.0 %; IV – 19.6 %; V – 17.7%

12

Figure 6 Income and Urban Apartment Tenure in Poland

Poland

0

5

10

15

20

25

30

35

1 2 3 4 5

Owners

Public Rental

Private Rental

13

Rental Finance Components in PolandRental Finance Components in Poland

Public / municipal housing: residual of privatization PPP non-profit new rental housing TBS Cooperative rental housing Restituted pre-war rental apartment buildings New subsidized rental dwellings New unsubsidized rental dwellings Informal renting of private apartments and homes Illegal sub-letting of municipal rental apartments

14

Rental Policy Directions in PolandRental Policy Directions in Poland Rental sector’s role in economic reforms:

Linkage to life-cycle demand trends of young population Linkage to labor mobility and regional development Linkage to filtering chain induced by new construction Linkage to social shelter provision Recognizing the need of tenure choice availability Recognizing the need of SME landlord entrepreneurship Recognizing the need of facilitating continued urbanization

Contradictory impediments to rental sector reforms: Populist rhetoric of excessive rent controls Failure of courts to rule on evictions “onto the street” Incomplete landlord-tenant regulations biased towards tenants Failure by populist parliament to approve Government policy

15

Rental Policy Instruments in PolandRental Policy Instruments in Poland Allow municipalities to decide on privatization:

Considerable social housing stock retained Create tax rules for prewar rental apartment buildings:

Deductibility of costs, spreading of losses Allow rent differentiation within municipal rental stock:

Mimicking market relations between dwellings Subsidies to construction of new rental dwellings:

Program abused and discontinued Subsidies and lending to non-profit new rental TBS:

60,000 built with large subsidies and uncertain targeting Develop housing allowances to all formal tenants:

Good targeting, “under-subscribed” Provide professional property “asset” managers:

Over 25,000 licensed managers with modern education and training

16

New PPP Rental InitiativeNew PPP Rental Initiative

Social housing by banks-developers-municipalities: Municipality issues long-term rental contract for a building Bank finances production backed by long-term municipal contract Developer supplies the new building and holds the building At contract expiration municipality takes over building ownership

Currently feasibility studies in some pilot sites: Some municipalities willing to experiment How much risk backing to developers Looking for lessons learned elsewhere with similar schemes Current government skeptical about PPP schemes

17

Rental Choice and Housing Policy Realignment in Transition:

Post-privatization Challenges in the Europe and Central Asia

Region

Infrastructure Department

Europe and Central Asia Region (ECA)

The World Bank

Washington, D.C.

December 2005