Housing affordability in the Global North

3rd European Housing Forum :: Housing Affordability :: 2015 :: Berlin Dr. Orna Rosenfeld

University of Westminster, LondonSciences Po - L'Institut d'études politiques de Paris UNECE Committee on Housing and Land Management

The study ‘Social Housing in the UNECE region: models, trends and challenges’ was commissioned in response to concerns among the UNECE countries about the lack of housing affordability post GFC.

Engagement with key stakeholders: government representatives, international banks and investors, housing providers, NGOs.

UNECE region covers 56 countries of the global north.

Lessons from the UNECE study on key trends and challenges in housing

http://parisphotos.net/aerial-view-of-seine-river-bridges-and-paris/

Housing systems in the UNECE region are diverse. The housing sector general and social housing in particular are

going through significant reassessment after GFC. Great majority of the UNECE countries are at the crossroads

between the old ways that resulted in a housing crisis and experimentation with new and innovative solutions.

UNECE is a region of homeowners

Government Participation in Housing Finance (Home Ownership)

Countries included in IMF estimates: Emerging Economies: Brazil, Chile, China, Croatia, Czech Republic, Hungary, India, Indonesia, Malaysia,Mexico, Poland, Russia, Singapore, Slovak Republic, Slovenia, South Africa, South Korea, Taiwan, Province of China, Thailand. Advanced Economies: Australia, Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, Japan, Netherlands, Spain, United Kingdom, United States

State subsidies for home ownership no longer answer the need

GFC Has changed the way the housing systems operate

Homeownership is no longer readily accessible

Social Housing Model TrendsUniversal Model Generalist Model Residual Model

Open to the whole population

Households bellow defined income thresholds

Vulnerable householdsSpecial groups

General trend in subsidies provision for social housing Subject Subsidies Object Subsidies

Pre-contract period Building contract period Disposal Period

Out

lay

(Cur

renc

y)

1.Supported Housing Providers

3.Discounted Land Price

2.Grants

4.Public Loans5. Other forms of cheep finance

Pre-contract period Building contract period Disposal Period

Out

lay

(Cur

renc

y)

1.Supported Housing Providers

3.Discounted Land Price

2.Grants

4.Public Loans5. Other forms of cheep finance• Private Loans• Bond Finance• Government secured private

investment• State Guarantees• Loans from Dev. Banks6. Sweating existing assets• Use of own reserves and

surpluses• Investment from selling

equity/properties• Cross subsidy

Examples of national social housing waiting lists: England 1.800.000 (UK Government, 2014)France 1.700.000 (L’ Union Sociale pour Habitat, 2014) United States of America 5.300.000 (Harvard University, 2013)Russian Federation waiting period 20 years (UNECE, 2014) Ukraine waiting period 90 years (UNECE, 2014)

Social Housing Waiting lists

100 million People in the global north are housing cost overburdened.

40%They spend over 40% of family earnings on housing.

Source: Bilbby, 2006

London

Newcastle

Affordability challenge differ across the national housing markets.The low and high housing demand areas coexist in one country. This

signifies the complexity of the housing need. The housing need in the low housing demand (low price) areas may be

linked to low income levels and/or unemployment. In high market areas key workers, middle income households cannot afford homes.

DIVERSE HOUSING NEED

Future policies should to consider the fragmentation of the national housing markets (ei. low- and high-housing demand areas) while supporting governance structures needed to respond to local drivers of change. Mixed approaches to housing affordability are required, with the particular combination of programs varying according to the economic and social profile of the city or region.

http://www.theguardian.com/news/datablog/2014/jan/21/record-numbers-young-adults-living-with-parents

http://ronepraiseindy.files.wordpress.com/2011/08/new-orleans-public-housing-demolition.jpg

http://affordablehousinginstitute.org/blogs/us/2009/03/managing-the-lifeboats.html

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The Housing need has diversified

Because of varied housing need and ‘customer’ profile, diverse portfolio of affordable housing choices should be provided. The future policies should support the housing affordability continuum from: emergency shelters; serviced housing; subsidised housing; private rent and homeownership. Future policies should support housing provision across all tenures in tenure neutral/balanced manner.

There is a sizable shortfall in net new housing output (all tenures) because of GFC and longer term lack of supply response in UNECE.

Building volumes of the 1980s or 1990s have not been recovered. The social housing construction is limited and stock reduced.An additional challenge is a lack of “appropriate types” of housing

because of changing demographic trends.

LIMITED HOUSING SUPPLY

Boosting housing supply across all housing tenures is of key importance for increased housing access and choice. Creating environment in which large scale, medium and small housing providers working for no-profit, limited profit and profit are encouraged to build. Corporate social responsibility (incl. resident involvement) should be considered a guiding principle in future of housing provision.

The future policies should support tenure balanced housing provision; reassess and recalibrate state intervention in housing finance for results that are more adapt to present and future housing market dynamic while responding to the increased and diversified housing need. In doing so they should address fundamental market failures; closely examine the links between the financial and housing markets.

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HOUSING IS A COMPLEX GOOD

Within an articulated policy framework for affordable housing, clear aims and objectives are required not just for individual policies but also for the mix of policies and their system-level coherence, including how they are delivered and by whom (especially in devolved systems) (Gibb et al., 2013). For cost efficiency, system-level tests are required to ensure that subsidies are not over provided or poorly targeted.

Thank you!

Dr. Orna Rosenfeld :: orna.rosenfeld@gmail.com

Housing is the least affordable human right, that makes other human rights increasingly unaffordable.

Reserve

Supply Subsidies

also called

Object Subsidies‘Brick & Mortar’ Subsidies

Demand Subsidies

also called

Subject Subsidies‘Housing allowance’

The social housing stock has been reduced in both the East and West ends of the UNECE region, since the 1980s.

New building and refurbishment (retrofitting) are key to responding to increasing demand and enabling

provision of energy efficient housing.

Pre-contract period Building contract period Disposal Period

Out

lay

(Cur

renc

y)

Social and affordable housing supply is based on the commercial property cash-flow where certain items are subsidised.

Pre-contract period Building contract period Disposal Period

Out

lay

(Cur

renc

y)

1.Supported Housing Providers

3.Discounted Land Price

2.Grants

4.Public Loans5. Tax Reductions

Discount Mechanism Trend Provided by Description Discount points

Development cost reduction

Supported Housing Providers

Support provided by Government (different tiers)

Variety of actors providing social and affordable housing depending on the country (eg. local authorities, housing associations, cooperatives, private developers etc.).

Developers profit

Discounted land price

Government (different tiers)

The option depends on the land ownership and other local factors. This option is not readily available in densely populated areas.

Site Purchase, Interest on site costs

Capital Grants Government (different tiers)

Public sector (ei. government) grants for new building and refurbishment are being cut across the board as a part of the austerity measures.

Construction Cost.

Pu

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Discount Mechanism Trend Provided by Description Discount points

Tax reductions

Tax incentives for investment in social and affordable housing

Government (different tiers)

Key vehicle to enabling social and affordable housing provision, in the past. However, number of governments are taxing social and affordable housing development at the moment.

Tax

Tax incentives for providers of social and affordable housing

Government (different tiers)

Key vehicle to enabling social and affordable housing provision, in the past. In the current austerity climate, number of governments have also recurred to taxation of social and affordable housing providers.

TaxP

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Discount Mechanism Trend Provided by Description Discount points

Financial Mechanism

Public loans Government (different tiers)

Traditionally the primary financial strategy for S&A housing programmes. Currently being cut.

Construction cost and interest.

Revolving Funds and Equity Loans

The repaid loans are reinvested in new development. At the moment, loan repayment is challenging.

Interest rate subsidies

Government (different tiers)

Being cut. They can be costly to government over time, especially in time of raising interest rates.

Protected circuits of savings for S&A housing

Government (different tiers)

Sustained in some countries, while others have dismantled them.

Pu

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Pre-contract period Building contract period Disposal Period

Out

lay

(Cur

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1.Supported Housing Providers

3.Discounted Land Price

2.Grants

4.Public Loans5. Tax Reductions

Source: Eurostat (2014)

Discount Mechanism Trend Provided by Description Discount points

Sweating excising assets

Use of own reserves and surpluses

Supported Housing Providers

Instead of using government funds, the supported housing providers are increasingly being asked to use their own assets. This option is possible only for mature well established S&A providers.

Construction cost and interest.

Investment from selling off equity or selling properties

Supported Housing Providers

The supported housing providers are resorting to selling part of the equity to their tenants, or selling properties all together in order to subsidise new ones or renew the existing ones.

Provision of commercial properties (cross subsidy)

Supported Housing Providers

Developing and selling properties for market price is used increasingly to subsidise provision of social and affordable housing (by supported housing providers.

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Discount Mechanism Trend Provided by Description Discount points

Financial Mechanism

Private loans Private banks, Private investors

Increasingly play a role in financing S&A housing. Limited access and high cost of finance.

Construction cost and interest.Bond finance Bought by

private investorsIncreasingly play a role in financing S&A housing. Generally cheaper than loans.

Government secured private investment or state guarantees.

Guarantees provided by Government (different tiers) to access private funding.

Used to reduce cost of finance and secure private investment in social and affordable housing (see Lawson, 2013).

Loans provided by development banks

EIB, EBRD, CEB

The international development banks are increasingly called to fund the social housing projects. While the number of project has increased in the past decade the provision is still quite limited.

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1. Affordable housing policy, while financially much reduced, is remarkably fluid and subject to innovations and novelty in the countries with mature housing stock.

2. There is a shift from state /public sector funded subsidies to private loans and investments, bond finance and government guarantees, resulting in shallow subsidies and affordable rather than social housing (Gibb et al., 2013).

3. There is an increased interest in ‘self-financing’. This may represent a transition from sustainable growth in housing supply towards stagnation (Driant & Li, 2012) and underprovision.

Help to Buy Scottish government guarantee

4. Policy makers are increasingly interested in management of various income streams, blending different subsidies creatively and encouragement of competition among supported housing providers.

5. As the result of restructuring and innovation new actors are joining the process of social and affordable housing provision in number of countries (for example private developers, private banks, private investment institutions).

6. The actors no longer include only national agents but cross border and international agencies (eg. EU banks, investment funds). In some cases new structures (eg. aggregator bonds, market intermediaries) are needed.

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1. Diverse portfolio of social and affordable housing choices and funding options.

2. Governance of Housing Finance: acknowledging new actors and new forms or partnership working.

3. Sensitivity to the local housing markets and their fragmentation to ensure cost effectiveness.

4. Mix of policies and their system-level coherence, for cost effectiveness and energy efficiency.

5. Emerging trends: integration of the housing, energy, health expenditure. Integration of efforts for cost efficiency. Coordination of funding streams.

To discover more findings and recommendations download UNECE publication“Social Housing at the UNECE region: models trends and challenges”

@https://

www.unece.org/fileadmin/DAM/hlm/documents/Publications/Social_Housing_in_UNECE_region.pdf