Social Rental Agencies in Hungary – Overcoming Legal and Financial Constraints

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Presentation given by József Hegedüs, Vera Horváth, Eszter Somogyi, Hungary, at the 2013 FEANTSA Research Conference, Alice Salomon Hochschule Berlin, 20th September 2013

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Social Rental Agencies in Hungary – Overcoming Legal and Financial Constraints

  1. 1. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Social Rental Agencies in Hungary – Overcoming Legal and Financial Constraints J. Hegedüs, V. Horváth and E. Somogyi METROPOLITAN RESEARCH INSTITUTE
  2. 2. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 The presentation is based on two ongoing projects 1. TENLAW (Tenancy Law and Housing Policy in Multi-level Europe) project under EU FP7 2. MRI joint project with Habitat for Humanity Hungary supported by the Open Society Foundation
  3. 3. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Outline of the presentation  Economic, social and demographic trends after transition  Toward a new housing regime – failures of the municipality based social housing system  Housing affordability – key element of the housing problems  Innovative solutions – their limits and constrains  Social Housing Agencies – a new possibility  International experiences  Market/state failures regulating private rental market  Hungarian model proposed by MRI/HFHI  Macro economic/social factors influencing the housing market
  4. 4. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Macro economic/social factors influencing the housing market  Economic growth  Priority of economic policy: growth (and structural adjustment)  Stages of the growth: 1990-1996, 1997-2002, 2003-2008, and the crisis  Low employment rate, informal economy, income inequality and insecurity  Demography (low fertility, migration, etc.) 4
  5. 5. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Toward a new housing regime?  Post-socialist welfare  Critical elements of the social housing problems  Housing conditions  Lack of social housing stock  Affordability
  6. 6. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Housing policy and its social elements Social housing is a „shared” responsibility between the national and local government – but no (financial and political) incentives to build up an efficient social housing system
  7. 7. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Lack of social housing policy  Early attempts - failures  Social construction subsidy (1994-1998)  Investment in public rental sector (2000-2004)  Rent subsidy and tax advantages (after 2004)  Why?  Lack of political commitment to social housing, and the ideology of the private ownership  Local level: mixture of mission and rational/financial oriented behaviour – privatization as prefered option
  8. 8. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Diverse startegies of municipalities  Attitude towards privatization  Allocation of vacant units  Contract type (one year, etc.)  Social accommodation for non-paying tenants  Eviction practice and arrears
  9. 9. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Housing affordability  Housing affordability related to macroeconomic trends: incomes, income distribution and housing cost (rent, house-price and utility)  Conflicts between households, utility companies and municipal/government institutions (with a possible role of NGOs) – different strategies  Facts:  Public utility arrears  Rent arrears in municipal housing sector  Mortgage arrears
  10. 10. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Innovative, but fragmented solutions at local level - examples Public sector  Social „accommodation” in Szombathely  „Lélek-program” in district 8  Mortgage rescue program: National Asset Management Agency  Ocsa social housing construction program Private rental and NGO  Trambulin house  Veszprém „Hell’s Tower” – Maltese Charity Service  Rent subsidy programs for private rentals  Mortgage rescue programs – private rental sector  Social real estate brokerage
  11. 11. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Constraining factors on expansion of good practices  Difficult to standardize related procedures – complex individual cases, marginalised target group  No monitoring over the financial performance of the programmes (not the interest of the participating institutions)  Limited financial resources  Political concerns: increasing the threshold increases the eligible population disproportionately
  12. 12. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Opportunity to use private rental sector for social housing  Tenure structure  large privately owned housing sector  No reliable data on private rental Tenure structure, 2011 12 Unhabited homes
  13. 13. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Private rental sector – after transition  Notes on PRS in socialist housing systems  PRS in post-socialist systems:  Financial aspect: user cost approach Long term relative advantage: owner occupation means higher „profit”: No imputed rent; No tax/financial incentives to potential landlords; Tax exemptions and support to home ownership.  Legal aspect: under-regulation Rental regulations: only provides general framework; details of contract are freely negotiable. Current system avoids risks of overregulation, but does not address typical sources of landlord-tenant conflicts. Court and law enforcement system expensive and slow  Outcome: PRS becomes a residual sector
  14. 14. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 What can we learn from the SRA models used in different countries?  Sufficient incentives for  the demand and supply sides  and for the intermediary institutions  Different target groups  Central or local programme management  Legal framework: stable and predictable
  15. 15. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Unmanaged risks related to PRS in Hungary Risks of the landlord  Rent arrears  Cost of the evictions  Utility cost non-payment  Damages to the property Risks of the tenants  Rent stability/predictability  Legal residence  Long term lease Consequences: informal „risk management” and under-utilization of the privately owned housing stock
  16. 16. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Opportunity - advocacy  Economic crisis – mass problem of FX loans  National Asset Managament Agency: special state owned rental sector (largest program in the last 23 years)  Social housing construction - pilot  Strategy: creating a new public tenure form („charter” city approach)
  17. 17. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Proposal for introducing SRAs in Hungary: organizational structures Program managmenet Type of SRA Centralized Decentralized SRA as an intermediary agency A B SRA as a managment agency C D 17 Issue: risk sharing schemes between • SRA and Landlord • Central Government – (Municipalities)- SRAs
  18. 18. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Organizational structurte of new public sector – pilot project Metropolitan Research Institute 18
  19. 19. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Elements of the design:  Pricing the risks Market rent = return on „investment” + cost of risks and management  Subsidies  Housing allowance  Tax allowance  SRA management support (e.g. risk fund)  Institutional/organizational elements
  20. 20. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Summary of pricing the risks Metropolitan Research Institute 20 Risktypes Estimatedprobability Rentlevel(HUF/month/m2) 400 600 800 rentpaymentrisk 20% 80 120 160 vacancyrisk 8% 32 48 64 utilitynon-payment 10% 40 60 80 qualityrisk constant 120 120 120 Totalrisk HUF/month/m2 272 348 424 Grossrent HUF/month/m2 672 948 1224 1-(grossrent/netrent) % 68% 58% 53%
  21. 21. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Housing allowance proposal Metropolitan Research Institute 21 Submarkets Rentallowanceindifferentallegibleincomegroups Rent levelAlowest Bmiddle Chighets I. 50% 30% 5% 400 II. 50% 30% 10% 600 III. 70% 40% 20% 800
  22. 22. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Organizational elements  Planning – expected cost/size of the program  Registration of SRAs  Registration of landlords/contract  Allocation of units  Rent setting  Housing assesment  Conflict resolution
  23. 23. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 Estimates for program cost for 10 000 units Subsidies 1000EUR /year Note 1000EUR /year Note 1.PITallowance 2560 Everybodyeligible 2560 Everybodyeligible 2.Supplementaryincome benefit 624 15% of the clientsuse it 624 15% of the clientsuse it Taxexpenditure 3184 3184 3.Rentallowance 7200 18000HUF/unit/month 4800 12000HUF/unit/month 4.Riskfundcontribution 5088 20% of the rent 1872 5% of the rent 5.Programme management 800 5000HUF/family/month 800 2000HUF/family/month Budgetexpenditure 13088 7472 Total cost 16272 10656 Year1 Year10
  24. 24. EUROPEAN RESEARCH CONFERENCE Housing First. What’s Second? Berlin, 20th September 2013 What is the strategy?  Incentives  Landlords  Tenants  SRAs: institutional interest of exisiting organizations  Cost of the program  Politics of housing

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