The need for social rental housing in Romania; providing well-managed and affordable housing for low and middle income citizens

Position paper by:

Habitat League of Home Owners Associations

Woonbron social housing organization Netherlands

Housing Matters/Vestia Interconsult

Contribution to the international conference “Urban regeneration: the role of social housing and energy efficiency policies into the integrated urban programme” on 1-3 October in Negresti Oas, Satu Mare, Romania

Summary

Social housing is of great importance for Romania. Not only because of Romania’s improper functioning housing market, which causes much distress for Romanians who want to move or start their housing career or who are confronted with improper functioning management and maintenance of their condominiums. It also is of great importance for Romania’s economic development. Without a proper functioning housing market Romania looses competitive power with respect to other EU-countries. There are, however, promising initiatives to improve the situation and Romanian government. Municipalities can contribute to that by promoting a change of attitude towards renting, by stopping the unconditional sale of ANL-houses, by stimulation of the establishment of social housing organisations, by development of policies and legislation and by contribution to social housing pilot projects.   

Humanitarian assistance versus affordable social housing for low to middle income groups

Humanitarian programmes provide housing to the most vulnerable groups in society and are almost exclusively state-budget or donor funded. This is different to affordable social housing for low to middle income groups. Although some subsidies are required to cover the below market prices rents, the development of social housing can be fundamentally financially sustainable. This is necessary, because the volume of the demand for social housing is larger than for humanitarian programmes in the longer term.

The importance of social housing for the country’s economic development

The economic development of modern western economies not only depends on the competitive power of its industries and physical, economic and social infrastructure but also very much on the competitive power of its labour force. Investments in these countries are sensible if they correspond and are handled effectively and efficiently. This not only needs highly professional bankers, governors, industrials and policy makers at different levels of decision making, but also needs at the end of the money chain labourers who keep society running like nurses, policemen, teachers, shop personnel, waiters and construction workers but also young generations who will be the work force of tomorrow. The competitive power of a country depends not only on their skills but also on their flexibility. Flexibility concerns not only in learning new skills but also physical flexibility; the willingness and ability to move, to change homes. For that a flexible and accessible housing market is needed. The economic development of countries is hampered if the housing market is not flexible, if people at the end of the money chain cannot accept new jobs or study elsewhere because there is no affordable accommodation available. A social housing sector of substantial volume and consisting of obtainable and payable rentals and owner occupied houses is the (only) solution for that problem.

In the past years Romania has seen many of its labourers leave the country for ‘temporary’ work in the west of Europe, thus showing their physical flexibility. Many of them also ended up in the Netherlands, just as many people from Bulgaria, Poland and the Baltic countries. In general they are praised for their hard work and seen as an asset for the Dutch economy. Recent polls under Polish workers in the Netherlands have shown that 40% of them will not return to Poland but have chosen for a new life in the Netherlands. About an affordable house they do not need to worry. The Dutch social housing sector is very able to accommodate their housing needs.

Lack of affordable housing for low and middle income

In Romania, almost all public housing stock was privatised in the early 90’ies. Almost all residential buildings are now privately owned and only 1-2% is now owned by municipalities and state institutions. With this step, the Romanian state had shifted in a very short time span from being fully responsible for the provision of (social) housing to virtually not being involved at all in the residential housing sector.

Because of the relatively large stress on the building market, prices and property have increased dramatically over the last years. An increasing share of house-owners is incapable of maintaining their property under the current market conditions. Also, the majority of the young families and marginal groups are not able to acquire property. At the same time, many Romanian people living on a few hundred Lei per month witness property prices increasing to a level they cannot afford. Also, pensioners and labour migrants have no access to affordable housing.

Inadequate management and maintenance

The current problems associated with former public housing which is now owner-occupied stem from three main factors. The first is the physical state of this housing stock, which consists mostly of deteriorated multifamily buildings with neglected repairs and serious technical deficiencies. The other is that ownership passed to individual owners, often low-income households, who cannot afford the maintenance and necessary repairs. The third factor is that the responsibility for this housing stock was passed to the new owners without ensuring proper financial, legal and organizational conditions.

Shortage of rentals

Although not exactly known, a substantial number of informal or one-on-one rentals exists, i.e. people renting out their apartment or house directly. However, renting a home is not institutionalised. There are no social housing associations, or commercially operating housing agencies owning stock or managing this on some scale. This has caused, in combination with the migration to the larger cities, a huge shortage of rental stock.

Social rental sector as a possible solution

A well managed and subsidised social rental sector will complement private ownership to serve the low and middle income groups. This model has been proved in many countries in the European Union. For example, in the Netherlands, 30% of the housing stock is social rentals.  Also, social rental housing is a more efficient, effective and flexible instrument in national and local social policy than the current practice of subsidizing construction only. Finally, the rental sector allows for introducing improved and more efficient management and maintenance practices in housing from which also the management of private stock can benefit.

The role of limited-profit social housing providers

There is a need for institutional reform in housing. New dedicated and professional organizations (“limited-profit housing providers”) should be established which can 1) develop and manage social rentals 2) have a mandate and obligate to implement social housing policy 3) are able to provide mixed commercial and subsidized housing to secure financial sustainability under limited-profit conditions 4) are able to provide professional management services. Also, experience in many countries, including the Netherlands, has shown that the management of social rental stock should be done by professional limited profit housing organizations. They can provide efficient and effective central expertise which would improve the economics of management.  This can be supported, if necessary, by public subsidies and the legal definition of public service obligations.

Business and organisation model of a social housing organisation

The social housing organization (SHO) is a limited profit organisation. All profits incurred from commercial activities are reinvested in social housing. The organisation is eligible for  public subsidies (e.g. provision of land at preferential conditions by municipalities, grants, or tax breaks) because it provides a specific public service (social housing). An independent status is needed to secure the business-oriented and non-political operation. The SHO is governed by a combination of civil society organisations with an interest in social housing, and by its clients. Cooperation with the municipality can take the shape of strategic and project-based partnerships.

Establishing a social housing organisation

1.    A SHO is best structured regionally to secure both the local embedding and the sufficient potential in investments projects.

2.     A social housing stock can be built not only through greenfield developments but also by redevelopment of existing locations.

3.    Mixed development, combining social rental housing with development for sale, and with commercial real estate, will secure financial feasibility

What can national government and local governments do to start with?

• A mentality change is needed. In many European countries, citizens regard high quality and well-managed rentals as a perfectly adequate alternative to privately owned housing. This is not the case in Romania. The government should promote this change in predisposition to allow the acceptance of different housing solutions by providing the first examples.
•  The housing stock that has been built under the “First House”/Construction programme by the National Housing Agency with state or local subsidies should be retained as social rentals or as society bound owner occupied houses but not sold off. The current policy of the Regional Development and Housing to sell the stock within a couple of years to its residents has short term benefits, but does not contribute to increase the long-term availability of affordable housing for low and middle income groups.
•  Management of public rentals, such as housing stock built under the ANL programme, is best managed by professional management organizations, and not by municipalities. The establishment of such professional management organizations should be stimulated after which the management of the ANL-housing stock should be transferred.
•  Policies and legislation for public private partnerships with social housing organizations should be adopted.
• Municipalities can contribute by cooperation in the investment projects, providing cheap land and political administrative support. This is one of the key prerequisites of a sustainable business operation of a social housing organisation.
• As a first step, in cooperation with municipalities, the specific needs for social housing, and the local potential (sites, building design, available municipal land) should be investigated.