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Responsible Housing Finance in Europe

Less gambling, better investments

Brussels, 7 December 2016 | Economy, The future of the EU & Housing

Why responsible housing finance is key to combat the affordable housing shortage that becomes a reality in more and more European countries.


By Sébastien Garnier*

Approximately 23.5 million dwellings in the EU are inadequate to live in. The renovation of this stock would require 295 billion euros, which would save 194 billion in costs in healthcare and social security, annually.  Poor households in Europe are the ones that would benefit the most. In particularly, in countries such as Latvia where 30% of the dwellings have major flaws according to the Eurofound study.

Besides the fact that we are talking about a fundamental right, the payback time alone seems an economic no-brainer. But the need for investment in Europe’s housing does not stop there. To meet the energy saving goals in buildings an additional 1.3 trillion Euro is required.

And it’s not just the quality that is lagging. In many parts of Europe there is a lack of sufficient affordable options too. Younger generations have fewer prospects of finding an affordable home – staying thus longer with their parents. European cities are witnessing growing homelessness. Mobility, immigration and demography add pressure to existing shortages. On top of this, housing markets are driven by deregulation in finance and housing that, in theory, should convert higher prices into more supply, not into unsustainable debts and housing costs.

Funding is not the biggest problem

Funding is not the biggest problem for investments in adequate and affordable housing. The current interest rates are low and monetary policy is loose. This could be even more effective if all financial institutions would focus more on productive investments. Currently, only 30% of their resources are used to finance the real economy, half of which goes to mortgages. What is left is traded on financial markets. Of course, there is small chance that such speculative deals can help refurbish dwellings in Latvia.

After the housing-led financial crisis in Ireland, Spain, the United States and the Netherlands, governments should be aware of the risks. The IMF has mentioned that housing is a key sector of the economy as well as the source of the financial crisis and other weaknesses in economies. It warned our knowledge is limited in this field and that the tools to control housing bubbles are still being developed.

The challenge is to come up with strategies that reduce risks, improve stability and generate more affordable housing for all. This can be achieved by putting the financial resources at the service of more productive long-term investment in social and affordable housing. This will also contribute to meeting pressing societal challenges in areas such as sustainability and social cohesion.

The emerging alternative of responsible housing finance

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One piece of the puzzle for this is the emergence all over Europe of well-functioning, both public and private organizations and institutions that have the expertise to turn such financial resources into housing investments that meet real housing needs. There are plenty of examples in Europe where this has been working for more than a century. Housing organizations in many of these European countries have access to special financing channels that serve housing as a general interest.

These mechanisms are crucial. The Netherlands has a mutual solidarity system and public guarantees for housing associations. Austria for instance, makes use of special "House building banks". Also, Switzerland and Belgium set up dedicated financing instruments and entities for social housing providers. One may often observe combinations of financial instruments: savings (the case of Caisse des Dépôts et Consignations (CDC) in France), bonds, bank loans, grants, guarantees (Dutch social housing guarantee fund WSW), tax incentives, etc.

We also notice an increasing interest of European banks to finance social and affordable housing (EIB, EBRD, CEB). Besides loans of the European Investment Bank, the European Bank for Reconstruction and Development, and the Council of Europe Development Bank the guarantee fund EFSI helped realize investments in social and affordable housing in France, UK and Germany for almost 2,5 billion euro.

Still, many European countries have quite a few steps to take to be able to absorb sufficient funding and finance and convert it efficiently into social or affordable housing. A number of basic conditions must be met first:

  1. the existence of social housing providers that are seen as good risks with a secure and predictable revenue stream;
  2. financial institutions should understand the tasks and the financial circumstances of social housing providers and
  3. regulatory underpinning and possibly the underwriting of loans by government.

We could add two more elements:

  1. independent and effective regulatory bodies and
  2. regular and individual reporting from providers and sectorial publications that show the financial situation and social and economic contributions.

Europe will benefit from the further development of such institutions and housing organizations. However, efforts to provide more and better affordable housing will remain vain if the existing stock continues to be privatized or liberalized. Financial resources attracted by such speculative investments should be better diverted towards responsible housing investment that benefits society as a whole in the long run.

As Nobel laureate Shiller puts it:

"Finance, suitably configured for the future, can be the strongest force for promoting the well-being and fulfilment of an expanding global population- for achieving the greater goals of the good society.”

* Head of European Affairs for Aedes, Dutch Federation of Social Housing Providers

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