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Building Responsible Housing Markets

Safeguarding the future of the affordable housing sector

Brussels, 21 May 2014 | Published in Economy

How can the housing markets start acting in a responsible way? Finding the balance between competition, surveillance and innovation... These are the last parts of our Manifesto to "Better Homes for a better Europe". We invite you to join our open discussion on Twitter using #HousingEP14


Solution n°7: Make EU competition rules compatible with housing needs

The situation in brief:

Housing is a local and national issue and not part of EU competences. We must be able to guarantee a certain variety in the area of social, cooperative and public housing that often goes far beyond the mere provision of housing to include the provision of important social infrastructure.

Our solution:

The responsibility of the Member States for delivering adequate and affordable housing must be respected so they can determine the criteria for social housing in line with the principle of subsidiarity, independently. This is the only way to react to local requirements and needs in a flexible manner. A strict regulation of access criteria to social housing jeopardises the housing supply for certain population groups, as the experience of some European cities has shown.

We therefore ask the European Commission to leave the definition of social housing and the choice on the type of provision up to the Member States.

This includes removing the restriction to ‘disadvantaged citizens or socially less advantaged groups’ from the rules on Services of General Economic Interest and the linkage of this term to income-levels. On the contrary, the definition of services should be left open to include a large share of the population, in order to avoid social segregation.

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Furthermore, we believe that social housing provision backed by public support does not entail a distortion of competition on the internal market. If any, the effect is positive. It is a question of (labour) mobility and keeping societal inequalities, which can have long-term negative and very costly effects, low.

If policy choices are made at the national level we will have better and more flexible ways of solving problems that EU cannot solve for the individual Member States anyways. We need to cooperate, not to limit each other. 

Solution n°8: Ensure a more balanced EU economic surveillance of housing markets

The situation in brief:

Housing markets have been increasingly monitored by the European Union since 2011 and the first European Semester. This marks an improvement in the monitoring of economic policies, since it implies a recognition that dysfunctional housing markets have been greatly fuelling the economic and financial downturn of the last 6 years.  

However, the process so far has shown a narrow focus on monitoring real house prices as an indicator. This limits the discussion on how prices can be kept relatively low to avoid real estate bubbles. This has too often resulted in a too simplistic call for liberalization of housing markets, which misses at least 3 fundamental points, none  of which are taken up by the Commission in its economic surveillance of the EU:

First, that there is an urgent need for a greater supply of housing for people with low to middle-income in both high employment and low employment areas. These people cannot meet their housing needs without an adequate regulation of the market.

Second, providing adequate and affordable housing requires a long-term commitment to providing quality services at an affordable price. The market alone is not likely to fulfill this objective as profit-driven real estate investors are more likely to seek more lucrative, short-term investments.

Third, increasing the supply of adequate and affordable housing can only make sense when backed by policies that are not biased towards accession to homeownership and dangerous lending practices. So far this practice has pushed prices artificially up, resulting in foreclosures and evictions – which in return increase the demand for affordable housing.

It is a dangerous and negative spiral.

In the UK almost 400.000 new households were formed in 2011, while less than 115.000 new housing units were produced. The inadequacy of housing stock and housing production creates social tension in many countries, but is not being adequately addressed.

Our solution:

Instead of limiting adequate and affordable housing, the EU should ask Member States to deal NOW - through long-term investments in adequate and affordable housing - with the risk of new housing price bubbles. We know their potential to threaten EU economies.

With this background, we point at the alternative methods to identify housing bubbles proposed by the European Central Bank in 2012, using criteria such unemployment rate, disposable income (or disposable income per capita) and the debt-to-income ratio.

Solution n°9: Promote evidence-based and innovative approaches

The situation in brief:

Public policies have a major impact on the daily lives of citizens. Too often the whole range of effects is not fully understood until negative trends emerge. This is also true for housing policy. Arguing for instance that the ageing population will decrease the need for construction of new homes reveals a misunderstanding of the demographics behind housing needs: the number of households is the crucial factor that drives the demand for housing and it will go up for many decades. Furthermore the migration patterns and other societal changes need to be carefully monitored and anticipated, if efficient housing policies are to be adopted.

Our solution:

In other words, finding ways to shape and anticipate the urban dynamics (migration patterns, cultural habits, economic behaviour, skill gaps between demand and supply of labour), rather than follow them and thus help policy makers to adopt long term housing and urban planning strategies will be key to deliver better homes in a better Europe.

Also crucial is measuring the broad impact of long term investment in affordable housing on the society, and proposing new ways for public accountancy to integrate those costs and benefits (i.e. investing in affordable housing should not only count as expenditure but should also count as a gain-generating / cost-saving activity).

Eventually, at a time when there is a need to think more holistically about key societal challenges, it is important to propose new forms of land/home ownership that combine affordability, resource efficiency and sense of community (such as community-land trusts).

Social, public and cooperative housing providers are keen to be the driving force behind those reflections and to engage in strong partnerships with EU decision makers.