Private and social: contradiction or coherence? Case of the Czech Republic

1. Private and social: contradiction or coherence? Case of the Czech Republic Martin LUX Institute of Sociology Academy of Sciences Czech Republic, Prague martin.lux@soc.cas.cz The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic

2. New social housing policies in post-socialist countries • The governments only occasionally introduced new supply-side subsidies which were often after several years of operation abolished or reduced due to their low efficiency. • If defined at all, social housing is in post-socialist countries understood as a low-quality residual public housing for the poorest part of society, often spatially excluded. • Although the municipalities emerged as the main social housing landlords they did not receive sufficient public funds to perform this new role effectively. • Not-for-profit housing is a new phenomenon; however only two post-socialist countries with visible share on the housing stock: Poland and Slovenia (2% of the housing stock). Slovenia recently turned away towards housing allowances, and Poland has ceased supporting not-for-profit housing development and discusses its privatization. The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic

3. Surveyamong 12 post-socialistcountries (Hegedüs et al. 2013: SocialHousing in TransitionCountries) • There are onlythree countries, i.e. Czech Republic, Slovakia, and Slovenia, where new social/public housing output built between 1995 and 2010 can be considered substantial, and twocountries, i.e. Serbia and Poland, whereitwas on medium level BUT • In the Czech Republic most new public housing output constructed between 1995 and 2010 had de facto quasi-homeownership status and itis marginal now; • In Slovenia, the relatively generous social housing programmes of the 1990s were recently scrapped and replaced by a new housing allowance scheme; • Serbian programme ended up applying right-to-buy policy for tenants; • In Poland, subsidization of new social housing output recently ceased, and flats built within the programme will be probably privatized in favour of sitting tenants. The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic

4. Prospects for social housing in post-socialist countries • It is not very probable that there will be an importation of western practices that emerged during the post-war era. • Neither can we expect any large-scale and fiscally expensive programmes that would create a substantial stock of social/public housing. • Instead, there is likely to be: • a range of different state programmes targeting different types of households; • variation currently evident in municipal authorities’ approaches to social housing strategies is likely to increase; • providing incentives for private developers, and employing different forms of cooperation with private capital; • innovative models attempting to use private renting for social purposes. The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic

5. Context of Czech Republic – public renting • Extremely fragmented social housing policies with de facto no central coordination or regulation: no official definition and no legislation on social housing, non-for profit housing or housing associations. • Not-for-profit organizations most often own only temporary ‘crisis’ housing (housing shelters). • Municipalities are the only owners of the long-term rental housing provided at below-market rents - their obligations are vaguely defined, with no explicit requirement to ensure the provision of housing to poor. • Each municipality incorporates own interests and needs into its social housing strategy; extremely fragmented and, more or less, marginal. The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic

6. Context of Czech Republic – public renting (cont.) • No right-to-buy was passed BUT municipalities began voluntarily to privatize for giveaway prices – public housing radically diminished from 39% (1990) to 8% (2011) of housing stock. • EXPL 1: „privatization trap“ • EXPL 2:„paradox of decentralization“ • Recently, there are only two insignificant central subsidies for new development of social/public housing: state-backed guarantees on loans to housing developers and preferential loans for rental housing construction. • In 2011, Housing Strategy till 2020 has been approved by the Czech government. The strategy sets general goals of Czech housing policy for next decade; among them also “complex solution of social housing” BUT … The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic

7. Context of Czech Republic – private renting • 1991: approximately 7% of housing stock was restituted to previous house owners. • 1993: market rents for new tenancies were allowed. • Since 1991: rent deregulation BUT between 1999 and 2006 stopped and rents remained frozen (judicial actions of landlords). • 2007: Act on Unilateral Rent Increase  recently (2013), all rents in both municipal and private rental segments, and for both running and newly-signed rental contracts, are fully liberalized. • For running contracts, they can be changed only by mutual agreement between tenant and landlord and if tenant does not agree with new proposed rent level, he can turn to the Court. • The whole system is close to the system applied in Germany. The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic

8. Context of Czech Republic – private renting (cont.) • Due to relatively large restitution of expropriated housing property, the whole blocks of flats started to be owned by private physical persons – small investors. • Due to privatization of former state enterprise housing stock, and also some municipal housing stock, institutional investorsalso appeared – RPG (44,000 flats); CPI (12,000 flats) and few others. • Due to privatization of municipal housing stock very small accidental landlords also appeared offering just one or two empty flats. • The share of PRS out of the total housing stock thus increased very quickly -from almost zero in 1990 to 7% in 1993 (as a result of property restitution) and 14% in 2011 (plus additional stock in shadow economy – total est. 18%). The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic

9. Advanced private rental market in CR • There might be several reasons why most of the private rental contracts are based on legal written agreements in CR: • (a) relatively large property restitution in kind creating professional small landlords (physical persons) owning all flats in the apartment houses; • (b) entry of institutional investors who own from hundreds to several thousands of flats recently; • (c) generous tax conditions, allowing discounting house depreciation from rental income for both professional and small investors (30 years depreciation); • (d) value of the price-to-rent ratio increased, for example, in Prague, between 2000 and 2008, from 13.7 to 26.0. This substantially increased the financial appeal of market rental housing but demand for official contracts and security. The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic

10. Advanced private rental market in CR • The risks connected with rent arrears among low-income households can also be effectively managed by generous benefit system (housing allowance and housing supplement) – both of them can be allocated directly to landlords. BUT • Homeownership became a social norm. • PRS tenant is ‘typically’ associated with unemployment, low per capita income, young age, single and small-sized households (EU-SILC). • PRS did not get popularity and remained kind of temporal housing for people on the beginning of housing career or residual housing for people on low income who cannot afford to buy own housing. The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic

11. An example of „private“ social housing The concept of social housing for households, who are disadvantaged at housing market and cannot find affordable, qualitative standard and spatially non-excluded long-term rental housing. • Two groups: • First group – households with sufficient competence for maintaining long-term rental housing; • Second group – households that need the competence training. The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic 11

12. First group and second group after training - system of guaranteed housing • Assuming that … • Private rental housing forms main part of rental housing stock; • Housing policy was skewed toward homeownership till now – this imbalance produces social and market risks; • The success rate for re-integration of households is extremely low because of lack of available long-term rental housing for target group; • There is no sign of physical shortage of housing – the focus on existing housing; • In consequence … • Guarantees provided to private landlords covering the main risks relating to tenancy – rent arrears, damages, costs of judicial proceedings; • Private landlords will offer long-term contracts for target households – the tenants will register flats as their primary residence and get housing allowance; • Suitable flats and target households are selected by operators of the system – municipalities and NGOs – they pay also deposits and assure field work in case of default. The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic 12

13. System of guaranteed housing tenant private landlord Rental contract Listing and selection of available flats, agreement about the conditions of providing guarantees, payment of deposit and commission. Selection of tenant, agreement on conditions of eligibility for guaranteed housing The agreement on provision of guarantees operator of the system (municipality, NGO) guarantor Transfer of documents The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic 13

14. Application and dissemination of system • The realization of pilot is part of the governmental Strategy for Social Inclusion (2011) and it is mentioned in the governmental Strategy on Tackling the Homelessness (2013) BUT negative reactions from Ministry for Regional Development. • The pilot recently by governmental Agency for Social Inclusion in two locations with the financial support of Open Society Fund. • The model was discussed with young people and homeless (focus groups) as well as with landlords (round table). • The evaluation was not by far unambiguous: homeless people perceive the model as a viable solution, especially young. More doubts were expressed by young people at the beginning of their housing careers – also due to the fact that they do not need it. • Model appealed also to representatives of landlords, especially private landlords. The Socio-economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic

15. Thank you for your attention! http://seb.soc.cas.cz The Socio-Economics of Housing Department Institute of Sociology, Academy of Sciences, Czech Republic 15