Institute for Real Estate, Construction and Housing Eichendorffgasse 4/8 A 1190 Vienna/Austria +43 1 968 6008 [email protected] Wolfgang Amann

Institute for Real Estate, Construction and Housing Eichendorffgasse 4/8A 1190 Vienna/Austria+43 1 968 [email protected]

Wolfgang Amann

HFA a Housing Finance Agency for CEE/SEE

Preparing for an integrated housing market

The Real Estate ForumBucharest, October 11, 2006

The Real Estate Forum, Bucharest, October 11, 2006

Institute for Real Estate, Construction and Housing, Viennawww.iibw.at

2

Contents

1. Present situation

2. The HFA model

3. Its operativeness

4. Its transferability



3

Market segments for middle income groups• In Western countries middle income households are well

accomodated by private market as well as subsidised housing

• In most countries middle income groups of any tenure benefit from housing promotion schemes, very often as PPP

• By contrast, countries in transition mostly have insufficient instruments targeted at middle income groups

• In CEE/SEE housing promotion schemes for low income groups are emerging; there is sufficient supply for top income groups

• But there are major deficiencies for the “BIG IN-BETWEEN”, almost only upscale supply of condominiums, almost no affordable rental housing

• Is it market failure?

• Is it underdeveloped PPP models?



4

Housing provision and housing construction (2003/05)

Source: Housing Statistics in the EU (2005, 2006); Statistik Austria; UNECE; PRC (2005)

200

250

300

350

400

450

500

Au

stri

a

EU

15

Po

lan

d

Cze

ch R

ep.

Slo

vaki

a

Slo

ven

ia

Hu

ng

ary

Bu

lgar

ia

Ro

man

ia

Cro

atia

0

1

2

3

4

5

6

Dwellings per 1.000inhabitants (left scale)

Dwellings completedper 1000 inhabitants (right scale)



5

Significance of rental housing tenure

Source: PRC Bouwcentrum (2005), Czischke (2005), CH Bundesamt für Statistik

9% 9% 9%

19% 19%

34% 35%38% 40%

46%50%

58%58%

65%

0%

10%

20%

30%

40%

50%

60%

70%B

ulg

aria

Hu

ng

ary

Slo

ven

ia

Ro

man

ia

Slo

vaki

a

Po

lan

d

EU

15

Fra

nce

Au

stri

a

Net

her

lan

ds

Cze

ch R

ep.

Ger

man

y

Sw

eden

Sw

itze

rlan

d

Private

Social



6

Development of housing policy in CEE/SEE

Source: Ecorys



7

Some definitions

Social housing Fundamental criterion: existence of rules allocating housing to specific population groups.

Target groups may be defined legally by income limits: This way middle income households may be included.

Two types of rental housing markets Dual rental market: Social sector is shielded from competition of the private market, reserved for low income households, functions as a residual safety net. Private market is characterized by high rents and insecure rental contracts.

Unitary or integrated rental market: Rent level determined by competition between private and social housing providers. Social housing sector is directed towards larger population groups, preventing a marginalization of its tenants. Kemeny (1995, et al. 2001, et al. 2005)



8

Why Public Private Partnerships in housing?

• Municipal housing targeted at low income groups

• Affordability problem faced by middle income groups as well

• Housing market does not provide sufficient housing, taking the given ability to pay

• Combining the efficiency of the markets with the backing of the state

• PPP models in housing development = a Third Sector

• PPP models in housing finance = e.g. HFA



9

The HFA Model

Junior Loans

50-70% Senior Loans

highest risk / first loss / most difficult to finance / often covered by subsidies

Typically mortgage loans / L/V-ratio from <50% in some Western Balkan countries and >85% in Western countries

Equity

Not only for security, but it influences the refinancing costs for the bank

DIGH model – taking the risk of

first loss

Guarantee-bound model

Batch financing

model

German interest guarantee model



10

Mandate

a) Procurement of capital and guarantees for affordable housing and refurbishment projects

b) Pass-through of capital from International Financing Institutions

c) Extensive functions in selection, steering and supervision of housing projects



11

Products and services• Accreditation of developers to be integrated into the programme

• Project selection

• Acquisition of guarantees and capital

• Recommendation for financing

• Support of the financing partners in execution of the financing process

• Supervision: application of a system of steering and control

• Standardisation of products (financing models) and procedures (assessment of project partners and development projects)

No bank services, market research, project development or housing management etc.



12

Five-year plan / financing volume

year 1 2 3 4 5 6 Pilot Country 1 (mill €) 20 20 40 40 Pilot Country 2 30 30 50 Pilot Country 3 40 40 Pilot Country 4 50 Total 0 0 20 50 110 180 Estimate housing production (units) 0 0 400 1100 2400 3800



13

Principles to cope with national housing policies

• Subordination to national housing policy targets

• Integration in the legal framework and the mandate of national housing funds

• Transparency for supervision and control by the host country

• Local action with local staff.



14

Compliance with EU legislation

• As HFA works with state subsidies, the EU legislation on Competition and State Aid has to be considered

• This is possible by introducing a Third Sector

• But as well with contractual ties with commercial developers

a) Clearly defined services of general economic interest in social housing

b) Subsidies only for the additional efforts

c) Separate accounts for HFA activities

d) Public procurement procedure



15

Transferability

Pilot countries: Slovakia, Romania, Kosovo, Montenegro

Applicable for all countries who are willing

• to commit for social housing for lower and middle income groups

• by subsidies from national sources

• to go over its housing legislation

• to consider the implementation of a Third Sector

• to trust in a partnership with private players

16

Institute for Real Estate, Construction and Housing Eichendorffgasse 4/8A 1190 Vienna/Austria+43 1 968 [email protected]

Documents

Institute for Real Estate, Construction and Housing Eichendorffgasse 4/8 A 1190 Vienna/Austria +43 1 968 6008 [email protected] Wolfgang Amann