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Ira G. Peppercorn and Claude Taffin Financial and Private Sector Development/Non Bank Financial Institutions
World Bank May 31, 2012
For those that do not have enough income or whose income is informal
Limits percentage of the population that can quality for mortgages
Opening too wide the access to home-ownership can be dangerous, especially if outside normal underwriting standards.
Vibrant rental markets are necessary for workers’ mobility.
Home-ownership can produce larger urban sprawl.
Peppercorn and Taffin Rental Housing World Bank
Cultural biases in favor of home-ownership
Negative perceptions of rental housing
Legal framework, especially in relation to tenant’s rights and evictions
Low rate of risk adjusted return
Lack of incentive for investors
Lack of adequate finance
Lack of formal property management
Peppercorn and Taffin Rental Housing World Bank
Workers in urban areas
Young professionals
Students who live in dormitories;
Those experiencing transitional events in their life
Families who cannot afford or qualify for a mortgage, some of whom might be living in poor housing conditions;
People who simply do not want to own
People sharing space with relatives
Peppercorn and Taffin
Rental Housing World Bank
Individuals who own a single or a small number of rental units
House or apartment owners that rent a room in their homes
Providers of social housing including governments and NGOs
Companies that provide housing for their workers Medium scale owners that own from 10 to 100 units Institutional owners and investors, for whom the
ownership of rental housing is a significant line of business
Property management companies Builders, contractors, materials suppliers, utility
companies, security firms and others who provide services to the owners of rental housing.
Peppercorn and Taffin Rental Housing World Bank
Is there a shortage of housing? Is this in the overall number of units, in the quality of the
existing units or both? If there is a shortage, is it primarily in certain urban areas? What is the relationship between rental housing prices and the
wages at particular income levels? Is the housing affordable? Who are the potential investors and what incentives do they
need? Is the legal framework fair enough? Are there major imbalances in the fiscal system that discourages
investors? Is there financing available to develop and/or improve the
housing? Are governmental subsidies available and, if so, how and for
what income levels?
Peppercorn and Taffin Rental Housing World Bank
Countries Cities
Africa Owners Renters Others
Owners Renters Others
Egypt 69 31 - Cairo 37 63 -
South-Africa 77 22 2 Johannesburg 55 42 3
Asia
China 84 16 - Beijing 59 40 1
India 87 11 3 Bangalore 43 55 2
Thailand 82 18 - Bangkok 56 40 4
Latin-America
Bolivia 60 18 22 Santa Cruz 48 27 25
Brazil 73 17 10 Sao Paolo 70 20 10
Uruguay 62 17 21 Montevideo 58 23 19
Developed
Countries
France 57 40 3 Paris 48 49 3
Germany 43 57 - Berlin 12 88 -
The Netherlands 57 43 - Rotterdam 26 49 25
Switzerland 37 63 Geneva 14 86
United Kingdom 69 31 - London 58 41 -
U.S.A. 67 33 - New York 34 66 -
Peppercorn and Taffin Rental Housing World Bank
Eviction process uncertain, cumbersome or tenant biased
Return/risk ratio favors other investments
Rent control
Taxation
Lack of cost-effective professional property management
Peppercorn and Taffin Rental Housing World Bank
Tenure insecurity
Unfair or no dispute resolution
Poor conditions
Lack of formal contracts
Affordability constraints
Peppercorn and Taffin Rental Housing World Bank
Demand: Targeted but expensive ◦ Housing assistance payments
◦ Vouchers
◦ Housing itself
Supply: Not ongoing; not deep enough ◦ Construction or up-front subsidies
◦ Direct payments to landlords
◦ Tax incentives
◦ Land and infrastructure
Peppercorn and Taffin Rental Housing World Bank
Illegal rental units
Poor and unsafe conditions
Lack of registration
Property tax avoidance
Pressure on public sector for subsidies and units
Poor property management systems
Peppercorn and Taffin Rental Housing World Bank
Policies recognize rental is an important sector
Perform an assessment of the rental sector
Review the legal framework
Review the tax system
Favor access to long-term capital
Provide targeted, effective subsidies
Peppercorn and Taffin Rental Housing World Bank
Compare household characteristics and housing conditions of tenants and owners.
Ask tenants their reasons for renting and the type of landlord.
Evaluate the balance between supply and demand.
Evaluate conflicts and the conflict resolution process.
Compare the costs of renting and owning (including obstacles to access to credit).
Compare rental return and risk with alternative investments (after and before tax).
Peppercorn and Taffin Rental Housing World Bank
Ensure that the rights of landlords and tenants
are balanced
Balance between stability for tenant and
flexibility for owner
Duration & termination of the contract
Rent setting & rent increase
Solving conflicts: Fair dispute resolution
Peppercorn and Taffin Rental Housing World Bank
Level the playing field between rental and other investment / ownership
Rental income & capital gains often unfairly treated
Consequences: negative impact on the rate of return; disinvestment or informal renting
A good tax model should include:
- Main expenses deductible
- Economic depreciation
- Losses offset taxes on other income
Peppercorn and Taffin Rental Housing World Bank
Small owner incentives, such as capital for expansion and renovation
Medium to long term capital availability, both debt and equity
Support from the public sector
- Direct lending
- Guarantees for private loans
- Partnerships.
Peppercorn and Taffin Rental Housing World Bank
Demand-side subsidies most effective, but
- Entail heavy fiscal commitments
- Require the collection and update of information on beneficiaries.
Supply-side subsidies may be given in several forms, including tax rebates, soft loans, and guarantees.
- Soft loans most efficient (leverage effect)
- Avoid long-term non-capped commitments,
- Governments should obtain social commitments in exchange and control owners
Peppercorn and Taffin Rental Housing World Bank
We do not advise governments to put the emphasis on rental instead of ownership; rather to add a rental component to their housing policy;
If they are willing to do it, they will have a number of measures to take, most are difficult, some are expensive;
And they should be taken in the right order: assessment – legal – tax – finance – subsidies.
Peppercorn and Taffin Rental Housing World Bank
Contacts:
Ira Peppercorn
The World Bank
1-202-xxx-xxxx
Claude Taffin
Dinamic
33-1-4490-3072
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