Brazil-EU Sectoral Dialogue
Housing Finance and Subsidies
Reflections on Brazil
Christine Whitehead
London School of Economics
London,
September 25th, 2014
Approaches to Social Housing in
Northern Europe
• State subsidies from late nineteenth century associated with the
introduction of higher standards;
• Post-1945 mass, state provided, rental housing across Northern
and Eastern Europe to meet numerical shortfalls;
• Initially aimed at lower income working households rather than
the poorest;
• Two main models evolved:
– social housing for all in eg Sweden, Denmark, the
Netherlands, France;
– social housing concentrated on helping poorer households
in eg UK, Ireland, Germany;
• Over time have become more similar as all move towards
housing more vulnerable households.
Financing Social Housing
• Post war model mainly state finance and subsidy
usually through interest rate reductions. Often some
local contribution and often on state owned land;
• By 1970s and 1980s numerical shortfalls mainly
overcome and macro economic problems (including
rapid inflation and EU pressure) led to increasing
emphasis on reducing public expenditure;
• Introduction of income related subsidies and financial
market deregulation, together with increasingly
valuable unencumbered capital assets, opened up
opportunities for new methods of financing social
housing through the private sector.
Private Finance for Social Housing
• Private finance initially came mainly from
retail banks. Conditions necessary included
strong asset base; a predictable rental
stream; and powers to raise rents/sell assets
to cover unexpected costs;
• Usually involved continued subsidy (often in
the form of an upfront capital grant) to
maintain rents at affordable levels;
• Some form of continuing guarantee of income
stream to lender – (eg direct financial
guarantees; certainty of continued housing
allowances).
Current Approaches
• Direct supply side subsidies down;
• Shifts towards other sources of subsidy eg public land
and guarantees;
• Higher rents, wider range of products (including low
cost home ownership) and more targeted income
related subsidies;
• Regeneration includes densification/mixed use
redevelopments to cross subsidise social housing;
• Strong capital base allows borrowing at relatively low
interest rates;
• Use of bonds, complex financial instruments, sales to
tenants, other suppliers and private equity.
Current Situation
• Size of the social rented sector declining in
some European countries – but not as fast as
had been predicted;
• Changing attributes of social tenants – more
vulnerable, more ethnic minorities, more
migrants;
• Increasing emphasis on regeneration of postwar estates which are now of poor quality and
expensive to maintain and improve;
• Continuing shift from supply side to income
related subsidies
Income-related housing subsidies
• Private tenants: all 12 countries
• Social tenants: all countries except
Ireland (where rents set in relation to
household incomes) and Spain
• Owner-occupiers (some): most countries
• Eligibility: household income, household
size, housing size and rent
• Amount: Some countries cover up to full
rent; others require households to make
a minimum payment or pay only a
proportion
• Rent ceilings usually apply
Tenure of dwellings
Country
Social rented housing
as % of housing stock
Change in last
decade
Netherlands
32
-4
Scotland
24
-6
Austria
24
+1
Denmark
19
+1
Sweden
18
-3
England
18
-2
France
16
-1
Ireland
9
+1
Czech Republic
8
-0
Germany
5
-3
Hungary
3
-1
Spain
2
+1
Demographics
•
•
•
•
•
•
‘Hollowing-out’
The young (and children) and the old
(pensioners)
The unemployed or non participant
Single parents
Low incomes—median incomes of
social tenants 50-70% of national
median incomes.
Migrants and ethnic minorities often
overrepresented
Need for shallow subsidy housing for
those somewhat further up the scale
European Social Housing: the
Challenges
• Lower subsidies mean providers must use more of
their own resources to undertake investment;
• Problems because standards of post war estates no
longer adequate, while the location and types of
employment have also changed
• Massive problems, especially in Eastern Europe
where rapid privatisation, in terms of maintenance,
improvement and energy efficiency
• Increasing proportions of older and more vulnerable
households who need continuing support if they are
to access and pay for adequate housing
European Social Housing: more
general challenges
• Declining population in some regions/countries
• Worsening income distribution in most countries
• Increasing problems of residualisation – tenure
and/or spatial
• Increasing pressure to cut public budgets
• Need to find other sources of subsidy – especially
from landowners
• Increasing issues of affordability among lower
income employed households
• Increasing emphasis on private renting
• BUT social rented housing remains a good and
sustainable model in many countries
Reflections on Brazil: A Basis for
Dialogue?
• The scale of the problem – not seen in the
1950s in Europe when we also had massive
government funded investment programmes
• The scale of the country - 8.5 bn sq km
compared to USA 9.8 and Europe 10.2
• Incredible spatial inequality with the
concentration of much of the economic
activity in major cities in the South
• Yet a strong national government developing
nation wide policies
Reflections on Brazil: A Basis for
Dialogue?
• Subsidy system based on absolute incomes so, given
spatial inequalities may potentially help 80% of
households in some regions and fewer than 10% in
others
• But with three income bands assistance is
progressive within a region and seeks to help poorest
the most
• Much more sophisticated system than Europe could
manage mainly because of high quality data on
households and their circumstances
Reflections on Brazil: A Basis for
Dialogue?
• Government sponsored investment
dominating the development market in many
parts of the country - but hardly touching
some high priced/cost areas – notably Sao
Paulo and Rio
• Developers have market power?
• Often depends on local authorities facilitating
development and providing land - a major
source of frustration as in many European
countries
Reflections on Brazil: A Basis for
Dialogue?
• Nor surprisingly the built form is fairly basic;
• Some attempt to provide community services
• Faixa 2 and 3 have good external
landscaping etc
• Service charges can be as much as interest
charge for Faixa 1
• Normally on periphery – issues around quality
and cost of transport and access to
employment.
Reflections on Brazil: A Basis for
Dialogue?
• Total concentration on owner-occupation only possible option?
• For Faixa 1 free after 10 years
• Further up scale households have better
choice
• But issues around long term management
and maintenance of properties and
environment
• Potential for co-operatives especially in urban
areas?
Reflections on Brazil: A Basis for
Dialogue?
• Currently all government sponsored
finance
• No capacity to recycle subsidy
• No income stream so difficult to bring in
private finance
• Currently no demand side subsidies
• So long term is the policy sustainable?
Reflections on Brazil: A Basis for
Dialogue?
• Amazing levels of commitment, enthusiasm
and money
• Clearly benefiting those who choose to buy
• Many of the reflections themeselves reflect
concerns about how the European system
has operated
• Looking to the longer term – in Europe and
Brazil
• Thank you for the chance to see it working on
the ground