What solutions does the market suggest for the housing crisis

Summary

Experts propose upgrading local government, strengthening infrastructure, and imposing profit caps on developers as a solution to the housing crisis, as new options are put on the table.

At a time when Greece’s housing policy is failing to produce the expected results—as is the case elsewhere in Europe—the utility of the free market is being questioned by many in a sector where radical changes are being considered.

In fact, a new initiative is being prepared by the European Commission in the coming days that will also have an impact on Greece. The Spring Package of the European Semester (the annual assessment of member states’ economic policies), expected to be published today (June 3), will for the first time include a chapter on housing. Additionally, country-specific recommendations will be published on how each member state can address its housing challenges.

Although these are non-binding proposals, as a Brussels official noted to Euro2day.gr, the Commission is taking a more active role in managing the housing crisis by proposing targeted solutions for each country’s specific problems.

What is changing now

A change of course

As a starting point, there is a consensus that the policy of subsidies that supports demand while leaving supply in the background needs to change.

In a recent report on Greece, the International Monetary Fund (IMF) emphasizes that “while such measures provide temporary relief, their impact may prove short-lived as prices and rents adjust, while their costs may rise over time.

Demand-side measures, particularly rent relief programs, should be better targeted at vulnerable groups, with clearly defined exit clauses and evaluation mechanisms.”

The latest Eurostat data paint a particularly grim picture in Greece. Specifically, the share of the population facing an excessive housing cost burden in Greece stands at 27%, compared to 7.7% in Europe. At the same time, government spending on housing development in Europe amounts to 0.2% of GDP, while in Greece it is zero.

The role of municipalities

Experts note that successful housing policies implemented in various European cities, such as Copenhagen and Vienna, may serve as a guide for Greece’s future path.

In the case of Austria, the municipality has been implementing a social housing model with great success for decades through a program that serves 85% of the population.

It should also be noted that 62% of the city’s residents live in homes owned by the municipality or built by limited-profit development companies, meaning a maximum annual return on equity that typically ranges between 2% and 5%.

Maria Vasilakou, who served as Deputy Mayor and City Councilor of Vienna from 2010 to 2019 on urban development issues, points out that the first thing she would do in Greece is to give municipalities more leeway to offer solutions.

“I would give municipalities the authority to create, direct, and manage funds that would enable the development of limited-profit housing at the municipal level. This would help shape policies that create the institutional framework at the municipal level,” she emphasized at a conference of the Urban Land Institute (ULI) held in Athens a few days ago.

“I truly believe that this is something that can be better managed at the city and local government level,” she notes, adding that the free housing market has a minimal share in Vienna.

It is worth noting that every year, Vienna spends approximately 500 million euros on its housing program. In contrast, the Greek government’s housing policy (at the national level) costs Greek taxpayers approximately 1–1.5 billion euros.

The prerequisites

However, for municipalities to provide effective social housing, certain conditions must be met. On the one hand, strong governance and oversight of the properties at their disposal are needed—an area where the broader public sector shows significant weakness.

A recent report by the Court of Auditors found that the country’s state agencies neither plan nor systematically monitor their own housing needs.

On the other hand, municipalities are required to maintain a certain level of financial soundness. The financial problems of municipalities are more or less known to all of us, while at the same time we are seeing new initiatives from the central government that weaken local self-government, such as the transfer of urban planning to the Land Registry.

Social benefits in exchange for affordable housing

Beyond Vienna, the housing solution relies heavily on the provision of social housing and affordable housing. As the IMF noted in the case of Greece, “more ambitious social rental housing programs, combined with fiscally neutral incentives for builders and affordable housing developers in high-demand areas, would help reduce imbalances between supply and demand.”

The New Debates

In Greece, the discussion is increasingly focusing on the two economic models. This applies both to public properties to be developed by private entities (social housing) and to private developments (affordable housing) where developers would receive state subsidies to rent units at lower rates to tenants meeting income criteria.

A few weeks ago, a new step was taken in the social housing sector, although the market’s initial reaction was rather negative. The first eight properties being transferred by the Public Employment Service (PES) to the government for this purpose were published in the Government Gazette (Attica, Larissa, Pyrgos, and Kalamata).

The development model stipulates that at least 30% of the property will be allocated for social use, while the remainder will belong to the contractor who has undertaken the construction and renovation of the building using their own funds.

Market players initially spoke of unprofitable investments, although sources tell Euro2day that the government is reviewing the terms of the tender with the aim of making the housing units a more attractive proposition for development companies.

Tax-Exempt Income

Another incentive being considered is tax exemption on income for developers providing low-rent housing.

The Ministry of Finance’s bill, which was released for public consultation yesterday (regarding measures to address the energy crisis and boost citizens’ disposable income, wage and tax provisions, etc.).

Specifically, Article 7 states that income earned by legal entities from the leasing of real estate under the“Buildto Rent”program is exempt from income tax, provided that the properties are made available exclusively for long-term leases of at least ten years with a predetermined rent set by joint decision of the Ministers of Social Cohesion and Family, National Economy and Finance, and the competent Minister in each case.

A cap on rent?

Meanwhile, the first affordable housing project is underway. Dimand recently announced its plans to construct a building aimed at middle-class tenants. The building will be approximately 10,000 square meters and will be located on Petrou Ralli Street, in the lower part of Eleonas, with a total of 140 apartments.

It will feature apartments ranging from 65 to 100 square meters— that is, one- to two-bedroom units—and will be made available for rent based on income criteria. The plan calls for rent not to exceed 600 euros per apartment for a couple with an income between 2,200 and 2,400 euros.

Although Dimand is preparing other similar investments (in Keratsini and Neo Faliro), the critical issue of state aid needed to move forward with the Petrou Ralli project remains pending. However, for the first time in Greece, a discussion has begun regarding lower-yield housing projects with social benefits.

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