I am reading the Housing Affordability Guidelines 2023-2027, adopted last November. year, I look at real estate market reviews data on housing buying and selling trends, as well as price changes, listen to what politicians and industry experts say and… instead of a clear common picture, what is called eclecticism with contradiction at the end of contradiction opens up.
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The market is stagnating because there is no demand, but there is a political will to further stimulate the supply. Construction costs have risen radically in recent years, but for some reason the idea remains that the market should be saturated with cheap and at the same time high-quality housing even under these conditions. In addition, the political attitude that we should build more is not because the market demands it, but because we lag behind other countries in some parameters.
So what do the guidelines say? For example: “Quality housing at an affordable price is one of the basic needs of the population. The availability of quality housing is an essential condition for economic development, it affects not only the level of welfare of households and the regeneration of the nation, but also the mobility of the workforce, the creation of new jobs, access to economic growth opportunities, providing or denying citizens the opportunity to actively participate in the labor market, as well as poverty and social exclusion mitigation.”
If this document had been written in the Ministry of Welfare, what is read in it could still be accepted, but the fact that the authors work in the Ministry of Economy is confusing. Because they focus on what is not within their competence. And at the same time clearly demonstrates incompetence. What is the basis for claiming this? There are even several justifications.
It follows from the text: if there will be housing, then new jobs will be created nearby, etc. Isn’t it the other way around – first there is a business idea, investments, jobs, and then the need for access to quality housing follows from that? And only if people have a well-paid job, then we need housing that matches the income, developed infrastructure around it, and when all of this is there, we can expect both the rebirth of the nation and an overall increase in the level of well-being. On the other hand, if you start with housing, it may happen that there is no one to live in it, because people fall asleep to where there is work, while those who remain are not ready to change their place of residence. Are they not ready to work and improve their living conditions, only to demand more from the state. We already experienced something similar with the modernization of small schools and hospitals – later, due to the small population, it was not profitable to maintain them, they had to be closed, accordingly, the investments were written off as losses.
Will a home bought or rented with state support increase mobility? Really? If a person, so to speak, counts every cent before spending, then housing should be as close as possible to the workplace, school, store, etc., so that there are no additional costs for transportation.
Instead of the Ministry of Economy emphasizing the need to first increase the income level and purchasing power of the population, a social assistance program unrelated to this was created. In addition, linear – promises support to all those who live in worse conditions than the average elsewhere in terms of housing area or comfort level.
The authors of the document therefore confuse causes with effects. And this is in a situation where they very accurately describe the current situation: “Problems of housing quality are mainly the result of long-term low purchasing power of the population and its income. Although the disposable income of households is increasing every year (in 2021, household income increased by 6.5% compared to 2020, reaching EUR 1523.58), it is not enough to create significant savings for the purchase or rent of a house that meets modern requirements. and also creates challenges in the maintenance and renovation of the existing housing stock.”
Of course, it is confusing that once again the reference is to the average income level, especially when talking about the need to promote the availability of quality and cheap housing also outside the higher-paid cities of Riga and Pieriga, but this is not the main shortcoming.
If the cause of the problem is low income, the consequence of which is the inability to pay for quality housing, then the focus should also be on increasing income, and not on handing out state aid candies.
What would you like to expect from the Ministry of Economy in this situation? If only to finally prepare convenient “rules of the game” for business starters and small businesses, to reduce the possibilities of blocking investments in the development of production companies in the regions with the help of local protest campaigns, to allow that the support of the local government for business is not general and unspecific, but in accordance with the needs of companies creating real jobs, etc. .
Namely, to promote earning opportunities before consumption and not the other way around.
Another debatable fragment of the document: “Affordable housing is essential for reducing disparities in regional development. Only a small part of the population of Latvia lives in rented apartments (12%), which reduces labor mobility and prevents the reduction of the high unemployment rate in certain regions. For comparison, on average, in OECD member states, rental housing accounts for 23.5% of all housing.”
It turns out that rental apartments are a panacea for all problems? Maybe it’s a good thing that people in the regions are attached to their properties? If you own property, you will hardly be motivated to live in a rented apartment in Valmiera for a while, then temporarily move to, for example, Dobeli or Liepāja, and then completely “demobilize” to Norway or Ireland. Yes, rental apartments are necessary, but as a temporary solution before a person establishes himself in a particular area, invest in his home. Because it is not beneficial for the employer, wherever he is in Latvia, to have staff turnover. And also the fact that people travel to work from far away is associated with risks that they may delay the start of work, find a job closer to home in time, etc.
On the other hand, if we talk about OECD data, the recent protests in Berlin come to mind – there is a relatively small proportion of apartments owned by natural persons, because most of them have been bought by a few large real estate companies, which accordingly make money by letting them out and dictate the rules in the market. It would hardly be the best option for Latvia.
Does it follow from the above that the Ministry of Economy has nothing to do in housing policy? It is not at all. Support policy is necessary, but at a different level and in such a way that it is highly targeted to solve specific problems.
It is good that the state support goes to those areas outside of Riga, where there is an increase in economic activity and new housing is needed. However, the currently known examples in Valmiera and Jelgava are too small for nationwide involvement.
However, there are at least two specific directions where the state support policy would prevent major problems in the future. The first is the Soviet-era serial construction of multi-apartments. The second is the empty historical center of Riga.
As statistics show, the price difference per square meter for apartments in new projects and in Soviet-era serial apartment buildings is increasing. However, the demand for apartments in the so-called Khrushchevkas also remains, as long as the seller does not ask for too high a price. This is evidenced by the fact that multi-apartment buildings, for example, in Purvciem, Ķengarag or Imanta and elsewhere have fewer empty apartments than multi-storey buildings in the center of Riga. What can we conclude from this? That it is possible to detect a kind of social stratification, when the less demanding, those who cannot or do not want to afford housing with high comfort, will in the future choose apartments built during the Soviet era. And here it should be emphasized that in most cases it is people’s own choice, not related to the level of income, which can be concluded from the large number of reasonably expensive cars in the yards of apartment buildings.
But the problem is that it seems that most of the residents of this Soviet apartment building are unwilling or unable to invest in home renovations. There are only a small number of buildings that are partially or fully insulated, even less – where the heating system has been modernized, new or updated ventilation has been installed, water pipes have been replaced, etc. And how many buildings have had a full technical condition audit?
This suggests that this is a story of many, many ticking time bombs. Namely, more than ten years will pass and the number of accidents in such buildings will continue to increase. The quality of life in such buildings will definitely decrease. However, since the proportion of such construction in the total housing market is very large, it can develop into a problem for the entire country. I know that solutions for mitigating such risk are already being thought of, but almost all attention should be focused on this area, even if because of it, the construction of a single building somewhere in Valmiera or Jelgava has to be left without state support.
The other area where a more aggressive and effective state policy would be required is the historical center of Riga. Those elected to the current Riga city council once promised to restore the attractiveness of the center for choosing a place of residence, but it seems that they have not gotten any further than expensive trees in flower boxes on Čaka street. At least the statistics do not show any data on the filling of the so far empty housing stock. If Riga can’t cope alone, what solutions would there be at the government level?
What is the summary of everything that has been said? The Ministry of Economy should take care of the issues within its competence and not duplicate the Ministry of Welfare, as we can see from the example of the document mentioned above. First of all, the causes and consequences (including possible ones) should be evaluated, then the policy should be based on it, and not try to please some social groups. Housing support policy should be very targeted at solving large problem blocks and not at supporting individual social groups or individual buildings.
Themes
Tags: Roman Melniks housing support programs ministry emphasizing increase citizens income social assistance program created
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