1. Brazil-EU Sectoral Dialogue Housing Finance and Subsidies Reflections on Brazil Christine Whitehead London School of Economics London, September 25th, 2014

2. 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.

3. 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.

4. 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).

5. 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.

6. 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 post- war estates which are now of poor quality and expensive to maintain and improve; Continuing shift from supply side to income related subsidies

7. 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

8. Tenure of dwellings Country Social rented housing as % of housing stock Change in last decade Netherlands32-4 Scotland24-6 Austria24+1 Denmark19+1 Sweden18-3 England18-2 France16 Ireland9+1 Czech Republic8-0 Germany5-3 Hungary3 Spain2+1

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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.

16. 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?

17. 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?

18. 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