Housing Standards 2003/2004:
Housing Policy in the Czech Republic - More Efficiently and More Effective

3. Selected housing policy instruments in the Czech environment

3.2 Social housing in the Czech environment

If there is regionally specific and probably quite low housing shortage in the Czech Republic, or to put it better, if the rental and ownership housing on the market is unaffordable for a certain portion of the population, then the path of limited rental dwelling construction conducted by non-profit associations with the support of the State Housing Development Fund may offer an efficient alternative how to ensure additional financially affordable housing.

Such a support would, however, have to necessarily take the form of qualified credits provided only if a whole range of necessary conditions are met, such as restriction of costs per m² of floor space of a dwelling, construction quality, credit financing, maximum income restricting the eligibility to such a dwelling, rent amount etc. It is also necessary to strive to ensure that such restricted subsidy is truly directed where private investments are lacking in long-term horizon. The non-profit nature of the associations should be indisputable in order for unfair competition not to occur with private investments. Creating an umbrella and main control public institution to supervise the establishment and activities of such associations is also necessary.

The main activity of such associations should be limited construction of new, financially affordable rental dwellings and their subsequent lease to households with low and moderate income. The associations could run other for-profit activities in the area of housing (development of dwellings for sale, administration of dwellings for groups of owners or municipalities for charge) that would not be supported with public budgets and the potential profit would be used only for the main activity of the associations, namely the construction of new dwellings with non-profit rent. The State Housing Development Fund would primarily function as a source of cheap loans for housing construction by the associations, and individual associations would compete with their proposals submitted to the Fund. The financial sources for cheap credits could also be provided by construction savings banks which today often struggle with an excess of funds.

In order to ensure the efficiency of such support, it would be appropriate, as is the case in Poland, to introduce the obligation for households to submit a declaration of their income even after an allocation of a social dwelling, and if their income increases above the level defined by the law, then with a certain delay the association could demand a rent higher than the regulated cost rent.

In the Czech environment, the question is who should create such associations and whether existing institutions could not be used for this purpose. Associations may be established by municipalities but then there is a danger that the associations will depend on local politics. Another potentiality is to establish associations based on voluntary choice of existing foundations or non-profit organisations active today in other areas. Housing associations could also be established as non-profit subsidiaries by existing private organisations administering municipal dwellings or construction firms. It is likely that the most likely candidate for the operation of social dwellings in the Czech Republic are housing co-operatives. For the purpose of constructing and operating traditional rental dwellings in the form of "day-to-day management", however, many Czech housing co-operatives would have to be probably transformed into smaller and more transparent units, and change - pursuant to special legislation - their quasi-ownership status to one of a regular owner of rental dwellings intended for lease to low-income households.

Rent in dwellings owned by housing associations should, provided that public funds are used, be regulated at the level of the cost rent; the amount of regulated rent could be determined - analogically to Poland - at, for example, 4% of the reacquisition cost of a dwelling per year. Due to great discrepancy between the actual income level and the actual price level of new construction, dwellings of housing associations would, at least at the outset, serve households with average or lower income more than households with the lowest income.

Monitoring and evaluation of social and economic indicators of activities of the housing associations (like in the Netherlands and in Great Britain) should be ensured by an independent umbrella executive and supervisory institution; such supervision should ensure their successful functioning and thus also increase confidence among potential private financial investors or creditors. Municipalities would have influence on the activities of housing association through the institute of mandatory approval of a construction project if such an association applies for financial coverage of a portion of the construction costs from public funds and through direct active co-operation at the local level (especially in the form of free-of-charge provision of land lots for new housing construction by the municipality which would partially serve candidates proposed by such a municipality).

Housing associations could also purchase existing older dwellings on the market and then rent these to their tenants, which on the one hand would reduce their capital costs and the rent amount and on the other hand by doing this the number of available dwellings would not only increase but, conversely, the number of dwellings in the market sector would decrease, which would likely press the market rent down rather than up. Furthermore, the creation of a portfolio of dwellings consisting of both new and older dwellings is desirable from a financial point of view because associations could then, for example, construct a slightly higher rent than the cost rent in older dwellings and a slightly lower rent than the cost rent in new dwellings, which would further reduce the entry rent in new rental dwellings of the associations (rent pooling).

When creating a system of social housing, the Czech Republic should definitely take the advantage offered by the opportunity provided by the existing, so far relatively large sector of municipal rental housing. Conditions should be created that would motivate municipalities to divide their rental stock into two parts: a portion allocated for lease at an equilibrium market rent and a portion allocated for lease at a social rent. The division of dwellings should occur in such a way that formation of spatial ghettoes of social housing would be avoided. The right to social rent would be granted only to households in social need and, as is the case in dwellings of housing associations, the rent could increase to the market rent if the original conditions change. Rent in social dwellings would be determined at the level of the cost rent (approximately 2.8% of the reacquisition costs per year according to the estimates of the Ministry for Regional Development).

The criteria defining the status of a dwelling (social housing) should be determined centrally in view of regional differences in order to ensure that the systems do not become too fragmentary and that transparency is ensured. Such criteria would not be binding for municipalities. Municipalities as dwelling owners could introduce their own systems of defining rent and providing compensations to socially disadvantaged groups. However, should they wish to take advantage of funds from the state budget when paying out the housing allowance (rent allowance) or should they wish to use such contributions in a greater degree than customary, then they would have to observe certain rules among which the condition of renting a portion of dwellings at lower than the market rent according to centrally defined criteria of social housing would be one.