Private rental housing in Serbia Mina Petrović University of Blegrade mipetrov@sbb.rs

Housing sector after transition Very few reforms undertaken except for massive privatization Disappearing of the public rental sector Drop in new housing production Affordability problems Expanding private rental sector

Massive housing privatization – over 95% → 2011 census ownership-tenure structure 2, 380, 920 occupied flats, of which 98,3% are in private property – in 87,5% are occupied/used by the owners - The rest might be considered as privately rented only 40,000 flats in public property: divided to the major share of flats inherited form socialism (85%) occupied by tenants with permanent right to use the flats – and tiny part of newly constructed social housing

Legislation Law on Housing from 1992 still in force (novelties: housing privatization, privately rental as legitimate but not regulated - without simulative mechanisms for it institutionalization. No national housing strategy Law on Social Housing adopted in 2009 - definition of social housing does not specify targeting and allocation, management, and social purpose, social housing defined “as housing provided with the assistance of the state for households that can not provide a dwelling under market conditions for social, economic or other reasons” which basically encompasses the average-income (middle-class) population with affordability problems

Nonprofit organizations are recognized but no legislation properly defines them, no involvement in providing and managing rental housing

Huge gap public vs. private rental Rents Regulated - social rents, administratively set well below real costs Unregulated – market driven Tenancy rights Division between old (permanent right to use) and new (temporary, beneficiary criteria), eviction protection If contracted – protection of evictions Rent allowance None Type of landlords Public companies Private – individuals Motives of the landlords Social-non profit Financial rewards Target groups Division between old (more middle class) and new (poor-low income) Heterogeneous – from low, middle to high income,

Private rental sector 300,000 flats privately rented, almost 250, 000 in Belgrade, 15-20% of households Decrease and changes in demand since 2008 – households’ ability to pay – previously central heating as desirable – not any more - increasing control over utility costs (reduction in consumption) The rents are decreasing with economic crisis, in 2011 compared to 2008, lower for 25-30%, In big cities – supply and demand more or less in balance considering the numbers but not the structure – higher demand for smaller/cheaper flats

Affordability problem Rent (median for private rental sector) to income ratio exceeds 0.49 in big cities, in others 0.30 8,9% urban households face housing expenditures that exceeds 50% of their income, almost every second in lowest income deciles, no considerable differences in tenant status

Typology of tenants Of diversified social position - create diversified demand. 1. Low or insecure income to enter in owner occupancy and without relatives to rely on - ‘trapped would-be social renter’. 2. Young people in an early stage of their professional or family careers (without children or with one child), from middle or higher income groups – lifecycle tenants (include students in big cities). 3. Foreigners

Type of landlords Accidental landlords – in majority Either income-poor owners, frequently unemployed or retired, renting out their own unit or individual rooms in it, or middle class owners who rent inherited (extra) flats. Landlords with several dwellings obtained on the active secondary market as investment strategy - rare, except in big cities Upscale private rental market served by corporate investors that caters to other corporations, foreigners, and other high-income clients – small but expanding in big cities

Typical motives Obtaining of additional income - dominant motive. Not commercially oriented - do not calculate the return of their capital All rent as an earning – not paying tax for renting, only minimal investments in maintenance

In/flexible supply - nonprofessional landlords Slowly react to decreased demand - to decrease the prices even if they cannot let the flat Emphatic – search for reliable tenants (regular in paying all costs: rents and utilities, do not cause a problem with neighbours), even at the cost to increase the rent Tend to enter and leave the renting market according to the need for supplemental income and available extra space Renting for a fee months when the demand increase by foreign tourists who visit Belgrade and Novi Sad – EXIT, Bear fest….) - fforeigners as more desirable renters 70% of landlords do not want families with children as tenants Withdrawing/selling of flat bought by credit / (can not have rents above monthly payments)

Legal regulation Tenants / landlords relation based on trust, which is otherwise very low in society Of 300,000 renters, only 7,000 under contract (in BG out of 250,000 - 5, 000) New Law on Residence (since December 2011) – penalties for both landlords and tenants (from 100/500euros), poor implementation although the certified contract is not needed by the procedure of registering , and police does not send the information to tax office. Tax due for renting is 20% of the contracted rent, for legal entities plus 18% of VAT.

Potential risk of the tenants Evictions – usually informal agreement /practice one month notice from both sides Rent increase – even if they contribute to increasing flat’s quality – painting, providing internet, air condition, etc.

Typical conflicts between the landlords and tenants Paying of utility costs – rising utility costs Rent level: rents in EURs – inflation The way of using flats – damaging, correct maintenance, etc.

Formal and informal risk managements Practice of paying one rent at entering the flat, as a guarantee for not paying utility costs – to be returned when leaving the flat (risk for both sides) Tenant organizations – increasing in number – advice tenants about their rights - to have a photo or video of apartment before moving in, to make a list of furniture, to ask for utility bills, etc) Judicial procedure and trials -rare as contracts are rare, plus the procedures are often too long and expensive - inefficient

Institutional set-up Predominant intermediating mechanisms between tenants and landlords are newspapers and the Internet. Rental housing brokers and agents are increasing in number (charge 50% of the monthly rent for their service), a lot of them informal – fraud area - collect membership for providing information on fats, advertising non existing flats – victims low income, without internet access, etc....,

Conclusion No legal framework Unstable market Need for regulation and housing allowance (significant number of would be social renters) Would stimulate private rental sector and help activation of unoccupied flats Generates constant financial flows from the budget without creating a permanent social housing stock With the same budget, the number of families covered per year might be 5 times higher than in case of providing new construction of social rental housing - projection without specification of its effects on rents/housing prices and supply side subsidies that might be needed