1. Housing regimes in post socialist countries Brno 13 of November 2015 József Hegedüs Metropolitan Research Institute

2. 1.East European Housing Model revisited Conceptual framework: economic development model, varieties of capitalism, welfare regime theories, housing regimes 2. Trends toward convergence and divergence between 1990-2008 Effects of three trends (market creation, market correction and path-dependent schemes) 3. The effect of the GFC – will it lead to new models? 1. Outline of the presentation

3. The starting point: the role of the state and the market in socialist housing system The empirical research on housing estates published in 1969 Novelties: – Connection to the mainstream sociology – „Ideology critics” – facts against the ideology – Effect on policy: Housing Law 1971 There was no theory of socialist housing system: -Redistribution of the stock -No exploitation through property (private and personal property) -But no advice on the institutional form of the provision 2

4. Debates on the role of the „market and state” in housing systems Western sociology – the state intervention revisited Hungarian literature: – How we define the market and the state? – Market correction (as it lead as secondary mechanism to inequalities) -- „socialist welfare model” (Manchin- Szelényi, 1984) – Hegedüs-Tosics – both market and state cause inequalities (vacancy chain studies)

5. Housing units built between 1961 and 1990 Metropolitan Research Institute5 * estimated from years 1986/1987 Transactions in Budapest 1977-1979

6. Metropolitan Research Institute6 A classification of Housing Systems based on two dimensions Hegedüs-Tosics, 1996

7. Metropolitan Research Institute7 The options for transition countries Hegedüs-Tosics, 1996

8. „ This is an attractive idea (and a very f0shionaable one in eastern Europe today!), but it has to be further elaborated to become believable. I would like to see how exactly ‚society’ will intervene into the state or and I need more proof that there is any need for more intervention – be it by the state or by ‚society’ –into east European markets, which are so badly overregulated already. Society is an abstraction, not an actor. Society cannot intervene into anything,it has to create institutions through which it can act. What are those institutons, how will they be funded, what is the garantee that they remain seperated from the state and the party, what will be their relationship to the state and the party, to classes, strata within society etc. These are some of the question I would like to see answerred before I can take seriosly the Hegedüs and Tosics proposition about social control of the state and the market.” p. 4.

9. New approach of the housing systems Housing models were changing („developing) „cracks” in the models  force the system to react and change the institutions Housing systems embodies to the wider social/economic structure; two approaches – Welfare regime theories (Esping-Andersen, 1990) and its modifications (transition countries, and south- European model) – its critics – Varieties of Capitalism literature (Hall and Sockie, 2001) – but its relevance on housing is not clear

10. Sub-models in the EEHM EXAMPLE: Hegedüs J (1992).: 'Self help housing in Hungary' in: Beyond Self-Help Housing Kosta Matey (ed.) Profil Verlag, pp. 217-231

11. The approach of the analyses Political economic approach Different theories: – Variety of Capitalism: Liberal, Coordinated and Mixed economies – Welfare regimes: Esping Andersen (1990) and its versions – Housing systems: Kemeny’s unitary and residual models (and its variations)

12. Some research questions related to the approach Overlapping factors in and interaction among the blocks of „varieties of capitalism”, „welfare regimes” and „housing regimes” Convergence and divergence in the economic systems in EU – its consequences on explanatory framework The importance of the regional markets (neighborhoods) in the national models Typology of regional markets and the adequate social housing measures

13. Economic/political regimes and the housing system

14. Political and economic regimes and housing market cycles (1980-2015) Moving towards an authoritarian market society Transition to a liberal market system Unbalanced growth Towards a patromonial capitalist model Mortgage crises,1989 Price increase without mortgage expansion

15. Process of welfare regime „building” 15 Fiscal stress Structural changes (marketization) Public policy Private interest (lobbies) International Agencies Compromises: leakage, effficiency loss Social cost of changes Informal economy Individual adaptation, help from family State welfare policy Compromises, because of limited resources and information Metropolitan Research Institute

16. 16 Housing reforms in transition countries – forming new welfare and housing regimes “market making” (structural) changes – Privatization of the building industry, banking sector, maintenance companies – Price liberalization (housing related services, rents) – Legal changes (property right, land registration, etc) – Privatization of state owned housing stock – Subsidy programs promoting market transactions “market correction” steps – Benefit programs, housing allowances – New social housing programs (home for the homeless, social rental programs) – Rehabilitation programs retaining old structures – Rent control, property rights of the tenants – Old maintenance companies, state construction – Price control and „across the board” subsidy system

17. No real divergence till 2008 Tenure structure - privatisation Housing finance: – When did mortgage market started? – How fast was the development? – Role of FX loans – was it a housing regime question? Housing investments Housing management The most important questions related to the economic model (GDP growth, income inequality, etc.) Hegedüs, J. – R. Struyk (2005): Divergences and Convergences in Restructuring Housing Finance in Transition Countries in Housing Finance: New and Old Models in Central Europe, Russia and Kazakhstan (edited by J. Hegedüs and R.J. Struyk) OSI/LGI, p. 3-41 Hegedüs, J: The Transformation of the Social Housing Sector in Eastern Europe - a Conceptual Framework in Hegedüs-Lux-Teller (ed): Social Housing in Transition Countries, pp. 1-32 Routledge 2013. Hegedüs,J: Housing privatization and restitution in post-socialist countries (to be published in Hegedüs-Lux-Teller (ed): Social Housing in Transition Countries, pp. 33-49 Routledge 2013.) Hegedüs, J – Teller,N: Social Landlords and Social Housing Management Introduction: Trends in Social Housing Management In Hegedüs- Lux-Teller (ed): Social Housing in Transition Countries, pp. 81-97 Routledge 2013

18. Metropolitan Research Institute18 Main trends: privatization 1990 2001

19. Housing construction (new unit/1000 person) in selected new member states 1990-2009 Metropolitan Research Institute19 Different versions of recovery

20. Mortgage market development, 2002- 2008 Metropolitan Research Institute20 Source: European Mortgage Federation (Hypostat), European Banking Statistics, 2009, for Hungary Hungarian National Bank

21. Housing policy and social inequalities Housing policy through the interplay of policy, institutions and households may enlarge or lessen social inequalities The main types and examples (in Hungarian housing policy): – A. It increases the social differences (regressive transfer of public resources) Housing privatization, “old loans” mortgage subsidies, over taxation of the private rental sector – B. It lessens the differences, but in combination with the market mechanism it contributes to the increasing distance between social groups (exclusion) Housing construction grant, subsidy to home purchase, allocation of social rental flats, equity mortgage for low-income households – C. It lessen the differences Program of refurbishment of the housing estates, housing allowances, rent allowances Metropolitan Research Institute21

22. Housing policy is implemented through the mediation of different institutions Housing regime: structure of interactions among different institutions (developers, local governments, social landlords, etc.) and households – the outcomes of these interactions depend on several factors (power of the interest groups, etc.) – unintended results Fragmented governmental structure and low level of regulatory capacity (in the area of housing) increase the probability that private interest groups successfully influence housing policy – Examples: lobby of construction industry, bank lobbies Competition among different organizations is an important factor in policy development, which may lead both to innovative solutions and to distortions – Examples: Contract saving institutions -- restructure home saving grant into a cash subsidy, role of the mortgage brokers Conclusions: the capacity of the government to balance competing institutions and a transparent subsidy system Metropolitan Research Institute22

23. Elements in the new welfare regimes Weak governments – strong private interests – Capacity of the public sector – Political democracy – wobbly pillar – Dominance of private interests – Limited role of the donor agencies Informal economy as a constraint on efficient welfare programs (targeting failure) Metropolitan Research Institute23

24. The effect of the GFC – new/old model: Hungary There is a trend from the liberal market capitalism toward the regulated (or coordinated) market capitalism Element of an extreme solution (Hungary) – Centralization and renationalization of the service companies (utility cost decrease) – Narrowing the role of the municipalities (bank loans has to be approved) – Special bank tax – nationalizing the banking sector? – Construction companies?

25. The story of the FX loan boom – the „blame game” Government: irresponsible fiscal policy -- deficit Government housing policy: subsidy cut in 2004 (unsustainable) HNB or Financial Supervision Board: monetary policy – high interest rate because of government deficit and no control over FX loan product „Greedy” banks: „risk competition” Irresponsible households – over consumption Residential mortgage lending: social and individual risks – social consequence of the FX mortgage loan crisis after 2008 in Hungary Coordinators: Adrienne Csizmady – József Hegedüs Supported by the National Fund for Social Research (OTKA) grant Nr. 109333 “Families in Mortgage Crisis.''

26. Housing subsidies 2000-2009 Metropolitan Research Institute26 Lower 60 % got 20 % of the subsidy Upper 20 % got 60 % of the subsidy ALLOCATION OF PIT TAX EXEMPTION IN 2002

27. The two periods:different trends Source: Hegedüs-Nagy, 215

28. Some lessons from the mortgage boom and the risks Subsidy programs and the households’ incentives (not easy to predict the behavior ) House price increase and mortgage: was it a house price bubble? Regressive subsidy programs – its effects on social inequalities (tax level, budget deficit) LTV ratio was around 60 %, but increasing Real dangers: no social houisng, no affordable private rental and social „net Tenure structure, 1970-2011

29. “Unorthodox” economic policy – a master plan or muddling through Resources – no austerity – Reserves – short-term advantages (private pension fund, state controlled utility fee cut, etc.) – Foreign companies (banks, energy supply companies, etc.) – Centralization and re-nationalization – EU funds Redistribution – – Flat PIT -- middle class support – Forced public work program replacing the social benefit programs Supporting economic growth – HNB programs –2013 Funding the Growth Scheme

30. Change of the real income by income percentiles between 2009 and 2013 2009 and 2013 Grwoth of the GDP (prognozis of theEU Comission, 2015)

31. The political context Government – two third majority Experts – media Hungarian National Bank, Hungarian Financial Supervisory Authority Hungary Banks, financial intermediaries Legal system – society of lawyers Civil movements

32. Actual Programs

33. Failure of the social housing construction program in Ocsa (2011) The winning plan: Archidea K+K Területrendezési és Építészeti Bt. Problems: Distance from workplaces Segregated area Very expensive (Infrastructure) Difficulties to find tenants

34. Results of the early FX repayment program (September 2011 -Februar 2012) 23 % of the FX stock was repaid (at 180 HUF/CHF when the market price was arounf 245 HUF/CHF) Gain/loss was 28 % of the prepaid sum (app.400 bn HUF) – 70 % paid by banks, 30 % paid by government Sources of 881 bn HUF repaid: 23 % new loan, 47 % savings etc. and around 30 % unknown (!?) Conflicts between the banks and the government Civil bank: Webbank Metropolitan Research Institute34

35. 35 Owner of the real estate Bank Bank receives the purchasing price of the real estate as it defined in the NET Act The bank waives its claims above the purchasing price Previous owner becomes a tenant but all his bank claims will be deleted. Eligibility to the program is strongly related to social situation Hungarian State / NET Company The property becomes state owned The NET Company is managing the tenant relations and real estate operations Financed from state budget. Other creditors Housing community, tax authority, local government, etc. They keep their claims but lose their registered mortgage right National Asset Managment Company Source: Erzsébet Könczöl, Deputy Managing Director (NAMC):A success story with a strategic dilemma TENLAW Conference Budapest, 2015.09.18

36. Issues of Asset Management Agency Property managment –inefficient (Maintanance is contracted out to Hungarian Railway Maintannace Company) 25 % do not pay the rent – services of the Malthese and Reformist Church

37. The danger of NPL Source: HNB, 2015 Main reasons for arrears: 10-15% free rider, who could pay but thinks other expenditures are more important 5-8% change in the life conditions (health, divorce, death etc.) 30% the increase of the mortgage payment is not affordable (they stop paying the affordable part as well.) 50% decrease of income (unemployment, lower wages, lost of informal income, etc.) (Source: interviews)

38. The nature of the problem Two types of household hardship: – Adaptation problem to the changed market condition – Systematic income gap to finance housing consumption Orthodox rescue program – Helping the adaptation (sharing risks) – low subsidy – Offering alternative housing solutions (lower level of housing consumption, rental option) But, Hungarian policy …… (why?)

39. Deepening gap between social classes Household Survey, 2015

40. Conclusion Regressive income distribution –rational: supporting household spending Postponed (late) policy measures – Promises without real solution for low-income people -> its effect on the behavior National Property Management Agency (2012) Private bankruptcy (2015) “Ocsa” project (2011) – No cooperation among the stakeholders (information asymmetry) – blame game (political/uncertainty) Court cases (from 2010 onward) Extra taxes on banks (no real negotiations) Power games Consequences – The future of the housing finance system: lack of trust – In a stable macroeconomic environment the different players of the mortgage market share a common narrative of the borrowing, but at the time of the crisis the unified and agreed narrative is dissolved – “anti-bank attitude” : hate speech – The importance of the private market increase, but it could have a potential effect on the private rental market as well 15

41. Thank you for your attention József Hegedüs managing director +3630 869 1674 hegedus@mri.hu