S U S T A I N A B L E U R B A N A R E A S 28 Housing policy and housing finance in the Czech Republic during transition An example of the schism between the still-living past and the need of reform Martin Lux Delft Centre for Sustainable Urban Areas )PVTJOHQPMJDZBOEIPVTJOH¹OBODF JOUIF$[FDI3FQVCMJDEVSJOHUSBOTJUJPO "OFYBNQMFPGUIFTDIJTNCFUXFFOUIFTUJMMMJWJOHQBTU BOEUIFOFFEPGSFGPSN The series Sustainable Urban Areas is published by IOS Press under the imprint Delft University Press IOS Press BV Nieuwe Hemweg 6b 1013 BG Amsterdam The Netherlands Fax +31-20-6870019 E-mail: )PVTJOHQPMJDZBOEIPVTJOH¹OBODF JOUIF$[FDI3FQVCMJDEVSJOHUSBOTJUJPO "OFYBNQMFPGUIFTDIJTNCFUXFFOUIFTUJMMMJWJOHQBTU BOEUIFOFFEPGSFGPSN 130&'4$)3*'5 ter verkrijging van de graad van doctor aan de Technische Universiteit Delft, op gezag van de Rector Magnificus prof. dr. ir. J.T. Fokkema, voorzitter van het College voor Promoties, in het openbaar te verdedigen op vrijdag 13 november 2009 om 10.00 uur door Martin LUX MSc in economie en sociologie geboren te Nový Jicín (Tsjechische Republiek) Dit proefschrift is goedgekeurd door de promotor: Prof. dr. P.J. Boelhouwer Samenstelling promotiecommissie: Rector Magnificus, voorzitter Prof. dr. P.J. Boelhouwer, Technische Universiteit Delft, promotor Prof. M. Stephens, University of Glasgow Prof. dr. J. van Weesep, Universiteit Utrecht Prof. M. Oxley, De Montfort University, Leicester Prof. dr. ir. H. Priemus, Technische Universiteit Delft Dr. M.E.A. Haffner, Technische Universiteit Delft Dr. T. Kostelecký, Academy of Science of the Czech Republic Housing policy and housing finance in the Czech Republic during transition An example of the schism between the still-living past and the need of reform Delft University of Technology, the Netherlands The author wishes to acknowledge the financial assistance of the Grant Agency of the Czech Republic, grant No. 403/09/1915 “Social inequalities and the market risks following from housing consumption. The real and desirable response of state fiscal and monetary policies.” Design and cover: Cyril Strijdonk Ontwerpbureau, Gaanderen Dtp: Yvonne Alkemade, Delft Printed in the Netherlands by: Haveka, Alblasserdam ISSN 1574-6410; 28 ISBN 978-1-60750-058-2 NUR 755 Legal notice The publisher is not responsible for the use which might be made of the following information. © Copyright 2009 by Martin Lux No part of this book may be reproduced in any form by print, photoprint, microfilm or any other means, without written permission from the copyrightholder. $POUFOUT Preface and acknowledgements 1 Introduction.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1.1 Meaning of ‘transition’ ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 The goal of the book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.3 Preliminary questions ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.4 Theoretical and methodological framework . . . . . . . . . . . . . . . . . . . . . . 6 1.4.1 Theories on housing systems’ development . . . . . . . . . . . . . . . . . . . . . . 7 1.4.1.1 Inspiration in comparative housing studies . . . . . . . . . . . . . . . . . . . . . . 7 1.4.1.2 What theoretical framework to choose? . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.4.2 Theories on the role of the state in the field of housing consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.4.2.1 Economic perspective ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.4.2.2 Social perspective ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.4.2.3 State as ‘rational economist’ and ‘understanding paternalist’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.4.2.4 Why do states intervene as ‘understanding paternalists’? . . . 21 1.4.3 Methodology of assessment of the role of the state in the field of housing consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 1.4.3.1 Public interventions in the field of housing consumption – hypothetical cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 1.4.3.2 Public interventions in the field of housing consumption – practical cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 1.4.3.3 The methodology of assessment of housing subsidies: the concept of efficiency and effectiveness . . . . . . . . . . . . . . . . . . . . . . 37 1.4.4 Methodological discussion on international comparison of housing systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 1.4.4.1 Case of misunderstanding – ‘social’ housing in transition countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 1.4.4.2 Methodological imperative – individual openness of researchers in comparative studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 1.5 Research questions ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 1.6 Outline of the book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 2 Housing policies and housing finance during transition in selected transition countries Partial international comparison .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 2.1 Introduction ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 2.2 Privatisation of public housing and tenure changes . . . . . . . . . . . 56 2.3 Supply-side subsidies ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 2.3.1 Supply-side subsidies: the case of Poland . . . . . . . . . . . . . . . . . . . . . . . . 59 2.4 Demand-side subsidies ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 2.5 Subsidies and role of the state in homeownership sector . . . . 63 2.5.1 Subsidies to promote homeownership: the case of Hungary 67 2.6 Was anything shared among transitional countries? . . . . . . . . . . 69 3 Housing conditions, housing policy and housing affordability in the Czech Republic during the transition . . . 73 3.1 Political and institutional context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 3.2 Economic context ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 3.3 Social policy ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 3.4 Demographics ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 3.5 Immigration ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 3.6 Housing conditions and housing policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 3.6.1 Housing policy between 1918-1948 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 3.6.2 Housing policy between 1948 and 1989.. . . . . . . . . . . . . . . . . . . . . . . . . . . 95 3.6.3 Housing policy between 1989 and 2005.. . . . . . . . . . . . . . . . . . . . . . . . . . . 98 3.6.3.1 Housing conditions ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 3.6.3.2 Tenure changes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 3.6.3.3 Demand-side subsidies ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 3.6.3.4 Supply-side subsidies ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 3.6.3.5 Subsidies to promote homeownership . . . . . . . . . . . . . . . . . . . . . . . . . . 112 3.6.4 Housing finance ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 3.6.5 Housing affordability ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 3.6.5.1 General problems connected with measuring housing affordability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 3.6.5.2 The methodology of measuring the affordability of housing in the Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 3.6.5.3 The affordability of rental housing in the ‘privileged’ housing sector between 1991 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . 128 3.6.5.4 The affordability of rental housing in the ‘unprivileged’ housing sector (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 3.6.5.5 The affordability of owner-occupied housing in the ‘privileged’ housing sector (1991-2003) . . . . . . . . . . . . . . . . . . . . . . . . . . 136 3.6.5.6 The affordability of owner-occupied housing in the ‘unprivileged’ housing sector (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 3.6.5.7 Comparison and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 4 Effectiveness and efficiency of housing policy in the Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .145 4.1 Effectiveness ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 4.1.1 Economic subsidy from rent regulation . . . . . . . . . . . . . . . . . . . . . . . . . 151 4.1.2 Economic subsidy from public housing privatisation . . . . . . . . 156 4.1.3 Housing allowance ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 4.1.4 ‘Social’ housing subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 4.1.5 Tax relief ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 4.1.6 State premium to housing savings scheme . . . . . . . . . . . . . . . . . . . . 163 4.1.7 Conclusion ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 4.2 Efficiency ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 4.2.1 Economic subsidy from rent regulation . . . . . . . . . . . . . . . . . . . . . . . . . 167 4.2.1.1 Data and methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 4.2.1.2 Conclusions and sensitivity analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 4.2.2 Housing allowances ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 4.2.3 Tax subsidy ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 4.2.4 State premium to housing savings scheme . . . . . . . . . . . . . . . . . . . . 183 4.2.5 Conclusions ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 5 Efficiency and effectiveness of new supply and demand- side subsidies in transition countries . . . . . . . . . . . . . . . . . . . . . . . . . .187 5.1 Analysis and criteria used for comparison of housing policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 5.2 Evaluation and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 6 Efficiency and effectiveness of housing subsidies in the Czech Republic Conclusions from housing system analysis . . . . . . . . . . . . . . . . . . .199 6.1 Context analysis ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 6.2 Policy recommendations ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 7 Summary and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .217 7.1 Main topic and goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 7.2 Theoretical and methodological background . . . . . . . . . . . . . . . . . . 218 7.3 Research questions and main findings . . . . . . . . . . . . . . . . . . . . . . . . . . 220 7.3.1 The wider context of housing subsidies in the Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 7.3.2 Evaluation of housing subsidies in the Czech Republic . . . . . 225 7.3.3 Partial evaluation of housing subsidies in other transition countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 7.3.4 Other factors of low effectiveness and efficiency of housing subsidies in the Czech Republic . . . . . . . . . . . . . . . . . . . . . . . 229 7.3.5 Policy recommendations for higher effectiveness/ efficiency of housing subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 Appendix A Public housing policy and instruments . . . . . . . . . . . . . . . . . . . . . . . .237 Appendix B Programmes to meet the social objectives of housing policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .243 Appendix C Optimisation programme on public housing construction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .249 References ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .251 Summary ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .271 Samenvatting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .277 Curriculum vitae ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .283 1SFGBDFBOE BDLOPXMFEHFNFOUT I would like to thank for substantial help, inspiration and many valuable comments to both content and the structure of the book prof. Peter Boelhou- wer from OTB, Delft University of Technology in the Netherlands. The results of several years of research presented in this book could not be achieved without close co-operation with my colleagues at the Institute of Sociology, Academy of Sciences, in Prague. My special thanks relates to Petr Sunega who in 2000 established with me the research team focusing almost exclusively on housing research; the field that needed substantial reform of perspectives in the Czech Republic after 1990. After several years of common hard work and mutual help we achieved the recognition of our research activities in domes- tic environment as well as abroad. I should not forget to thank the management of OTB and the management of the Institute of Sociology, Academy of Sciences in Prague for excellent con- ditions allowing me to finish this book. The work on this book was especially supported by the Grant Agency of the Czech Republic, grant No. 403/09/1915 “Social Inequalities and the Market Risks Following from Housing Consump- tion. The Real and Desirable Response of State Fiscal and Monetary Policies.” Many thanks to my wife Lucie and to my children, Ondrej and Tat’ána, for their patience and support. I owe them a lot… Martin Lux Prague, July 2009