“The ability to live in high-quality housing at affordable prices is a basic need of the population, so the availability of housing that meets the requirements of modern life is one of the national priorities of the moment. Housing availability not only affects the level of household welfare and equal opportunities, but also their access to economic growth opportunities. It has a particular impact on the mobility of citizens, thereby enabling or preventing them from actively participating in the labour market and the economy as a whole. We also concluded during the COVID-19 pandemic that housing plays an important role in ensuring the safety of the population, because physical separation can be burdensome in overcrowded or poor-quality housing,” the Minister of Economics Jānis Vitenbergs.
In May 2019, the Ministry of Economics launched a cooperation project with the Organisation for Economic Co-operation and Development (hereinafter referred to as OECD) on housing availability in Latvia, in which OECD experts have analysed the situation and developed proposals for an effective set of support tools to improve housing availability in Latvia, inter alia by taking over and adapting good foreign practices.
When presenting the results of the project on housing availability in Latvia, the OECD Secretary-General Angel Gurría pointed out that housing availability should be one of the priorities of the Latvian government, as many people live in outdated housing and overcrowding in Latvia. He also stressed that many people in Latvia have their own housing, but there is no developed rental market, and developing the rental market would help Latvia to overcome the Covid-19 crisis.
The country’s president Egils Levits emphasised that Latvia needs a comprehensive housing strategy focused on quality, sustainability and innovation. The president pointed out that Latvia has a lot of outdated housing, which is not energy-efficient and demands disproportionate costs. Although much has been done in housing policy so far, the residential stock remains unsatisfactory and is not in line with modern standards. Therefore, Latvia needs to build high-quality housing that people and residents can afford.
OECD recommendations to Latvia for the development of housing policy:
- improving the assessment of housing availability and quality and assessing housing needs by carrying out a comprehensive technical quality assessment of housing and improving the possibility of following up housing availability;
- investing in high-quality housing and reducing construction costs by considering the creation of a sustainable self-financing fund to support the recovery of a residential stock where such investments are profitable and the construction of new affordable housing; by reducing the administrative costs associated with construction; and by exploring the use of innovative approaches to building affordable housing with higher environmental standards and quality, but at lower cost;
- developing a more accessible and attractive commercial rental market, providing equal conditions for all market players in the commercial rental market, thereby supporting more affordable and attractive rental opportunities, particularly in the Riga region and other urban areas; and diversifying the range of housing suppliers;
- reducing the size of the “missing middle” by improving the determination of the amount of housing benefit for different households, considering the development of a housing renovation programme; increasing housing support for low-income households; and setting the level of housing benefit for middle-income households, including families with children, taking into account income and housing size criteria.
In line with the OECD recommendations, by the end of 2021 the Ministry of Economics intends to develop a comprehensive housing policy strategy – a long-term document set out the housing policy objectives for the coming years, which will provide innovative solutions and the necessary funding to address the problems identified, as well as provide for the development of support programmes for housing availability targeting individual groups of society, such as families with children.
According to the OECD study, the privatisation process in Latvia, like in other post-Soviet countries, after the change of the Communist regime resulted in the majority of housing being privately owned – seven out of ten households have loan-free housing. The average household expenditure on housing is below the OECD average. On the other hand, the low cost of housing has created another challenge – poor housing quality. Most of the housing has been built during Soviet power and has not been properly maintained. More than a third of households live in overcrowded housing, which is the highest rate in the OECD. Many households do not have the option to move to more qualitative housing without spending more than 30% of their disposable income. Mortgage loans are not available for a large part of the population.
State support for housing availability is received by a small proportion of vulnerable households and low-income households, as well as the level of support is limited. Social rental housing and apartment benefits are the main support tools for people with the lowest income. The state offers mortgage loan guarantees to families with children and young specialists (persons with higher vocational secondary education under 35 years of age). This support can mainly be used by households with higher income in the Riga region. Thus, the existing housing support is not available to a large proportion of households – the “missing middle”, which constitutes approximately 44% of all Latvian households, which are too wealthy to receive social housing or housing benefits, but whose income is insufficient to obtain mortgage loan.
During the implementation of the project, OECD experts arrived in Latvia on two missions. In July 2019, during the first mission of the OECD in Latvia, OECD experts met national regulatory authorities, local governments, real estate developers, non-governmental organisations and other interested parties in order to obtain the necessary information to identify the situation and develop proposals. In November 2019, as part of the second mission, more than 20 foreign experts arrived in Latvia, sharing their experience in defining housing availability, using financial instruments, revolving funds to ensure an affordable supply of rental housing and creating regulation for non-profit or low-profit housing developers.
The project resulted in a detailed overview of the availability of housing in Latvia and the currently available support tools for ensuring housing availability, the experience of other countries in the use of revolving funds and non-profit or low-profit real estate developers to promote housing availability and proposals for Latvia to build such a system. It also looks in detail at other countries’ experience in the development of support instruments promoting access to housing for families with children, as well as developing proposals for support mechanisms to provide additional support for families with children for housing, as well as OECD experts have prepared proposals on the amount of benefits related to covering housing costs and increasing the range of beneficiaries, as well as potential costs in the budget for increasing this support.
The project summary, presentation and results are fully published on the OECD website.
Video recording of the project results presentation event published on the Ministry of Economics Facebook account.