social safety net, informal economy and housing poverty - experiences in transitional countries

European Research Conference, Budapest, 17th September 2010UNDERSTANDING HOMELESSNESS AND HOUSING EXCLUSION IN THE

NEW EUROPEAN CONTEXT

ENHR

Social Safety Net, Informal Economy and Housing Poverty – Experiences

in Transitional Countries

Jó zsef Hegedüs

Metropolitan Research Institute, Budapest

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European Research Conference, Budapest, 17th September 2010UNDERSTANDING HOMELESSNESS AND HOUSING EXCLUSION IN

THE NEW EUROPEAN CONTEXTENHR

Outline of the talk Welfare regime and housing system ˝Weak˝ globalization theory

Structural factors – convergence National/special factors – divergence

Variations of housing regimes in transition countries

Beyond the welfare regime theory: making the welfare system – an institutional approach



Housing and welfare systems The welfare system has an effect on housing and vice

versa - fungibility in households’ budget among housing and other costs

Social elements in housing policies have become decisive in the last decades (middle-class housing moved out from the subsidized sector)

Housing should be in a broad framework of the welfare system without assuming that there is a consistent welfare regime:

Failure of Esping-Andersen welfare regime theory to integrate housing; Argument of Kasza (2002): development of different sectors is not coordinated

Action and structure



˝Weak˝ globalization theory – elements of convergence

National governments are under pressure of global trends

Economic and financial crisis (energy prices, debt crisis, etc.);

Demographic processes: ageing and housing; Migration trends Structural/global factors -> convergence



˝Weak˝ globalization theory – elements of divergence

Global trends are mediated through national politics Path dependence Local politics (parties, lobbies, etc.) Knowledge transfer (international agencies)

National factors –> divergences Examples – housing finance; legal structure;

etc.



Welfare regimes in the soviet system

Theory – ideology and the facts Attempts: ˝Authoritarian welfare state˝(Aidukaite)? Full employment, free public services, low housing cost,

strong housing intervention, free education, health care, etc.

But: poverty, inequality (not just the nomenclature) Conclusion: welfare is an integrated part of the state

dominance of the society (˝dictatorship of needs˝) The pre-transition period (in 1980s): an attempt to

integrate the market forces under the hegemony of the communist party



Social consequences of the transition

Recession and recovery Low employment Role of informal economy Demographic trends Income differences, segregation, exclusion Poverty



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)



Process of welfare regime building

Fiscal stress

Structural changes (marketization)

Public policy

Private interest (lobbies)

International Agencies

Compr

omise

s:

leaka

ge, e

fficien

cy lo

ss

Social cost of changes

Informal economy Individual adaptation, help from family State welfare policy

Compromises,

because of limited

resources and information



Slow recovery and huge distance from the EU15

GDP per head of population

(USD)

GDP per head of population (as % of Euro-

zone)GDP per hour worked (USD)

Czech Republic 20 184 68% 21,7Hungary 17 177 58% 22,4Poland 13 327 45% 18,1Slovak Republic 15 377 52% 22,9

Euro-zone 1 29 851 100% 41,9

GDP and productivity in selected new member states, 2005

Real GDP growth in the region (1989- 2008) Recovery from the transition recession (Examples from the region: Slovakia, Bulgaria, Latvia and Armenia)



Table 1. Demographic trends in the new member states

Population size on January 1st, 2005 (millions)

Projected population size, 2030 (millions)

Change (2005/2030)

Annual net migration rate, 2002-2006 (per 1000) ***

Old-age dependency ratio 65+/15-64, 2005 (%)

Projected old-age dependency ratio 65+ /15-64, 2030 (%)

EU15 384,8 398,8 1,04 5,20 25,8 41,2 Transitional countries (10)* 232,6 208,0 0,89 -0,03 19,7 29,1 New member states(9)** 92,2 86,0 0,93 0,01 20,4 31,4 United States 295,1 363,6 1,23 3,6 18,5 32,0 Japan 127,6 117,6 0,92 0,3 30 50,0



East European Housing model EEHM had a dual character: state and private

spheres under the state hegemony State control over construction, allocation, and

housing cost, however the state redistribution policy was “corrected” by the private sector (family network, quasi market)

Alternative versions (sub-models) - reaction to the „cracks”: Yugoslavia, Hungary.

Explanation: soft structuralist approach – combines the „rational choice” type of explanation with the structuralist element (role of path dependence (PD)!)



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



Transformation of the housing system

Privatization and restitutions Mortgage market development New ways of social housing Managing housing affordability



Social rental sector after the transition

Privatization – do the Czech Republic, Poland and Russia represent another model?

From universal to a residual model Rent arrears Evictions

Rent setting and property rights Public rents are at a level of 30-50% of private rents No difference whether it is national or local rent control



Housing privatization

Source: UN-ECE 2002, Hegedüs-Struyk, 2005



Restitution creation of a private rental sector

Restitution – law and its enforcement Czech Republic, Germany, Slovenia, Poland Romania

Rent regulation and interest of the owner Case of the Czech Republic Slovenia, Croatia – fast increase



Social housing programs

Definite need and political commitments (white papers and official programs)

Different models, but no path-breaking results – why? Examples : TBS, Czech social housing

program, Hungary 2000-2004, Romania after 2004, Serbia: municipal rental housing

The answer is still missing!!!



Emerging housing finance systems

Different institutional solutions Poland – commercial banks Hungary – mortgage banks Slovenia – state mortgage bank Contract savings – almost everywhere,

though different solutions Was subsidy necessary for the

development of the mortgage market?



Nominal growth of house prices*1990s-2001*

Poland (2000) 9,1Croatia (1997) 2,7Czech Republic (2000) 16,7Slovenia (1996) 6,1Hungary (1998) 8Bulgaria (2001)

Lithuania (2000) 4,9Estonia (1995) 13,8

23,523,836,4

Source: Égert and Mihaljek, 2007

2002-2006

2,38,79,89,9

11,9

*Four-quarter percentage changes, in national currency units; period averages



Balance of residential mortgage loans*

2001 2004 2007Bulgaria 0,5% 2,6% 9,9%Croatia 5,8% 10,3% n/aCzech Republic

n/a 7,6% 15,3%

Estonia 5,8% 16,6% 36,3%Hungary 2,3% 9,6% 12,4%Latvia 2,4% 11,5% 33,7%Lithuania 1,4% 7,0% 17,5%Poland 2,8% 5,5% 11,7%Romania n/a 1,4% 3,5%Slovenia 0,4% 1,5% 8,0%Slovakia n/a 6,1% 11,9%Source: European Mortgage Federation Eurostat, National Central

* End of the year, expressed as % GDP



The share of FX loans in the total households’ loans in 2003, 2008



Welfare systems: managing hardship in housing affordability

Economic and social changes after the regime changes Unemployment Income differences Housing cost

Conclusion: risk to be in arrears or to be defaulted increased



Composition of housing expenditure, 2005

Source: Elbers Alle , PRC Bouwcentrum International



Utility arrears in 2003, HungaryAmount of debt(total, in mln)

Hungary

Electricity 335,68 7.1% €15.9 €47.5Gas 67,662 2.2% €7.1 €104.8District heating 192,46 29.8% €18.8 €97.6Total 595,8 7.1% €41.8 €70.2

Type of service

Number of households in arrears

Ratio of indebted households as of total

Average debt per consumer



Constraints on housing allowance and income benefit programs

Economic constraints What is the minimum income Logic of the system: analogy to the deficit grant in

local government finance Institutional elements

Issues of decentralization and role of local government

Role of service providers Policy issues

Entitlement programs or means-tested programs „Innovation˝ in the programs



Housing allowance, 2000-2007

Source:CSO,2008



Households’ adjustment behaviour Households’ budget adjustment

Income benefit programs – limited effect Family help Informal economy

Arrears and downward mobility (social segregation)

Conclusion: households under pressure form a strategy with limited room for maneuvering



Role of family support, 2006 Relations correspond to the values of traditional societies:older generation tends to help the younger more than vice versa

0%

10%

20%

30%

40%

50%

60%

70%

-24

25-2

9

30-3

4

35-3

9

40-4

4

45-4

9

50-5

4

55-5

9

60-6

4

65-6

9

70-7

4

75-

family support given family support taken

53%

58%

42%

25%

34%

0% 10% 20% 30% 40% 50% 60%

-34, w ithoutchild

-39, w ith child

40-59, w ithchild

40-69, w ithoutchild

55-, retired,w ithout child

family support given family support taken

Age, life cycle groups and family help (percentages of households), 2006



Understanding the changing welfare system

Macroeconomic changes (globalization) Institutional and policy elements Households reaction – conflicts Adjustments on both sides – this leads

to new welfare structuresILLUSTRATION (FROM HUNGARY)

Gas price increase, crimes against vulnerable groups, problem of mortgage defaults



Gas price subsidy – illustration of moves toward the new welfare regime

History: Gas price increase after 2000 politics: keep the price low

(huge price subsidy across the board) general price subsidy 2003-2006 – price increased and a non-means tested

subsidy proportional to consumption was introduced 2007- means tested subsidy (gradual phasing out --

„squeeze”) Conclusions:

Budget cost: 7-10 times higher cost than the housing allowance

Administration (fragmented: ministry, treasury independent from the housing allowance)

Informal sector – ˝cheating˝ (30% self reporting was incorrect)



Crime against vulnerable people The inefficiency of the safety net program

(housing allowances and the management of crisis situation) gives room for intervention Usury loans, new form of slavery („csicska”),

housing mafia Vulnerable households: have no power to

resist Conclusion: analogy to homelessness



Mortgage arrears and defaults

Mortgage development in Hungary Subsidy program 2000-2004 – huge inequity Cut the subsidy and the introduction of FX loans 2008 crisis – 100 thousand household have defaulted

(more than 90 days)

Government policy reaction to the crisis: no eviction (role of party politics – but no real help yet)

– its future cost would be very high The possibility to build a new social housing system



Borrowing, Hungary, 1996-2008

Mortgage rate subsidy program: 2000-2004

Reaction to subsidy cut in 20041.Moves to FX loans2.Moves to consumption loans



Conclusion: Welfare regime is in the making (action and structure)

The role of research is to understand the institutional power structure which influences the shaping of the welfare systemIt has to move away from the structural approach and

be open to understand the strategies on both sides

Policy recommendations: Room for alternative innovative programs based on

the evaluation of the conflicts Need for standardization



Thank you for your attention.

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social safety net, informal economy and housing poverty - experiences in transitional countries

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