Housing and Slum Upgrading Branch PowerPoint Presentation

Housing and Slum Upgrading Branch PowerPoint Presentation

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DEVELOPING . AFFORDABLE HOUSING FOR RENT. Shelter . Afrique. and the Ministry of . Water Resources. , Works & Housing. , Ghana. June . 2nd . 2015, Accra, Ghana. Rental Housing: Lessons . from . International . ID: 381250

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Slide1

Housing and Slum Upgrading Branch

DEVELOPING

AFFORDABLE HOUSING FOR RENT

Shelter

Afrique

and the Ministry of

Water Resources

, Works & Housing, GhanaJune 2nd 2015, Accra, Ghana

Rental Housing: Lessons

from

International

Experience

Slide2

UN-Habitat Mandate

UN-Habitat is committed to supporting governments to promote sustainable urbanization and adequate housing for all

UN-Habitat promoting Rental Housing

Slide3

Repositioning ‘Housing at the Centre’

Towards a new Global Housing Strategy Principles and FrameworkResolution Govts. reassuming a leading role

Habitat II

2012

2013

2016

Housing at the Centre

– New Urban Agenda of the 21

st century

Review of Global Shelter StrategyRegional assessmentsGlobal reviewRoadmap

Habitat III

CITIES

PEOPLE

POLICY

Slide4

THREE KEY MESSAGES FROM THE OUTSET:

Cultural preferences change

Rental Markets are diverseRental offers flexibility, wealth and affordabilityFOCUS OF THE PRESENTATION The main players – landlords & tenants Rental setting and regulationFinance for rental housingTax issues and incentivesSubsidies Case examples

Rental Housing: experiences & lessons

Slide5

Two main players - landlords

Individuals

and small scale owners

:

are the majority and often operate informally;

look for complementary income

;

need quick procedures for resolving

problems.

Institutional owners

:

have long-term

profit purposes; closely monitor risk and capital

returns; tend

to own a large number of units in one building

to

benefit from economies of

scale.

Nonprofit, including governments

: often target low income groups; have specific modes of allocation and maximum rents; have various levels of government

involvement.

Slide6

Two

main players - landlords

The

common

trends:

A

move toward a market-based approach, rather than an

approach

where the government finances and manages public

housing

Establishment

of

housing association/management agency

that

deal with stock allotment and

management

Governments participating through:

provision

of the land

free of cost for social

housing

incentives

to private developers to create

stock

Slide7

Tenants

by

choice

:housing starters, young couples and singles who want to remain mobile; students; empty nesters who want to downsize after their children have grown; persons who, for work or personal reasons, prefer a short-term residence.Tenants by constraint (are the majority): low-income households; slum dwellers; workers who migrated for employment reasons; immigrants; working families with no access to credit (informal workers).

Two main players - tenants

Trends:

Increase of informality with positive and negative consequences

Tenant’s main concerns:

affordability, stability of tenure

Slide8

Rent setting and regulation

Improving

the

policy and legal

framework is the first

priority (time-consuming, technic

and

political challenging)

Main regulated areas:

RENTAL CONTRACTS - QUALITY OF THE STOCK - RENTAL CONTROLS

Quick

procedures for resolving

problems and

efficient arbitration

systems

Right

balance between the

core legislation

, which needs to be stable over time, and

other

rules

, which need to be flexible and adaptable

(inflation)

Right balance needed – can inhibit the sector

Reforms and regulations need to be regularly reviewed

Slide9

Rent setting and regulation

Risks and protection mechanisms:

Landlords exposure

: rent default, damage to the property, repossession of the property

Protection:

Deposits (in some cases prohibitive in Africa), screening (regular income and references - vulnerability), insurance (can be provided by a company or third party’s guarantee – e.g.

parents

); efficient arbitration

systems.

Tenant’s exposure

: tenure

instability and the risk of being displaced, lack of maintenance,

and rent increase

Protection:

laws/regulations recognizing or ensuring legal

security;

housing voucher

and subsidies (

in case of displacement

); enforceable contracts; minimum standards; rules for termination of contract.

Slide10

Rent setting and regulation

Rent controls: is it an option?

represent

a genuine effort to help tenants

cost

the state nothing, as they placed the financial burden

on

the

landlords

in

recent years, rent controls

have been

discredited

- negative

effects

on

the rental housing

supply

However, governments to be careful when removing rent controls: need systems

in place to protect tenants from sharp

increases

Example

: Artificially

low rents in

Egypt

to the disadvantage of landlords and impacting on usage of stock - has one of the highest rates of vacant houses in

Africa.

Slide11

Finance for rental housing

Currently depending on high levels of equity (large-scale) and own

savings

(individuals)

Different demands and priorities coming from different landlords

Small scale landlords

- Short-term

loans

for

construction or

renovation, but also long-term

capital is also helpful to individual owners who would like

to purchase or renovate other units

Equity capital

or long-term

debt from banks or government rarely available -- can be important in filling any financial gap

Long-term

capital

is

essential:

Capital

markets

can

be tapped through bonds

- still

underdeveloped in Africa

Insurance products

and

credit enhancement

can

make investment in residential rental housing more attractive and capital more readily available to developers

Slide12

Finance for rental housing

Even when financing is available, some type of additional

subsidy is

needed

Governments to

step in:

Enabling and guaranteeing loans to

social housing

institutions

With

assistance or with supply-side subsidies. These could include

:

Bonds

issued for multifamily development (United States

)

Housing

development

funds

,

to make financing available to

developers

Stimulation

of

rental

income

guarantee

or

insurance

schemes

Grants

,

land

, or

infrastructure

provided free or at a reduced cost in exchange for keeping rents affordable for certain income

populations

Capacity

- Lenders

need the personnel, intellectual capital, and systems needed in this type of investment.

Information

on housing markets in

general - and

rental markets, in particular is needed.

Slide13

Tax issues

From a tax perspective, investment in rental housing needs to be on an

even playing field

with similar investments

Should not carry a higher tax burden than other real estate in such elements as allowable deductions and depreciation

periods

Tax codes are

complex: overall

rate

+ deductions

, depreciation, capital gains, and other

factors

Good

balance needed:

If the tax burden is too heavy, investors will find alternative ways of earning returns on capital

Individual or small owners can find ways to keep their properties out of the formal rental sector

Slide14

Tax issues

Common

tax codes affecting rental property ownership:

Capital

gain tax

:

when

high may help reduce speculation,

disinvestment

or

informality

to

limit speculation, short-term gains are taxed more heavily than long-term

gains

a

middle ground: alleviate the capital gains tax after the first years to improve the total return for long-term

investors

Property

taxes

: due from the owner based on the assessed value of the property or on its rental

value

Depreciation allowance and accelerated depreciation

: usually available to companies

(Germany

)

Slide15

Tax incentives

Taxation is a tool that governments can use to encourage investment in rental housing

Mortgage

interest deduction

:

applicable

not only to the purchase of the main residence but also to other residential real estate, up to the maximum loan

amount

Tax

incentives to formalization

:

policy

to move properties from the informal sector to the regulated sector must be careful

not to be punitive:

providing

temporary tax exemptions to properties

in

the informal sector

incentives

to put the properties into safe, habitable

condition

f

inancial incentives

for property

improvement

Governments

can use taxation

to

encourage the development or

of

insurance markets for both owners and

tenants

Slide16

Subsidies

Supply-side

subsidies

(SSS):

tax abatements - subsidized loans - direct grants - land

/

infrastructure - guarantees

for loans for

investors

Subsidize

the cost of

loans, construction, building

management and

maintenance

Grants have an immediate budget impact, whereas tax incentives can be used over a long period

Direct up-front subsidies are probably the simplest and most transparent ones – shorter-term commitments than loan guarantees

SSS shall be conditioned to social commitments – low-income target groups, lower-than-market rents, good valuation of the subsidy cost in relation to the social benefits that are achieved.

SSS hardly serve low-income groups - additional demand subsidies needed

Slide17

Subsidies

Demand-side

subsidies

(DSS):

assistance

payments and

vouchers

DSS provide direct financial support to the tenant

Shall

be designed to be transparent, efficient, fair, and clearly targeted to specific

populations

Housing

allowances or

vouchers

are an effective way to make rental housing affordable to low-income households

Require

information on beneficiaries:

household

income,

rent levels, type

of household or the family

size

Shall

be carefully designed to avoid the creation of poverty traps, inflationary

effects

Shall

be simple and transparent so that beneficiaries understand how they are

calculated

Have

less effect on housing supply and should be combined with supply-side subsidies

Slide18

Promoting rental housing through Policy

1. Acknowledge

and understand

existing rental practices

2. Get

rental housing on the larger

urban policy agenda

3. Work

out practical, flexible

rental housing

policies and

regulations:

F

lexible to

cover

a wide

range of

target

groups

and

rental housing

types

Adjustable standards to produce a wide variety of rental options

Approving

these

adjustments should

be kept as simple

and straightforward

as

possible (simple

rental contract

templates, cheap

arbitration and conciliation service for landlords and

tenants)

4. Mobilize

finance to improve and

expand rental housing

(

subsidies or tax incentives

-

credit

facilities or

subsidies

for poor

landlords)

5. Encourage

large-scale and

small-scale investment

in rental

housing - (increase

tenants’ “

ownership” of

a

project: informal sector, participation, get CBOs and NGOS on board)

Slide19

Examples and case studies

Slide20

Case India

Case Study-1: Rental Housing Scheme by MMRDA (Public-Private)

Since

2008, under the new Housing Policy, Government of Maharashtra (

GoM

) with

private sector participation and Mumbai Metropolitan Regional Development Authority (MMRADA)

as Project Implementation

Authority (PIA

)

Pioneer

in experimenting relaxation of floor space index (FSI) and offering transferable development rights (TDRs) to make more space available in its highly congested

environment

Case Study-2: Rental Accommodation by

Aarusha

Homes (Private

)

P

rivate company

that provides rental

housing solutions

to low and middle income group

for

short term

stays

Emerged

as an

entrepreneur that

runs the ‘retail model’ of rental housing, catering to migrants from low to middle income

groups on

a first come first serve

basis

D

oes

not own any of

its

rental property stock and properties are acquired from

land owners

on a lease period of 3-9

years

Slide21

Case South Africa

Johannesburg

Housing Company (JHC)

L

aunched

in

1995 - has

led a pioneering path in the development of social housing in the Johannesburg inner city – and at a national

level

Over

the past 2

0 years has

developed more than 4000 rental housing units and today provides homes to more than 12 000 people in low to middle income

communities

It

has built up a portfolio of 35 buildings – across the inner city and, most recently, reaching into Greater Johannesburg in response to the continuing demand for housing from a fast growing urban

population

Financial

investment

of around

R700 million to

date

Operates

as a private sector, non-profit, social housing

institution

Slide22

Microfinance for rental housing supply

Formalization of rental stock, support to small-scale landlords

Assisted incremental housing + microfinance

Improve quality of the stock

Provide affordable rental options

IFC and Lafarge in several countries in Africa, India and LA

Slide23

Fernanda.Lonardoni@unhabitat.org

Kilamba

, Luanda

Slide24

Slide25

Slide26


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