850 new affordable homes will have little impact on Ljubljana’s residential market – Translation of an article that appeared in Finance, Slovenia’s daily financial newspaper, on Tuesday 14th March 2017

By Jacqueline Stuart

Slovenia, like most European countries has a chronic shortage of quality affordable homes, particularly in the capital city of Ljubljana. Slovenia, together with Italy and Greece, has the highest percentage of youth living at home of all OECD countries – with more than 70 percent of 15 to 29 year-olds cohabiting with their parents. But that’s not surprising, given the high cost of real estate and low average income in Slovenia, together with the culture of young adults living longer at home. Of all OECD countries, Canada has the lowest percentage of youth living with parents – about 30%.

Fortunately, the social housing funds of Slovenia and Ljubljana have announced they will build 850 apartments by 2020, the first hundred will be delivered by the end of this year. These apartments will be available for rent, not for sale.

Home ownership has plummeted

There has been a staggering drop in home ownership in Slovenia, now at only 76.2%, down from 84.5% in 2007. This is a developed world trend, the EU on average has dropped from 73.2% to the current low of 69.5%. The UK has the lowest rate of home ownership for 30 years. The US has the lowest level in 51 years.

Why are young people not buying homes?

There has been much speculation about why millennials are not buying homes. This generation is thought to value experiences more highly than security for the future, and they are not inclined to sacrifice luxuries like foreign travel and dining out in order to save for a deposit on a home. There is talk of millennials’ love of the sharing economy and associated rejection of ownership – of houses, cars, bikes or even clothes.

However, that is not the whole story.

Recent surveys show that young people very much aspire to buy a home, and expect to do so one day. Of those who rent, aged 25 to 34, 93% say they are likely to buy a home someday, compared to 81% of renters overall. Recent research carried out by the University of Maribor showed that Slovenia’s youth has a solid set of values, they are optimistic, and want to assume responsibility for their own fate, and that they want independence and to be part of society. So why are they delaying buying homes?

Firstly they are getting married later, and secondly they are poor. Relative to earlier generations, Millennials are making less money given their levels of education, many are indebted with loans, they are more likely to be underemployed, and they face shallower income-growth trajectories.

Youth unemployment is 16.8% in Slovenia, 18.6% in EU, 20.9% in Eurozone, over 40% in Italy Spain and Greece, and 12.6% in UK. Older workers are struggling to find new jobs despite their experience, and young graduates are struggling to find new jobs, because they have none. All in all, unemployment worldwide is projected to rise, due to the automation of industrial processes previously performed by workers, as well as rising population figures.

A 2014 survey by US housing finance giant Fannie Mae found that the majority of millennials said they consider owning a home more sensible than renting for both financial and lifestyle reasons — including control of living space, flexibility in future decisions, privacy and security, and living in a nice home

Asked what they believed were the biggest obstacles to getting a mortgage, millennial renters gave these answers, in order:

– Insufficient credit score or history
– Affording the down payment or acquisition costs
– Insufficient income for monthly payments
– Too much existing debt

Young adulthood is the life stage when the greatest increases in income and wealth typically occur, but Millennials entered this period during the recession of 2008, and they will need to make very large gains in the years ahead to compensate. Data from Age Group in the US shows that median net worth between 1995 and 2013 dropped by 8% across all age groups, but by 43% for those under 35. Those 65 and older experienced a median gain in net worth of 38%.

Why do we need more homes?

If Slovenia’s population is not increasing, then why do we need new homes? Demographic shifts have created a need for more homes, and smaller homes. People are living longer, and value independence. Divorce is on the increase. More people are choosing not to marry or cohabit. Families are smaller. In the next 20 years, the UK will see 5 million single person households, the same trend is evident in Slovenia.

The EU produced a review of housing in 2015, and concluded there are more people without a home today than 6 years ago, and that there are insufficient affordable homes available to meet the increasing demand.

There are many reasons that national and local government struggle to build new homes. Building land is scarce, and expensive. Planning processes are difficult and bureaucratic. Construction is expensive. Not all of the electorate supports tax euros being spent on housing for those less fortunate. It is not surprising that the authorities have decided that the new homes being built will only be available for rent. If they sell affordable houses, they say goodbye to them forever, if they rent them, they are available for future needs when the current occupants vacate.

But what about the impact on the families that occupy the homes?

In most parts of the world there are taboos associated with living in rented social housing. There are well documented benefits of home ownership. The largest benefit is price appreciation. Owning a home is a proven wealth creator. When Margaret Thatcher sold off social housing to the occupants in the UK in the 80s, hundreds of thousands of families became middle class overnight. The ‘right to buy’ legislation created an unprecedented housing crisis, as the homes that were sold were not replaced with new ones, leaving insufficient social housing for the growing population. Nevertheless owning homes made a huge difference to the families that chose to buy.

Benefits to families of owning their own home include better educational achievement of children, health benefits, lower crime, civic participation and connection to the community, and better property maintenance and improvements. Research in the US showed that low-income people who recently became homeowners reported higher life satisfaction, higher self-esteem, and higher perceived control over their lives. Homeowners are more likely to believe that they can do things as well as anyone else, and they report higher self ratings on their physical health, even after taking age and socioeconomic factors into account.

How will increased social housing affect the residential market?

Although 850 new homes over a 3 year period is a lot for a small city like Ljubljana, this is unlikely to have a huge impact on the market. Most people given the choice of buying on the open market or renting social housing would choose to buy. Any family choosing to rent social housing most likely has little chance of affording adequate housing on the open market. Any family with a low income would struggle to afford the high prices of apartments in Ljubljana.

Is there some other alternative?

In the UK, housing associations play a valuable role in providing affordable housing. These are private, non profit making organisations that provide homes for people on low incomes. Although independent, they are regulated by the state and commonly receive public funding. Most housing association property is rented, but some develop schemes for sale, often through shared ownership whereby the occupants own a percentage of the home, which can be increased over time. Housing associations are now the UK’s major providers of new housing for rent.

Private developers in large cities in the UK are now obliged by the terms of their planning consent to provide a percentage of affordable housing in every new development. The aim is that this should be 50%, in reality it is more like 20%. This initiative could work well in Slovenia.

Everyone deserves a decent place to live. Every mother needs to know her children have a safe place to call home. We deserve to know we have the power and stability to take care of ourselves and build our own futures. Slovenia’s government should be applauded for taking the initiative to provide much needed new homes. Perhaps as the economy recovers, funds might be found for affordable developments that would allow low income families to buy their own homes.