Urban Research & Practice – Volume 16, Issue 4
23/09/2023
METREX Autumn Conference 2023
29/09/2023
Conversation #56
The affordable housing crisis: insights from a post-socialist city
by Žaklina Grgić
University of Georgia, United States of America
Providing affordable housing has emerged as a major challenge for cities across the world. In the USA, a physical lack of affordable housing units is front of the stage (Fannie Mae, 2022). In Europe, the rising costs of housing, combined with a shortage of affordable housing units, means that cities across the continent now face a major housing crisis (OECD Forum, 2021).
Affordable housing does not have the same meaning everywhere of course. What is currently known about this topic is due largely to research on the global West. But what is happening in the rest of the world, particularly in countries with previous socialist governing regimes?
As an example, let’s consider the city of Zagreb, the capital of Croatia, a country that gained its sovereignty from Yugoslavia in the mid-1990s after the Homeland War. The city’s population grew rapidly in the years following World War II, driven by intense industrialization with its current metropolitan region having around one million inhabitants. The city grew from 279,623 residents in 1948 to 939,914 in 1991, just before the start of the War, in which it lost about 15% of its population (City of Zagreb, 2023).
Growth required housing and under the socialist regime, the government planned, built, and allocated housing units. These socialist-style residential buildings were constructed further and further away from the historic urban core (Daskalova and Slaev, 2015), which was already densely built and had no room for expansion. The apartments were relatively small, created to meet basic needs driven by a desire to have no one living homeless on the streets.
However, the 1990s brought major changes – the country’s economy shifted from a state-led to a private sector-oriented one. This change gave residents a say in where and how they wanted to live. Some groups, such as the new rich (Hirt, 2012), took advantage of this, building large urban villas even in protected green areas such as those of the Medvednica mountain (HAOP, 2015). Privately owned construction companies started building smaller-scale housing, and the only social housing developments constructed by the new government were to accommodate war veterans and their families. The private market caused Croatia’s housing prices to spike like never before (Euractiv, 2023).
So, how do these developments impact today’s housing situation in Zagreb? In the process of change from socialism to post-socialism, apartments that the government previously owned were either given or sold to residents for extremely low prices in a so-called ‘give-away privatization’ (Stephens, Lux, and Sunega, 2015). Consequently, homeownership rates skyrocketed, and at 90.5%, Croatia is now a country with one of the highest homeownership rates in Europe (Eurostat, 2023a).
The rental housing market is now limited to less than 10% of housing in the city. Since buying a housing unit was very affordable in the 1990s, during the transition from a socialist system to an independent country, people aged 50 and over today were mostly able to secure the ownership of their primary housing unit. Young people aged 18 to 29, who are in the phase of life where it is time to move out of parental homes and start establishing their independence, are particularly affected by the skyrocketing housing prices.
Eurostat shows that Croatian youth moves out of parental homes at an average age of 33.4 years, making it the EU country where children stay with parents the longest (Eurostat, 2023b). Considering that some people in the 50 and over cohort are able to buy secondary housing units, while young people are not even able to obtain a mortgage for their first one, there are unequal dynamics in the housing market.
In Zagreb, the vacancy rate, a ratio of occupied versus existing housing units, for apartments fits the definition of an extremely tight housing market where the vacancy rate is less than 5 % (Belsky, 1992). This is partly fueled by the increased popularity of considering apartments as investment opportunities rather than housing units for people. Official data shows that from 2012 to 2021, the amount of direct foreign investments in Zagreb increased by 280% in the construction of buildings, 81% in the construction of civil buildings, 123% in tourist accommodation, 650% in real estate business, and 60% in proprietary investments in real estate (City of Zagreb, 2023). How do we interpret these trends?
Croatia is a popular tourist destination, and tourism forms an essential part of the local economy, growing fast since the country became a member of the European Union in 2013. The need for tourism infrastructure and appropriate accommodation impacts long-term rental availability for locals with weaker purchasing power than international tourists seeking short-term rentals. For example, the number of beds in private accommodation for tourists in Zagreb rose from 532 in 2011 to 10,588 in 2019 (City of Zagreb, 2023), a year before COVID-19 impacted tourism and before earthquakes in 2020 destroyed some of the housing stock in the city (MPGI, 2020). Converting apartments to short-term rentals reduces further the availability of affordable housing rental units for local people.
Since there is no official housing policy that targets affordability, and the issue is on the rise some initiatives are taken by private companies, such as the Austrian Erste Group which also plans to increase the number of affordable housing units in Zagreb (Total Croatia News, 2023).
However, private initiatives will not be able to fully resolve the issue of affordable housing in Zagreb. Provided no major changes in recognizing and assessing the problem of affordable housing, it is plausible that brain drain will follow the example of other post-socialist countries. The brain drain will have a negative economic impact on the city (and country) long-term as young and educated people move out of the country in search of better and fairer living and economic environments.
I welcome comments on this assessment of housing change in Zagreb. Do the concerns I have outlined here arise in cities elsewhere in Europe? Are other cities developing policies and practices that are addressing our current affordable housing crisis, particularly with a focus on young people?
References:
Belsky, E. S. (1992). “Rental Vacancy Rates: A Policy Primer”. Housing Policy Debate, 3 (3), 793–813 Daskalova, D. and Aleksandar D. S. (2015). “Diversity in the Suburbs: Socio-Spatial Segregation and Mix in Post-Socialist Sofia”. Habitat International, 50 (December): 42–50 Euractiv (2023). Croatia’s property prices jumped to record highs in 2022 (accessed 8/20/2023) Eurostat (2023a). House or flat – owning or renting (accessed 6/20/2023) Eurostat (2023b), Share of young adults aged 18-34 living with their parents by self-defined current economic status - EU-SILC survey, accessed 6/20/2023 Fannie Mae (2022), U.S. Housing Shortage: Everything, Everywhere, All at Once, accessed 8/20/2023 Grad Zagreb/City of Zagreb. (2023). STATISTIKA - Statistički ljetopis Grada Zagreba 1955 – 2022, accessed 6/20/2023 Hrvatska agencija za okoliš i prirodu [HAOP]. (2015). Analiza pritisaka i prijetnji u Parku prirode Medvednica, accessed 8/20/2023 Hirt, S. (2012). Iron Curtains: Gates, Suburbs, and Privatization of Space in the Post-Socialist City. Studies in Urban and Social Change. New Jersey: Wiley & Sons Ministarstvo prostornoga uređenja, graditeljstva i državne imovine [MPGI]. (2020). Reconstruction of earthquake-damaged buildings in the City of Zagreb and its surroundings, accessed 8/20/2023 OECD Forum. (2021). Tackling Europe’s housing crisis, accessed 8/20/2023 Stephens, Mark, Martin Lux, and Petr Sunega. (2015) “Post-Socialist Housing Systems in Europe: Housing Welfare Regimes by Default?”. Housing Studies, 30 (8), 1210–34 Total Croatia News. (2023). Affordable Housing Project in Croatia To Be Run by Erste Group, accessed 8/20/2023
Affordable housing presents a significant challenge in various contexts, and one aspect that must not be overlooked is the diverse contexts in which this crisis unfolds. Therefore, Žaklina Grgić’s insights from a post-socialist city are invaluable. The origins and manifestations of the housing crisis have deep historical roots. A governance perspective highlights this fact, with institutions often evolving slowly, and the composition of key actors involved in housing production and their relationships, such as those between planners, policymakers, and developers, deeply entrenched in specific contexts. Preconceived, one-size-fits-all solutions to address housing crises in various contexts are unlikely to be effective.
As demonstrated by Žaklina Grgić in the case of Zagreb, Croatia, the transition to a post-socialist regime coincided with the emergence of a booming private housing market, resulting in mass privatization and a sharp increase in homeownership rates. Additionally, foreign investors started to play an increasingly prominent role in the housing market, particularly due to tourism. It’s worth noting that the housing crisis has far-reaching consequences beyond just living conditions, potentially causing brain drain, reduced life satisfaction, the loss of essential workers, and the breakdown of societal structures. While Zagreb may be an extreme case, similar trends can be observed in many other cities, including those with which I am familiar, such as London and Amsterdam.
What is lacking in Zagreb is a well-defined strategy for affordable housing. Many cities are experimenting with novel approaches to regulate the housing market. However, even those that appear highly ambitious, often encounter limitations and fail to achieve their affordable housing goals. Amsterdam, for example, has multiple strategies in place, but the intertwining of the housing market with market dynamics makes it challenging to attain these objectives. One significant obstacle is the overarching institutional framework that has shaped rules, behavioral patterns, and governance structures over many decades, contributing to the current problems. I believe that we need to invest more effort in unraveling complex governance arrangements and comprehending their institutional implications. This will provide a foundation for clearer thinking about how to develop strategies that drive institutional change. However, since institutional change typically occurs gradually, we must be committed for the long haul.