By Jacqueline Stuart, MRICS RV

Why is home ownership important?

The national association of realtors in the US cites social benefits of homeownership. It has been shown to have a beneficial impact on:

• Educational achievement
• Civic participation
• Health
• Crime
• Public assistance
• Property maintenance and improvement

Every working person deserves the opportunity to own their own home. But rising real estate prices and new lending regulations introduced by the Bank of Slovenia make home ownership an impossibility for many, particularly those living in Ljubljana.

Rising prices affecting affordability

Since 2015, property prices in Ljubljana have risen by one-third. The average price of an apartment sold in 2018 in central Slovenia was 134,000€, for a 53m2 unit. The average net salary in Ljubljana currently stands at 1,231€ per month, or 14,772€ per year. The average apartment is trading at 9 times the average salary. This is not sustainable, nor affordable, by any measure.

Availability of properly priced apartments is also a problem, which makes it difficult for buyers not only to afford a home, but also to find one. There are currently 1,673 advertisements on nepremicnine.net for previously owned apartments for sale in Ljubljana, at an average asking price of 3,096€/m2. This compares to 2,316 sales of apartments in 2018, at an average price of 1,475€/m2. The expectations of many sellers are completely unrealistic and this does not contribute to a healthy real estate market. 

New loan regulations

The Bank of Slovenia has introduced new regulations intended to prevent borrowers getting into financial difficulties. They specify that loans must not exceed 80% LTV. This means that to buy the average apartment, a deposit of 26,800€ is required; a huge amount. Many young people have no option but to resort to ‘The bank of Mum and Dad’, if they are lucky enough to have family willing and able to help out. The problem with this however is that it disenfranchises people from poorer families, and increases wealth inequality.

In the UK the average LTV for mortgages for first time buyers is 77%. However there are many lenders in the UK that provide 95% mortgages. The reality is that without relaxed lending conditions in Slovenia such as higher LTV and longer mortgage terms, some people will never be able to buy a home.

Furthermore, the new Bank of Slovenia rules have strict affordability conditions, and from January onwards borrowers must retain at least 715€ free cash per month after mortgage payments, leaving little to pay off a home loan.

Supply of new apartments

GURS reports that we can expect to see 3,000 new apartments in the next three years in Ljubljana, of which 2,000 will be sold on the free market, and 1,000 will be available to rent from the National Housing Fund and Ljubljana Housing Fund. They state that most of the new apartments have already been sold off-plan, at prices between 3,000 and 6,500€/m2. It is clear that the supply of newbuild apartments is not keeping up with demand, and that there is a shortage of affordable housing.

What can the government do to help?

Relax planning regulations

Various different measures are required to resolve these problems. Cumbersome planning processes make it difficult, costly and time consuming to get building permission for new residential projects. In 2015 the UK introduced a ‘Permitted development rights’ scheme (PDR), allowing certain changes of use without planning permission, in order to deregulate, and support growth and regeneration and create much needed new homes. In January 2019, the Housing Minister reported that PDR had delivered more than 42,000 new homes. Redundant office buildings, industrial buildings and others have been repurposed, regenerating areas in the process. Ljubljana would benefit from such an initiative, there are many buildings not suitable for their original purpose that could be adapted to create affordable residential. 

Other beneficial planning initiatives would be to scrap the requirement for parking spaces in new or repurposed developments. A building in central Maribor previously used as office space for a bank was redeveloped into a block of 32 apartments, now rented short and long term. Fortunately, the planning department in Maribor saw the sense in allowing the development to go ahead without parking and the city is now better off as a result.  Some years ago the Municipality of Kranj relaxed the requirement for parking spaces in an affordable housing development; by introducing bike share, electric car share, and an electric shuttle bus from the project to the city centre. 

Provide financial help for first time buyers

There are many examples of financial help for first time buyers, all over the world. Some of these come at a cost to the taxpayer, others do not.

Australia introduced a scheme to help 10,000 first home buyers into the market by topping up their 5% deposits with a government guarantee for 15% of the loan. Single people earning up to 125,000$, or couples earning 200,000$ are eligible, if they have saved 5% of the value of the home.

In the UK there are various schemes, including:

Help to buy

Equity loan scheme for first time buyers buying new build houses under 600,000 GBP. They can borrow 20% of the purchase price interest-free for the first five years as long as they have a 5% deposit. Those living in London can borrow up to 40% of the purchase price.

Shared ownership

Shared ownership allows buyers to buy a share of their home from their landlord, usually the local Municipality or a housing fund, and rent the remaining share.

Mortgages are available to pay for the shared ownership percentage, which can be between 25 and 75% of the home’s full value. Occupiers pay a reduced rent on the share they don’t own. Owners in shared properties can increase their share over time up to 100%. Shared ownership is available to those who have a household income of less than £80,000 (outside London) or £90,000 (inside London)

Starter Home scheme

The Starter Home scheme is a new government plan, where 200,000 new build homes are available to first-time buyers under 40 years old with at least 20% off the market price. The discounted price for these homes should be priced no more than £250,000 outside London, and £450,000 in London.

The US has a long history of government initiatives to help first time buyers, with the creation of Fannie Mae and Freddie Mac. The missions of Fannie Mae and Freddie Mac are similar, but they are separate enterprises that were created at different times for different purposes.

The U.S. government created Fannie Mae in 1938 as part of the New Deal under President Franklin D. Roosevelt. Its original purpose was to buy mortgages from cash-strapped private companies to free up capital that would then encourage lending during the Great Depression. Fannie Mae was later semi-privatised in 1968.

The primary goal of Fannie Mae, in the past and today, is to make more affordable mortgages available to low and middle-income buyers. Fannie Mae typically buys loans from lenders of all sizes, from large-national banks to small community lenders and credit unions.

The federal government later created Freddie Mac in 1970 to further increase the availability of mortgages to home buyers. Freddie, also semi-privatised, serves as competition for Fannie Mae, and allows for mortgages to be bundled together and sold as investments on the secondary mortgage market. This bundling and selling allows more people to obtain mortgages because the lenders don’t have to hold the loans on their balance sheet, thus freeing up their capital to re-lend and make additional loans.

Tax empty homes

According to SURS, the number of empty dwellings in Ljubljana increased from 22,300 (17.8%) in 2011 to 24,400 (19%) in 2018. They assume that because of the lack of available rental housing, some of these dwellings are rented short term, or rented without reporting the tenancy. Most of these dwellings (83%) are owned by individuals. There is no good reason to have homes lying empty, as long as families are in need of somewhere to live. Building such homes came at a cost to the environment both through CO2 emissions, and loss of green space. As long as owners remain untaxed, they have no incentive to rent or sell the property. The London Borough of Kensington and Chelsea introduced a bye law this year. Anyone leaving a property unoccupied and unfurnished for two years or more will be liable for an additional 100% of the full council tax charge. That means they will pay 200% Council tax.

Acton is required – To summarise, there are steps the government can take to ease the housing crisis. Suppor’ng the housing funds to build more homes for rent will par’ally alleviate the problem, but will not help young people who dream of owning their own home.