Housing on the (free) market - who can afford it?
By Manfred Krenn
[This article published on 3/3/2020 is translated from the German on the Internet, https://awblog.at/wohnen-am-freien-markt/.]
For some, rents are too expensive, for others apartments are a lucrative investment property, and for third parties a condominium, a house in the countryside is the declared goal. So different are the perspectives on one of the essential human basic needs: Housing! How this can be sufficiently ensured for all is an essential question. Whether the free housing market, with its myth of regulation by supply and demand, is capable of doing this, however, may be doubted in view of the facts and figures.
Three questions for the free housing market
The free market, i.e. the unregulated operation of market forces to the greatest possible extent, has been invoked for decades as a panacea for all kinds of economic, but also social, concerns. The housing sector is no exception. However, invocations have always been associated with a kind of sacred certainty of salvation. In this respect, it is worthwhile to take a closer look at the spirit of the market in the field of housing.
The following article does this on the basis of three questions:
How does the interplay of supply and demand affect the housing market?
What influence does the financial market have on housing prices?
What happens when tenant protection in tenancy law is relaxed and the market is given more leeway?
The Austrian Housing Market
Let us first take a look at the Austrian housing market. This is characterized by a high stock of social housing (with regulated lower rents) in an international comparison. Housing built by municipalities and nonprofit building associations accounts for almost a quarter (23 percent) of all housing units, and for rental housing as much as 60 percent. This high share of socially regulated housing also influences general rents. The housing cost burden, i.e., the share of housing costs in household income, is still moderate in Austria at 17.9 percent; in Germany, for example, it is 26.3 percent.
And yet, anyone looking for an apartment today, especially in the growing cities, has the feeling that they can hardly find an affordable one. And this feeling is not deceptive: in Austria, too, purchase prices for real estate have risen by 60 percent and rents by 40 percent (2008-2017). Of course, the median income of salaried employees has not kept pace with these enormous growth rates; it has increased by only a quarter since 2005, with lower incomes showing a smaller increase.
One man's joy is another man's sorrow: property owners and landlords are happy about the increase in the value of their property, but for people looking for (rental) housing, the high cost of housing is severely limiting their standard of living. It is market mechanisms that drive up prices.
Supply and demand - an imbalance mechanism
The market logic of supply and demand is indeed compelling with regard to affordable housing: for the more households or people with low incomes demand affordable housing, the more expensive it becomes. On the one hand, supply cannot be increased in the short term in the housing sector. On the other hand, the shortage of land in cities increases land costs and thus construction costs. Thus, it is obviously not possible to provide adequate housing for all people to satisfy one of the central basic human needs (and human dignity). As a glance at the figures shows, the free play of supply and demand does not produce the equilibrium much praised in economic theory, but rather massive imbalances. Rent and real estate price increases are a problem above all for people with low and medium incomes.
Concrete gold and speculation - the financial market as a price driver
In addition, however, there is another market logic, namely that of the financial market. Not least of all, the low interest rates that have prevailed for years mean that apartments are becoming a sought-after investment for financial market players (concrete gold). This speculative demand drives up prices even further, including land prices, especially in cities where this commodity is scarce anyway. This in turn increases the construction costs for new buildings. This is because investments are linked to certain expected returns, which in turn are based on average returns achievable on the financial market.
It should not be forgotten that the deep global economic slump of 2008/09 was triggered by the bursting of a real estate crisis in the U.S.A. - namely by "creative" financial products that traded in debt instruments of (working-class) households for the purchase of residential property. The austerity policies triggered by the crisis, in turn, led to a sensitive decline in public investment - including in municipal housing.
The growing influence of the financial market on the housing sector is reflected both in a focus (also anchored in the government program) on promoting individual property acquisition and in the increase in speculative demand (housing as an investment). The latter includes the acquisition of residential property as a pension provision - a development that is spreading above all among the upper middle classes and is thus also reaching a considerable size in quantitative terms - as well as the entry of large, listed real estate funds and groups. Germany's largest real estate group Vonovia, for example, is now also the largest private landlord in Austria, which includes the (22,400) privatized BUWOG apartments, for example. Even though they make up only a small part of the overall market, they are the pioneers of business models strictly oriented to financial returns, which are subsequently spreading across the housing market. And the influence of the financial sector is also increasing in non-profit housing.
Deregulation of tenancy law
One might think that in Austria (especially in the growing cities) there is a contradiction between subjective feelings (hardly affordable housing) and objective data (low housing costs). However, this contradiction cannot be resolved by pointing to the difference between social housing and the private sector alone. Even long-time tenants in old buildings are still protected by the regulations of the old Tenancy Act.
In recent years, market orientation in the form of deregulation has also increased in Austrian housing policy. Tenant protection in tenancy law has been relaxed in stages through the introduction of guideline rents, location surcharges and time-limit options. This has allowed prices for new rentals to rise significantly, fueled by persistently high demand and financial market-driven expectations of returns. This primarily affects people with low to medium incomes. This is because they are dependent on the rental housing market due to a lack of assets.
Living on the market, for example at Brunnenmarkt in Vienna, can certainly have its appeal and a high quality of life, for example through quality local amenities. However, the free housing market makes this increasingly impossible for families and individuals with low incomes (unless they have old rental contracts). Location surcharges and refurbishments drive prices to unaffordable heights for them - or so the logic of the market would have it.
The satisfaction of a basic human need for all falls by the wayside in the market - all the more so the more unregulated it is. The fact that housing is increasingly becoming a freely tradable and lucrative commodity pleases investors and landlords. For many, however, housing is becoming a burden that is difficult to bear. And it affects urban development: it promotes displacement processes and endangers social mixing. This is not a new insight. Almost exactly a century ago, it triggered the unprecedented social housing program of "Red Vienna".
Its effects on the housing market continue to reverberate to this day. However, the development of rental and real estate prices in recent years shows that the social housing sector is under pressure despite its strong position in international comparison. Although Vienna is not yet London or Munich, housing is increasingly becoming a social problem in this country as well, reaching far into the middle class. This shows that the Viennese model, too, has acquired a lot of patina and is in urgent need of renewal: However, it can by no means move in the direction of more of a market. After all, the provision of affordable housing is part of the provision of public services, i.e. basic social services, and thus an eminently public task.
Manfred Krenn is a sociologist and research associate of Diskurs. The Science Network.
Social housing as a guarantor for affordable housing
Public employment policies: the deep labor market crisis requires new policy solutions!
By Manfred Krenn
[This article published on 9/17/2020 is translated from the German on the Internet, https://awblog.at/oeffentliche-beschaeftigungspolitik/.]
Unemployment has risen dramatically as a result of the Corona crisis. Forecasts indicate that the already high long-term unemployment will increase further. Pure labor market policies, such as the qualification of unemployed persons, are reaching their limits because there are not enough jobs where they can then be employed. So what is needed above all in the current labor market crisis is a bold and offensive employment policy to create new jobs.
Key challenges of the Corona crisis
The Corona crisis has shaken (not only) Austria and caused a multitude of new problems or exacerbated existing ones. Two of them are of particular social relevance: the central importance of robust public and, above all, social infrastructures for coping with crises on the one hand and the dramatic rise in unemployment on the other. This brings up two central challenges on which further development depends to a decisive degree. Persistently high long-term unemployment is causing deep social divisions in society, which could endanger its stability in the long term. Public infrastructures that have been reduced under ostensible cost pressure are already unable to fulfill their tasks of providing public services adequately in normal operation, are quickly overwhelmed in the event of a crisis and make it more difficult to cope with it. Expansion therefore seems essential. Approaches to solving these two problem areas are of strategic importance, not only to cushion the effects of the Corona crisis, but also to ensure the future viability of society. Bold public employment policies to create jobs in key areas of public and social infrastructure can respond to both sets of problems simultaneously.
Long-term unemployment as a structural problem
As far as the labor market is concerned, the Corona crisis has shown, on the one hand, the vulnerability of certain parts of employment, such as in EPUs or small businesses, which have increased in recent decades. They cannot survive such crises without reserves. On the other hand, the high level of long-term unemployment has shown for years that pure labor market policy, i.e. the placement and also qualification of the unemployed, has reached its limits. For the most part, long-term unemployment is not a mismatch problem, i.e., that vacancies cannot be filled due to a lack of qualifications or regional labor shortages. There simply aren't enough jobs.
Long-term unemployment has long since become a structural labor market problem that has established itself independently of economic cycles, as even the OECD now notes. It is primarily older people, the low-skilled, people with health impairments and the disabled, ethnic minorities and single parents who are disproportionately affected. But even for young people, the chances of entering the workforce have already permanently deteriorated in the wake of the 2009 financial crisis and the weak economic growth that followed. For these groups, which were already at risk before, the Corona crisis has led to a further alarming rise in unemployment.
The limits of pure labor market policy
This points to the fundamental limitations of active/activating labor market policies. Its effectiveness is determined first and foremost (as the OECD also points out) by the specific labor needs of companies, which in capitalism do not depend solely on cyclical fluctuations. There are also factors such as intensified and intensified competition in stagnating markets, technology-based rationalization through digitization, and forms of corporate management that seek to achieve better financial performance through permanent restructuring, intensification and flexibilization of work, tighter performance policies, lean workforces and the outsourcing of parts of production, but also of services. There is little room for recruiting groups that must be described as vulnerable precisely because they cannot (or can no longer) meet these increasingly restrictive (performance) requirements.
Public employment and social demand for jobs
Accordingly, the reintegration of disadvantaged groups in the labor market is more a question of the quantity of available jobs, but also of their quality. The Corona crisis has further exacerbated this problem. Since the (labor) market is unable to create the necessary jobs, a large-scale political initiative is needed to create jobs in the public sector.
This is not about some kind of "employment therapy," i.e., merely transforming official unemployment into some kind of hidden unemployment in the form of underemployment by inflating the civil service. Rather, it is about making urgently needed personnel investments in important areas of public services that meet a societal need. This societal need can also be scientifically proven.
In the nursing sector, a study by Gesundheit Österreich assumes an additional need for 26,500 jobs (full-time equivalents) by 2030 and a replacement need (retirements) of around 33,000 jobs. In the school sector, educational scientists have been calling for an increase in staff for years. Estimates of the need for additional staff in schools to compensate for social disadvantages based on the so-called social index (index of social disadvantage to measure the social burden on schools) show that the additional need for (support) staff in schools (school social work, school psychology, additional teachers, social/recreational educators, ...) amounts to at least 10,000 additional full-time equivalents, i.e. an additional need of at least 10 percent.
A calculation by the Chamber of Labor for the childcare sector sees an additional need of 21,000 full-time equivalents (increase in childcare places for under-threes to 40 percent nationwide, expansion of opening hours to full-time, second free kindergarten year, additional pedagogical specialist). In these three important areas of social infrastructure alone, that would be a total of 90,500 full-time equivalent jobs that could be created through bold public employment policies.
The expansion of public transportation, which is urgently needed due to global warming, also requires more staff. Meeting what research also shows to be significant staffing needs in public and social infrastructures, combined with targeted retraining for these jobs, could decisively reduce unemployment. Experience also shows that such retraining programs have an increased probability of success if (more or less) secure and stable employment opportunities are in prospect at the end of the training measures.
And these jobs are indeed (crisis)safe, attractive, sustainable (low-emission) and socially relevant. A public employment policy oriented in this way would thus create jobs in areas where there is a social need, and at the same time advance the socio-ecological transformation (climate protection, etc.).
A new New Deal
The Corona crisis dramatically exacerbated existing problem situations and created new ones. An extraordinary situation, such as the current one, also requires extraordinary, courageous measures. This certainly requires breaking through taboos established in social discourse, such as the proposals for an employment guarantee, and not "more of the same."
The solutions should be as novel as the virus that has brought us to this situation. And there are historical models for this, from whose experiences suggestions can certainly be drawn for today. Roosevelt's New Deal, which was launched in the United States in the 1930s, is a prime example of how the courageous and ambitious pursuit of new paths can lead out of extreme situations. Who could have imagined at that time, after three years of deepest economic (and also social) depression and mass unemployment, that employment could be increased by eight million within only four years (1933-1937) through government employment programs?
... and the role of the state
And in the Corona crisis, too, the state, which had previously been much maligned for decades, suddenly regained its contours. It has proven itself to be a capable main actor and guarantor of crisis management. This impressive experience should not be limited to the current crisis situation. The state (in conjunction with science and civil society) is also the most important actor for setting the course toward socially and ecologically viable and sustainable social development and thus also for emerging from the current deep economic crisis. It is predestined to make these major but necessary investments possible. However, it is also clear that this is not possible with a state budget that is financially constrained by strict austerity policies.
A public employment policy geared to societal needs could make a decisive contribution to achieving several socially desirable goals at the same time:
to permanently increase the crisis security of society; and
to decisively reduce unemployment
to strengthen the quality of social infrastructures in the long term;
to tackle the urgently needed transition to a sustainable socio-ecological transformation of our society.
Manfred Krenn is a sociologist and research associate of Diskurs. The Science Network.
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