Ukraine borrows housing practices from EU countries

Illustrative photo (Getty Images)

In Ukraine, authorities are planning to introduce tax preferences for social housing operators and develop an effective mechanism for determining rental rates influenced by tenant income, market value, and maintenance costs, according to Olena Shuliak, head of the Parliamentary Committee on State Building, Local Governance, Regional Development, and Urban Planning, and leader of the Servant of the People party.

Specifically, there is consideration of adapting the experiences of the UK, Germany, Denmark, and the Baltic countries to fit Ukrainian realities. The corresponding draft law is expected to be registered by the summer of 2024.

According to Shuliak, one of the primary tools Ukraine is borrowing from the EU is social rent. Currently, there is an active study of the possibility of using the rental rate formation mechanisms employed by European countries. These mechanisms are based on three components.

"The first is tenant income, which means the rental rate can be even lower than the cost of maintaining such housing. The second is the market value of rent. Hence, the rental rate in the social rent segment is calculated as a fixed percentage of the comparable market value. For example, the cost could be only 65% of the average rent price from private owners. The third component is the cost of maintenance. The rental rate is linked to the maintenance level, including insurance and other expenses," Shuliak explained.

The parliamentarian added that since social housing is non-profit, many EU countries provide various tax preferences for such housing providers. For instance, in Denmark, social housing is exempt from income tax and property tax. Lower or no tax rates make the housing cost cheaper compared to private rentals.

According to her, another issue is creating a housing fund in Ukraine, from which social housing will be provided. The pace of construction in the EU is quite significant. For example, in the UK, the high construction rate of housing meets the demand for social rent. This sector has been gaining momentum in recent years, with nearly £3.2 billion allocated to it in 2022.

“The number of rental homes coming onto the market in the UK increased by 26% between Q3 2020 and Q3 2021. In figures, 63,950 rental units were completed. As of Q2 2023, there are about 88,000 rental homes in the UK. This shows that the housing stock is continuously being formed and updated. It’s not something that was created several years ago and remains unchanged. We should also consider this,” Shuliak explained.

The experience of Finland could also be illustrative for Ukraine. There, under the Ministry of the Environment, operates the Housing Finance and Development Centre, which implements state policy on housing and communal services. Its main tasks include providing grants, subsidies, and guarantees related to renovation measures, as well as monitoring and controlling the use of housing stock managed by the center.

This center provides subsidies to cover rental payments for state-supported housing, renovation (including energy-efficient measures), and reimburses rental payments according to the order of entitlement.

"Rental payments and usage fees include costs related to financing, maintenance, and utility services for the apartments. Financing costs consist of loan repayments and interest, which make up half of the annual expenses covered by rental payments," Shuliak said.

Another European practice included in the draft law on the fundamentals of housing policy is housing cooperatives, a widespread practice in the EU. Today, every tenth European lives in cooperative housing: in Poland, housing cooperatives constitute about 27% of the total housing stock, 23% in Austria, 22% in Sweden, 19% in France, and 15% in Norway. Cooperative housing is valued for its affordability to middle-income people, including youth and the elderly, reasonable rent, transparent management, cooperation, and social development opportunities.

Shuliak also said that alongside finalizing the framework law on housing policy fundamentals, work has already begun on a second framework law concerning the social housing fund. This law will outline mechanisms for its formation. Without a social housing fund, implementing a modern housing policy that involves a wide range of tools proven effective in the EU and that will help hundreds of thousands of Ukrainians solve their housing issues instead of waiting for years in housing queues is impossible, summarized the leader of the Servant of the People party.