The Rental Market Main Opportunities and Weaknesses Facing Owner-Occupied Housing Market
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The rental market Main Opportunities and Weaknesses facing Owner-occupied Housing Market Inês Quental e Melo Abstract The issue of housing has been very much discussed over the years. Housing Policies implemented were not always successful and accepted by all stakeholders. Current severe economic crisis throughout the world triggered a higher demand on rental dwellings. Despite the sharp fall of interest rates on mortgages, financial institutions do not see the credits in the same way and therefore housing rental market appear as a second option. In this sense it creates opportunities to boost the rental market making this a solution to inhabit part of the options of the population. This dissertation includes a literature review on housing policies of the past decades with emphasis on the role of the Public Administration in the rental market, particularly in the rents freezing. Examining the Portuguese housing stock it is possible to see the high number of dwellings and decaying buildings with no housing conditions, due to old contracts with leases out of date. The new legal urban rents framework has brought improvements to the new contracts but continues to be very restrictive in the old contracts, namely, the process of updating rental values is very complex, penalizing the owners and over protecting the tenants even in cases lack of payment A more focused analysis in the municipality of Lisbon, based on the issues discussed above, seeks to study the dynamics of existing housing, trying to justify the abandonment of the Central areas and develop strategies to revive the housing market. Key Words: Housing Housing Policies Owner-occupied housing market Rental Market Legal urban rents framework Introduction The theme of this article focuses on the Rental Market and its potential as an option for seeking residence. The main objective is to understand how the Owner-Occupied Housing Market and the Rental Market may exist in equilibrium, also trying to propose measures to boost rent. This way, this article try´s to characterize Housing Policies in Portugal over the past decades, analyzing legal urban rents framework, describing the state of the Portuguese Housing and proposing changes to existing legal urban rents framework in order to make the rental market more attractive. In the current economic context of deep global crisis, is particularly timely to discuss the relevance of the housing market. Access to owner housing became stronger in 1960 with the expansion of horizontal ownership and ease of mortgages created by the bank Caixa Geral de Depósitos. These facilities were reinforced in 1970 by the extension of housing loans to other banks and the creation of the various legal framework of subsidized credit. These measures encouraged the growth of owner-occupied housing market to the detriment of the rental market, which lost expression over the following decades (Salgueiro, 1992). Between mid-2008 until now, the values of EURIBOR rate, which serve as a benchmark for loans, fell from record highs to the lowest ever, currently around 2%, although access to housing credit is now more restrictive. This may have led to recent demand for the lease, which in recent months revealed a demand exceeding 50%. Methodology In the first part, through a literature search, one elaborates a description of the evolution of the Housing Policies in Portugal, followed by a characterization of the current housing park, data in accordance with collected of the National Institute of Statistics (INE), for Portugal, and of the European Statistics on Housing in 2004, to compare with other countries. Together with the study of the dynamics of rent market and owner-occupied housing market (based on the Book Market Studies nº. 2 that the Associação de Profissionais e Empresas de Mediação Imobiliária em Portugal (APEMIP) launched in 2009) it is possible to make a characterization of the actual Housing Policies and its dynamic. In the second part, it is proceeded the analysis of the housing park the Lisbon municipality and respective parishes, through data provided by INE, later characterized the dynamics of supply and demand of properties in order to propose amendments to streamline and balancing the housing market, including the rental market. The followed methodology is defined in the following figure. Evolution of Housing The Housing Stock in Market Rent and Owner- Policies Portugal Occupied Housing in Portugal Frame of the issue and current state Analysis Lisbon Municipality Proposals for changes to dynamise the Rent Market Figure 1 – Article methodology Evolution of Housing Policies The issue of housing in Portugal has been characterized in recent decades, with a strong focus on the acquisition of private housing and the consequent loss of importance of the rental market, which has been dormant. This reality is joined by a strong weight of new construction over rehabilitation. The Housing Policies in Portugal was never a defined and consistent policy. According to existing needs, it has been established measures and programs without a prior study and no certainty of closing. Moreover, the housing policies implemented almost boil down to meeting housing needs of disadvantaged families and insolvent. In this sense, to the full satisfaction of a constitutionally protected right is necessary to move from a "policy of social housing” to a “housing social policy" (Fonseca Ferreira (ed.), 1993). The rental market has suffered over the decades the consequences associated with a freezing of wages, which made itself felt since 1910. This freeze was to prevent land speculation, and a time when inflation was very low, it was a good option. The problem arises when inflation begins to increase and becomes almost impossible to keep the property. However arose amendments to the legislation but still not getting the expected results. By the late 50´s the main problems were related to lack of dwellings, poor housing conditions of existing dwellings and the lack of infrastructure and equipment. The dwellings were very small areas and the buildings decayed by the absence of conservation policies. From the 60´s, the housing shortages became more severe around large cities. This was also due to a policy of industrial expansion that created the supply of unskilled jobs, favouring the rural exodus. In this period the performance of Public Administration in the production of urban land and housing was inadequate, being this trend accentuated with the publication of DL 46673 of 29 November 1965, witch coming to recognize that the private sector was able to meet demand for urban soil. This measure, which could be intended to facilitate the urbanization, caused the growth of neighbourhoods and illegal clusters of tents, and the intensification of land speculation process. (Pardal and Costa Lobo, 2000). The democratic regime inherited the issues pending from the previous regime, including housing shortages and the proliferation of illegal neighbourhoods and areas occupied by tents. After the revolution of 1974, with the arrival of thousands of returnees from former Portuguese colonies and the return of emigrants, there was an increase in housing needs. In 1976, with the 1st legal framework of mortgage loans and subsequent creation of subsidized loans, the purchase of housing becomes the main choice. Among the 70´s and 80´s, the excessive population increase in metropolitan areas, a result of rural exodus of the previous decade, led to the shortage of housing increased. This shortage is reflected in almost 40 thousand families living in tents and 195 thousand families to share 87 thousand dwellings on average more than two families per dwelling (Nunes da Silva and Correia, 1988; Paulo, 2008). It was in the 80's that the government intervention in housing had was having less expression, a time when the interest rates on housing credit were much higher than today. This is the culmination of this journey through national policies for the housing sector. In the 35 years since the 25th of April , this is a path that leads to a temporary residence, with a direct role in providing housing, a Government regulator who advocates the privatization of public housing, and become partners with no means of public functions (Paul, 2008). Throughout these decades many have been the programs created with the aim of overcoming some problems, these need emphasizing SAAL, RECRIA, PER or PROHABITA. As a summary of the housing policies of recent decades certain conclusions are distinguished: The Government has resigned from his role as producer of housing (see Chart 1); The construction decreased gradually in recent years. Heavy weight of new construction over rehabilitation. Commitment to the purchase of housing. The number of contracts for housing loans has increased The interest rate EURIBOR reached historic lows. The rental market is conditioned by the limited action to update the old rents, rents there with very low (see Chart 2) Chart 1 - Dwellings built by public promotion (%) Chart 2 - Distribution of income by age in 2001 (Source: (Source: INE, Statistics Building and Housing) INE, Census of Population and Housing 2001) The following graph shows the differences between countries in terms of housing construction, noting that Portugal has had an increasing number of dwellings built, as well as Ireland and Spain, unlike all other countries. Chart 3 - Completed dwellings per 1000 inhabitants in 1980, 1990 and 2003 (Source: Housing Statistics in the European Union 2004). The Portuguese housing stock The range of dwellings of the last census decade, from 1991 to 2001 was positive, with growth of almost 21%, and on the other hand it had a decrease in the number of non conventional dwellings and collective housing. The age distribution of buildings in Portugal had an inverse behaviour to the EU average, with the least since ancient buildings and more recent buildings - Portugal has about 40% of the buildings after 1981.