How and Where Non-profit Rental Markets Survive – A Reply to Stephens

ABSTRACT

According to Stephens, Kemeny’s integrated rental markets have all disappeared on the level of nation-states. In his reply, the author draws attention to sub-national housing markets where cost rental principles continue to dominate within a city or region. Where local majorities and coalitions allow, the legal and institutional preconditions for integrated rental markets can be safeguarded and renewed. This includes various forms of land policy and rent control, and a large and experienced sector of cost-rental housing providers - public, non-profit and benevolent landlords alike. Urban/regional support for such housing policies seems to be on the rise, as a reaction to the massive increase in housing costs and affordability issues brought about by the ongoing financialization of housing.

KEYWORDS:

• Welfare regimes
• housing regimes
• devolution of housing policy
• non-profit housing associations
• cost rent

This article refers to:

How Housing Systems are Changing and Why: A Critique of Kemeny’s Theory of Housing Regimes

View responses to this article:

Towards a Multi-layered Housing Regime Framework: Responses to Commentators

In his article, Mark Stephens historicizes the link between housing and welfare regimes, focusing on Jim Kemeny’s then-innovative typology of housing regimes, developed between 1992 and 2006. He agrees that Kemeny’s findings were correct at the time of writing, but that unitary or integrated rental markets have broken down since, at least in the two prominent examples he discusses in detail: the nation-states of Germany and Sweden.

According to Stephens’ analysis, non-profit influenced, non-profit led, and non-profit dominated integrated rental markets have all disappeared, within half a generation. He is accusing Jim Kemeny of having been too optimistic in the progressing capability of the non-profit sector to refinance further new construction and current renovation from the maturation of its housing stock. I disagree with Mark Stephens’ statement that new cost rental cannot be built without public funding. In large non-profit sectors such an option was building up in the 1980s and 1990s, but it was aggressively undermined by political and economic forces around it. Killer 1 in Germany was the abolishment of the “Wohnungsgemeinnützigkeitsgesetz” (Law on Common Public Interest in Housing) Stephens mentions in his article. It had been created in the Weimar Republic, generalized by the Nazi regime, massively used in postwar reconstruction, and terminated by a CDU/CSU/FDP majority, 2 years before unification. Killer 2, in Germany and in many other countries, was the extensive sales of public and non-profit housing, at sub-market prices, to sitting tenants or (which makes a big difference) to for-profit investors. Killers 1 and 2 are not necessary outcomes of “high-level”, global forces of neoliberalism and financialization, but depend on ideologies, arguments, institutions, and decisions in the supra-, national, and sub-national political arenas.

Mark Stephens mentions the importance of critical junctures in facilitating change. It feels that the current Covid-19 pandemia will lead us into such troubled waters again, paving the way for unconventional decisions, opening avenues that seemed almost impossible to venture a very short time ago. In such times, it makes sense to have a second look at options foregone in the majority of cases, options that have survived in a minority of places. As I understand Jim Kemeny, he was describing a true possibility of the 1990s, when maturity of social landlords was on the rise, and revolving funds for both renewal and new construction seemed to be within reach. There is no legal obligation for benevolent landlords to maximize rental income, as long as they are the full owners of their property. A cost rent will do, as it had been standard practice in private sector rent control as well as in subsidized and non-profit housing, in many countries, for much of the 20^th century. In recent decades, rules have been changed by democratic majorities meant to increase efficiency and raise income from the under-performing housing sector. Typically, non-profit legislation protects existing associations and their housing stock from being sold outside its closed circuit of finance. If majorities allow, housing in public ownership does not need to be sold. Within Jim Kemeny’s collection of integrated rental markets, many nation-states have changed their legislation vis-à-vis non-profits and housing privatization, but many social landlords and much social housing stock did survive. In places where housing becomes unaffordable, demand for their expertise and offerings is on the rise.

Devolution of housing policy to sub-national entities has been a frequent move in many countries – Stephens mentions Germany in 2006 and growing divergence within the UK. Increasingly, regional to local housing markets and policies are becoming the appropriate scale for comparative housing research 2.0 (Hoekstra 2020). Today, it is here where we have to look for housing regimes producing unitary/integrated rental markets. Due to increasing price differentials in commodified and financialized housing markets, it is mainly the metropolitan (and tourist) regions where affordability problems arise and housing policies are developed to dampen rent levels. If a substantial cost rental housing stock has been maintained, protecting and keeping these assets in good shape is enough for the existing units, but building plots for new social housing have to be safeguarded by innovative policies. If the local cost rental sector is small, a new generation of rent controls for private rentals will be an option for regional parliaments (e.g. the Berlin Rent Cap of 30.1.2020). In constituencies with above-income price and rent rises, a stable majority to support such policies can be achieved. Beyond that, a large, efficient, and experienced sector of non-profit housing can make itself heard in the political arena.

This brings me to the institutional arrangements in housing, of which there is an enormous variety, producing and maintaining a large variety of housing outcomes. Institutions and their forms of cooperation can have a long life, developing a dynamism (or inertia) of their own. Much comparative welfare research touches upon institutional networks only in passing. In his “Three Worlds of Welfare”, Gøsta Esping-Andersen based his typology upon outcomes, welfare deliverables, being more or less commodified, or more or less segmented. National power structures are then related to these findings, but, due to data availability, their institutional set-up could not be investigated in any detail (1990, 113). In a similar way, housing typologies relating to welfare regimes tend to be weak with regard to the organizations (“bureaucracies”) – any political change is assumed to translate directly into change in housing outcomes. This also applies to Jim Kemeny’s concept of housing regimes, to Schwartz and Seabrooke’s varieties of residential capitalism, and to Stephens’ observation of integrated housing regimes breaking down in the heartlands of social democracy and corporatism. Couldn’t it be the case, that institutional arrangements that had given rise to unitary markets on the national scale, continue to operate at smaller scales, pushed back to the welfarist pioneer regions of the past? If a housing regime withdraws to a minority of regions, does this fact disqualify as a concept and an option? Why not study regions where integrated rental markets survived all the “high-level forces of convergence associated with globalization” (Stephens 2020), and other regions, where new coalitions are forged to limit the spread between the private and the social rental market?

The real estate industry is quite aware of such living labs of unitary markets whose regulations and institutions could offer political options for regions with unaffordable housing markets. Recently, the “Bundesarbeitsgemeinschaft Immobilienwirtschaft Deutschland”, a lobby organization for real estate, commissioned a study into the Vienna housing market, with a lot of critical details about its four separate, but competing rental submarkets, 25% municipal, 21% non-profit, 27% private rent-regulated, 7% private unregulated, plus 20% owner-occupiers. This segmentation is quite typical for old, “Bismarckian” welfare regimes, where one layer of legislation and institutions is followed by another, without replacing the existing layers. Average rents in the Vienna submarkets range between 6,80€/m2 (municipality), 7,40€/m2 (non-profit), and 9,70€/m2 (all private rentals; all data from 2018 micro census, including operating costs, without household’s energy costs). Due to object-related cost rents (which are only adjusted by consumer price inflation), there is much deviation around these average rents in all submarkets, mainly according to the length of contract, from +25% in the most recent contracts to −32% in contracts older than 30 years. The implicit argument is that German market rents, always adjusted to current rent levels (“Vergleichsmiete”), will be less unequal than under Austrian rent legislation – true that is, but at much higher rents within the existing stock. For new contracts, the German critique focusses on the fact that new private rents in highly regulated Vienna are not much lower than in more liberal Germany, ranging from +1,21€/m2 in Berlin to +6,81€/m2 in Munich. The much greater share and availability of sub-market social housing are not commented upon (Empirica 2020, 10). But it is true that access to municipal and non-profit housing is also biased towards longer-term residents, who favourize such welfare-populist regulations in voting.

In recent years, there has been some international attention to Vienna housing as an example of an integrated rental market, with 46% of social housing plus 27% of private rentals being softly regulated, keeping rents closer to cost rents than in liberalized and commodified housing markets. The problem with transferring such a housing system to other places is that it took 100 years to build up such a housing stock, in the ownership of various types of social landlords, the city, non-profit companies, and non-profit cooperatives. The market value of such a housing stock is huge, and a temptation to all investors. So far, the corporatist networks of Austrian housing policy have preserved the core elements of the post-WW2 agreements, such as ongoing subsidies, non-profit legislation, and some market-near rent regulation. Slow, incremental change is another trait of the conservative-corporatist welfare regimes Esping-Andersen detected in his analysis of the 1980s. Regulations and institutions that were built up over decades, in lengthy debates and compromises between capital, labour, environmentalists, and others, are more resilient to sudden change, it seems, than more master-minded welfare programmes that can be terminated by temporary majorities anytime. Unlike other sectors of welfare, institutions for social housing are often asset-rich companies or cooperatives who can stick to their cost rental goals, deliberately opposing a profit-maximizing environment. Ironically, housing stock in public ownership can be sold off more easily.

To conclude, let me return to the housing-welfare nexus we are talking about. To me, it seems that comparative housing researchers have been pretty selective in relating their findings to general typologies of national economies and societies (cf. Matznetter 2020). Typologies based upon housing outcomes are matched with welfare regime typologies, this was an important step ahead in the 1990s and 2000s. Jim Kemeny added rental regimes, Schwartz–Seabrooke added a typology of ownership markets (Schwartz et al. 2009), Sonia Arbaci added segregation indices for cities (Arbaci 2007). Meanwhile, the “variants of capitalism” (VoC) school has emerged on the economic policy side, and there are calls for integrating welfare and capitalism typologies (Schröder 2013). Both are paying great attention to institutional arrangements within “Liberal Market Economies” (LMEs) on the one hand, and “Coordinated Market Economies” (CMEs) on the other, working in tandem with specific types of welfare regimes, to the benefit of both. The keyword in this literature is “complementarity”, a concept which should be applied to institutions in housing, to focus more on the working mechanisms that give rise to significant variations in housing outcomes.

In his article on “Corporatism and Housing Regimes”, Jim Kemeny was quite explicit about the institutional and power bases of dualist and integrated rental markets, and he foresaw the possibility of a power change, the state forcing a “hitherto strong non-profit sector … selling off the non-profit housing stock at low prices” (2006, 15). In this case, he was over-pessimistic, maybe based on his Swedish experience, forgetting about more autonomous non-profit landlords in other corporatist “coordinated market economies”. The important thing about Kemeny’s housing regimes is that the legal and institutional pre-requisites for a strong non-profit sector are available. As long as such institutions exist, the cost rental market can grow, towards the outcome of an integrated rental market.

Disclosure Statement

No potential conflict of interest was reported by the author.