The Government Has Presented an Ambitious Plan for Change, but More Emphasis Should Be Placed on Housing Affordability

After reviewing the publicly announced implementation plan of the Government provisions, the Cabinet of Ministers can be congratulated for its determination to focus more on effective management of state assets or move toward the creation of the Construction Acquis; however, the key issues that may reduce housing affordability have been overlooked.

Housing Affordability. The government intends to make a decision on how to increase housing affordability after receiving the recommendations of a study to be conducted by the Organisation for Economic Co-operation and Development (OECD) between 2021 and 2022. As long as the study’s conclusions are unclear, the action plan fails to mention two factors, one of which may soon have a decisive impact on housing supply.

First of all, it is development on state-owned land. Today, most of the land plots in the cities belong to the state. Developers avoid such land plots due to uncertain terms and conditions of land use and unpredictable taxes; meanwhile, the current situation creates tension in the supply of new housing, which also affects final prices. If the current draft amendment to the Law on Land No. XIIIP-4274(2) is adopted, new constructions will either be relocated to suburbs with more private land plots or construction will become more expensive. Individual calculations predict that the cost may increase up to 15%.

One of the objectives of the action plan is to clarify legal regulations and incentive mechanisms in order to accelerate spatial conversion and urban restructuring. However, it will be difficult to achieve because the majority of today’s neglected areas are located in the aforementioned state-owned land plots; meanwhile, planning and taxes are the responsibility of the municipality.

Second of all, the action plan did not address the measure to improve housing affordability, i.e., municipal housing. It is a fund of rental housing owned by municipalities and rented out at below the market rate. Such housing can be rented out for an extended period of time by members of specialities that are necessary for the city but are underpaid, such as teachers, doctors, fire-fighters, etc. Municipal housing would also contribute to the creation of a more transparent and accountable rental market.

Taxation of RE. The action plan mentions a review of RE taxes but does not address a single and global RE tax. Such RE taxation is supported by the European Commission, the World Bank and the International Monetary Fund, acting in collaboration with local experts. Currently, there is a so-called luxury tax in Lithuania, which is levied on person’s RE exceeding EUR 150.000 and is collected into the state budget. However, such a principle is entirely false because this tax must be paid by all RE owners from a certain value, possibly with an exception for the first housing, and collected into municipal budgets. The funds would then be spent on improving social and engineering infrastructure, thereby growing the city and increasing the value of taxpayers’ real estate.

Cities Could Become Land Owners. The presented action plan intends to review the functions of the Ministry of Agriculture and the National Land Service and, if possible, to transfer those functions to municipalities. Today, cities lack the tools to manage their land, which aggravates urban development and attraction of investments. If cities succeed in becoming owners of land in urban areas, it should significantly improve the transparency, speed, and efficiency of development processes.

Wider Funding Opportunities. The Government’s desire to ensure wider use of public and private partnerships is worthy of praise. The slowly accelerating financing model in Lithuania is a long-term practice proven in Western countries to develop the social and engineering infrastructure necessary for the state. Although this principle is currently applied primarily to the development of military facilities, it can be expected that good practice will also be transferred to the development of kindergartens, schools or other social infrastructure.

More Efficient Management of State Assets. The reform of state-owned property has progressed in recent years. Since the beginning of this year, approximately 140 state institutions with approximately 600 thousand square metres of used space have been required to rent it rather than manage it on a lending basis, as it was before. The primary goal of such restructuring was to reduce the area per civil servant from 26 to 20 m2 by 2030. In comparison, this indicator is roughly half as low in business-rented offices.

Therefore, this reform could be more ambitious by broadening its scope and encouraging state institutions to rent space not only more efficiently, but also in energy-efficient and sustainable buildings.

The Action Plan Is Highly Focused on Renovation. The state promises support to residents who are renovating old houses, to establish a single point of contact principle, to digitise processes and to promote the renovation of multi-family residential buildings. If it is realised, it will be one of the primary drivers of urban renewal. To do so effectively, it is necessary to address issues such as parking, recreational areas, and other issues common in districts full of historically old buildings.

Simpler Regulation. Since Soviet times, we have inherited very detailed and inert construction regulation; therefore, the Government’s plans to merge related legislation, thus reducing their number, avoiding overlapping procedures, and consistently moving towards the Code of Construction would allow us to have systematic and relevant legal regulation. The development of RE also necessitates the plan’s goal of preparing legislation required for digitalisation of construction and application of building information modelling (BIM) methods.