Anatomy of an operation: Casa Orsola
Catalonia is in the process of creating a public housing stock, which must be decided, but which will be long. This is understood as one in which the owner, public or private (with an agreement with the public sector), has as a rule to personalize the rent to the characteristics of the tenant, so that it does not exceed a reasonable fraction (also personalized) of his income. Rents can be below the market and typically will be for the lowest incomes. The more resources – through purchase, land concessions or construction – the public sector provides, the more important the component oriented towards the lowest incomes can be. Ideally, however, the composition of the housing stock should be varied in rent, which is good both to help finance the buildings and to promote social balance. Broadly speaking, this is the Vienna model.
Does the resolution of the Casa Orsola conflict offer us an interesting and powerful instrument – the purchase of buildings with tenants – to develop the stock? Well, it depends largely on how this experiment works, which is certainly not the first, but which has attracted the most public attention.
Two entities have participated in the resolution: one public (the City Council) and one private non-profit, which I will refer to as the Foundation. The house was bought at market price by Fundació i Ajuntament. I do not know who its owner is, but this is not relevant to the present discussion. The participation of the City Council has two aspects. On the one hand, it contributes approximately half of the price. The justification is that the Foundation, which will manage the house, undertakes that the houses will have a social/public rent, which will not cover the entire price of the property but only the capital part that it contributes. The City Council does not force itself to recover the money. Therefore, its contribution simply reduces the volume of money to be recovered via rent, and consequently facilitates rent below market. However, the Foundation does not have sufficient capital to pay its part, or to guarantee a bank loan. For this, the City Council provides the guarantee. This is the second aspect.
The methodology of guarantees is of great interest in the current real estate and fiscal context. The development of a public housing stock requires public financing, but this is limited by fiscal rules – deficit control. It is also necessary to mobilize private financing, which will typically involve bank loans, but these require guarantees. A public guarantee is a guarantee of payment. It is true that a guarantee must be provisioned and, therefore, falls within budgetary discipline. But if the accounting rules are sensible (and not of the same style as the ones in the financial system), the guarantee will be guaranteed. all or nothing) the guarantee should be provisioned for the guaranteed amount weighted by the risk of non-payment or of not finding tenants. In the current demand situation, and if it is public housing, this risk should be very low and, therefore, in principle, the Orsola formula should be a repeatable model.
However, the success of the formula will depend on avoiding two intrinsic weaknesses:
- Tenants must comply with the obligation to pay. If there were a tendency for public ownership of the property to generate a dynamic of non-payment favoured by a hesitant position of the City Council and the Foundation towards legal action, the formula will collapse. Do not doubt that in Casa Orsola, or in those to come, the will of the City Council and the Foundation will be put to the test.
- The concept of public housing is not compatible with rent control. If Casa Orsola, or those to come, has tenants with varying incomes, it should be possible to establish differentiated rents that, in some cases, may be higher than the historical ones. Let's put it more clearly: it will be an eye-sore if a public-private operation for the promotion of housing ends up including tenants who pay below the reasonable norm given their income. It is a known and endemic problem in rent control. I think that if the formula of buying a house with a tenant is to have a future, rental contracts should be re-established. ex novo and should be personalized.
