Addressing Affordable and Sustainable Housing in Latvia

  • 2024-07-10

Affordable and sustainable housing in Latvia is a critical issue that has reached a tipping point, demanding urgent attention and decisive action. Recently, public policy actions have been taken, and the first practical examples have emerged, demonstrating the government's commitment to addressing this issue. The need for increased investment, the development of a formal rental market, and strategic policy reforms are key areas that must be addressed to ensure that all citizens have access to safe, affordable, and environmentally friendly housing. By focusing on these areas, Latvia can make significant progress towards a more inclusive and sustainable housing market.

Investment in Affordable Housing

One of the critical points highlighted is the need to significantly increase investment in affordable housing. Latvia faces widespread quality and affordability gaps that cannot be ignored. Arturs Miezis, Managing Partner at Hanseatic Alternative Investments AIFP, notes, "The current levels of residential investment in Latvia have stagnated since 2008, highlighting the urgent need to boost investments to close the gap and improve housing conditions."

Miezis emphasizes the importance of a proactive approach to increasing investment, which can create a more dynamic and robust housing market. He states, "By increasing our investment in affordable housing, we not only improve living conditions but also stimulate economic growth. Construction projects generate jobs and boost local economies, creating a positive ripple effect that benefits everyone."

Formal Rental Market and Social Housing

Latvia's formal rental market is practically non-existent, exacerbating the housing affordability crisis. A formal rental market refers to a well-regulated, transparent, and legally compliant market where rental agreements are standardized, tenant rights are protected, and property management adheres to national regulations. In contrast, an informal rental market operates without strict adherence to regulations, often resulting in unregistered leases, lack of tenant protections, and potential legal issues.

The country has one of the smallest social housing stocks among OECD countries, less than 2% of the total housing stock, compared to about 7% in other OECD nations. "This means Latvia's social housing stock is three to three and a half times smaller as a proportion of the economy compared to other OECD countries," explains Miezis. This lack of social housing availability leaves many people stuck in poor-quality housing because they cannot afford to move to a better home or upgrade their current dwelling.

Developing a more robust rental market could alleviate some of these issues. "A strong rental market provides flexibility and mobility for residents. It allows people to live in better conditions without the burden of homeownership, which is especially crucial for younger populations and those in transitional phases of their lives," says Miezis.

The Missing Middle

A significant issue is the "missing middle" – people who are too rich to qualify for housing benefits but too poor to afford a mortgage, even with an ALTUM guarantee. "This segment of the population is often overlooked, yet they are crucial to the economy. They need housing solutions that fit their financial reality," Miezis says.

Addressing the needs of the "missing middle" requires innovative financing solutions and housing policies that bridge the gap between affordable rental units and market-rate homes. "We need to create pathways for these individuals to access quality housing. This could involve expanding credit facilities, offering rent-to-own schemes, or providing targeted subsidies that make housing more attainable," suggests Miezis.

Eligibility for Affordable Units

Eligibility for affordable rental units in Latvia is based on income, with specific thresholds outlined in the Regulation on support for the construction of affordable rental houses. Eligible tenants’ total monthly average gross income in the previous tax year cannot exceed specified limits for one-bedroom, two-bedroom, and three-bedroom apartments, with larger apartments allocated to households with at least two people.

These criteria are adjusted annually in line with inflation, ensuring they remain relevant and fair. "Inflation adjustments are crucial to ensuring that our affordability criteria remain realistic and inclusive, preventing households from being priced out of affordable housing due to economic fluctuations," Miezis explains.

Learning from Vienna

The pursuit of social mixing as a rationale for high-income thresholds for social and affordable housing is a strategy that has seen success in Vienna. "Vienna's experience shows us that setting high-income thresholds for social housing can promote a diverse and integrated community," says Miezis. "This approach helps avoid the segregation often seen in social housing projects, creating vibrant, mixed-income neighborhoods."

Vienna's model demonstrates that affordable housing can be a tool for social cohesion, bringing together people from different income levels and backgrounds. "By adopting similar strategies, we can foster a sense of community and inclusion, which is essential for social stability and growth," adds Miezis.

Public Opinion and Regional Initiatives

Recent surveys and regional initiatives highlight the public's demand for more government action to ensure affordable housing. A survey in Lithuania revealed that most Lithuanians want the government to do more to ensure affordable housing, reflecting a regional concern that resonates with the situation in Latvia. Additionally, the city of Valmiera has launched Latvia’s first low-rent housing development, setting a precedent for other municipalities to follow.

Furthermore, new initiatives continue to emerge in Latvia. Recent announcements indicate that low-rent housing developments will also begin in Bauska, Tukums, and Jelgava. These projects aim to provide affordable rental options and improve living standards for many residents. "These developments are encouraging signs that regional governments are beginning to recognize the importance of affordable housing," remarks Miezis. "The initiatives in Bauska, Tukums, Jelgava, and Valmiera show that practical steps can be taken at the municipal level to address this pressing issue. These projects can serve as models for other cities in Latvia to develop similar programs."

The Path Forward

To address these challenges, the strategic recommendations must be implemented. This includes enhancing the investment environment to attract more funding into the housing sector, establishing a dedicated revolving fund for affordable housing, and improving the regulatory framework to support sustainable development.

"The establishment of the Housing Affordability Fund is a significant step forward," Miezis remarks. "By channeling investments into sustainable and energy-efficient residential properties, we can create a more inclusive and equitable housing market in Latvia."

Miezis also highlights the role of public-private partnerships in driving these initiatives. "Collaboration between the government and private sector is essential. Together, we can pool resources, share expertise, and implement innovative solutions that meet the housing needs of all Latvians," he says.