What builders and bankers actually want, why politicians often serve their interests, why the state charges a tax on the first property, and then subsidizes apartments with little to no property census, tells Gojko Bežovan, professor of social policy at the Zagreb Faculty of Law.

In recent days, the state-subsidized apartment program has once again been in the focus of public attention. First, the media revealed that Anita Nosić, the mayor of Lovreć (HDZ), received APN's subsidy for an apartment in Zagreb – in Zagreb, it was registered, which would mean that she cannot be the mayor of Lovreć because she does not live there. After that, a series of scandals followed. The agony of POS apartment buyers in Biograd continued, and the apartments are still not finished. The deputy director of APN, the agency that distributes subsidies, has used them himself, and on the island of Lošinj, eight out of 20 POS apartments were used as apartments. Have these cases opened up a discussion on housing policy, taxes, subsidies, and state redistribution of money that citizens use for housing? If you ask Gojko Bežovan, a regular professor of social policy at the Zagreb Faculty of Law, they haven't. With Bežovan, we tried to delve into the matter through this interview on Net.hr – is the whole system of subsidized apartments unfair, not just these mentioned examples? Apart from POS's model, we talked to Bežovan about the tax on properties, housing policy, the model of social housing, the construction and banking lobby. The latter two Bežovan faults for the fact that we have never had a well-argued discussion on housing policy. The state measures, as a result of our conversation with this esteemed expert, have for years served the interests of the lobby more than the citizens. NET.HR: Nakon Hrvatske, Njemačka će predsjediti Europi, and as one of their priorities, they have chosen housing. Do you think the importance of this issue is sufficiently recognized in Croatia? BEŽOVAN: In Croatia, it is not getting the attention of people in power, nor the media. Apparently, we citizens will have to gather funds for editors in the public media to discuss this issue that troubles citizens. Citizens of this country are not interested in the F-16 fighter jet, but that's what's being discussed. And when it comes to housing, it's only the real estate agents who complain that they're not making enough money. The European Union has institutionalized this issue after the Netherlands' presidency in 2016, when a working group was established to deal with housing issues. These issues are particularly important in major cities, and some cities have made important decisions. For example, Berlin has decided to freeze the rent for private property owners, and apartments cannot be reconverted and put into Airbnb. This implementation is consistently enforced. Vienna has made a decision on the cost of land sold for residential construction – in the case of social housing, the state controls this. Barcelona has made a series of decisions with a focus on the interests of vulnerable groups. It is expected that the EU will pay more attention to housing issues in the next perspective period of 2021–2027. According to the principle of subsidiarity, this is the responsibility of each country, but it is increasingly allowed for European funds to finance social housing programs. We in Croatia, unlike the Czech Republic or Poland, have not yet taken any measures of this kind. The European Bank for Reconstruction and Development has invested significantly in the construction of social housing. They have always been a bit "sad" that in Croatia, they have never been able to invest in anything like this. As if it were not needed by us. NET.HR: Why is it so? As a journalist, I can tell you that the topics of housing and real estate are always among the most read. Why, then, is it not discussed from an expert perspective? BEŽOVAN: The public media apparently put on the agenda what suits those in power. The media have been dealing with this issue – now it's in the public spotlight because of the POS scandal. However, the POS program has never been seriously evaluated or discussed. Logically, the European principle says that the state cannot build apartments and sell them on the free market, and here at home, the state does just that. Everyone of us could buy these properties and make a significant profit by reselling or renting them out. These apartments were never built based on the needs of citizens, considering the number of apartments, their structure, or size, and where they should be built. On the other hand, we have abolished the right of citizens to buy their first home without paying a tax on property transfer. Someone who buys their first home today pays a 3% tax. From the experience of developed countries, we know that this area cannot be left to the operation of supply and demand, but rather, a certain state intervention is needed. One possibility is the tax policy intervention, that is, taxing those who cannot afford to buy their first home without a tax on property transfer. As families grow numerically, the number and area of tax-free squares would also increase. This is a logical demographic and economic measure! Research has shown that some people are leaving Croatia because they cannot afford decent housing, and this negatively affects the birth rate. Those people who earn little, have unstable jobs, and housing is too expensive, and the state does not care about them. NET.HR: Have we had a consistent housing policy in Croatia from the 1990s to the present? Do the strategy change with each new government? BEŽOVAN: We have introduced dozens of development strategies in all areas. We have never had a housing policy or a housing strategy. This is telling. What's the explanation? The explanation is that this is an area of speculative interest for entrepreneurs who have politicians as partners. Apparently, politicians, through their partnership with these entrepreneurs, have secured significant benefits. Let me illustrate this with an example – when the financial crisis hit Croatia in 2008, the EU gave recommendations to member countries, and we were in the accession period, so it indirectly applied to us as well. We needed to help those people who had taken out expensive mortgages and non-performing housing loans. We didn't do that; instead, we introduced incentives for speculative entrepreneurs to sell their unsold apartments. The government was a partner to the speculators, and their measures helped those speculators, rather than providing actual help to citizens in need. This is a clear example of how we do not have any housing policy. NET.HR: The construction lobby is often mentioned in our country. Can you define this lobby, what they represent, is their interest opposite to the interest of the majority of citizens, and do they ultimately succeed in realizing their interest? BEŽOVAN: The construction lobby has achieved all its interests. They have urbanized cities, built many more, and with greater density than necessary, often without relevant permits, and this has been later legalized. They have had enormous profits, and their partners have been banks that are in foreign ownership. Banks have acted as speculators, and their matrices in their countries of origin cannot behave in this way, for example, in Austria, Germany, or Italy. How can you mortgage someone for a credit in Swiss francs with a floating interest rate where the price of an apartment has increased by 4.5 times in four and a half years, from 1,200 to 2,800 euros per square meter, as happened at one location that I was tracking? This was not the real value that someone could earn with their work; it was a speculative value. Banks were part of this speculative business, which was booming at the time, and they also made a lot of money. The real estate bubble in Croatia never burst, nor did the interest rates on apartments become realistic. Citizens who have money can't invest it elsewhere, so they invest it in buying apartments, not in stocks. The capital market in Croatia has failed and hasn't recovered. International programs have shown what the real value of such an apartment is and how someone can afford to buy or rent it. This has happened in transition countries. However, in our country, the construction lobby was too strong, and they made sure that no one showed how a decent apartment with a reasonable price could be built, serving the social and economic development of the country. NET.HR: What do you think about POS, the model of subsidized apartment construction? BEŽOVAN: Let's get back to a crucial point – the state cannot build apartments and sell them on the free market. POS apartments have often been poorly designed and built, and they do not meet the needs of citizens. Some citizens who had money bought cheap apartments and then sold them. If you give a subsidy, it needs to be accounted for somewhere. No evaluation has ever been done on the effects, achievements, and weaknesses of POS, and how it could be reformed. It's always been a centralized model, strictly in the hands of politics. The positive effect of the POS program was that it provided housing to a significant number of people who bought apartments for housing, as well as a reduction in the prices of apartments on the market. NET.HR: So, what would be the appropriate model? On the one hand, you say that the state cannot sell apartments on the free market, but on the other hand, you say that housing is an area that cannot be left to supply and demand? BEŽOVAN: We were once colonized by foreign housing savings funds that made a lot of money, but through this institution, no significant purpose was achieved, as it is in their countries. We have been delaying savings for those who have money and do not need help. People have been saving, and then, after a while, they used that money for something else. I've argued with an Austrian minister who threatened us that if we abolish these incentives, our financial system will collapse. We abolished the incentives, and now they are useless. With these funds, we could have developed a serious program for building social housing and public rental apartments as two categories. Today, for example, we don't have enough doctors or nurses in Dubrovnik. If someone from Zagreb decided to go work in Dubrovnik, they would have a hard time finding affordable, decent housing, and it should be expected that there is a model of public rental housing. The city of Zagreb has developed a sustainable model of public rental housing, around 1,300 apartments, which has proven to be a social and economic investment. I recommend that you go talk to the families who are the tenants in these buildings and compare them with socially excluded subtenants. Maybe that would be a stimulus for other cities to help families with children who are not eligible for social housing and cannot afford to buy a house. Social housing should be intended for targeted groups, mainly families with multiple children, families with one parent, and similar. We have a very limited fund for social housing, and the rent in these buildings, set by the government, is 2.7 Croatian kuna per square meter. There is an absurd situation where these families spend three times more on a mobile phone than on rent. Then, the owners of these buildings, the cities, cannot afford to maintain them, and the model is not sustainable. We have had to make serious calculations of the construction value of the house and the rent that could be charged to make it economically viable. For some citizens who cannot afford the rent, we have been giving subventions. This is a practice in developed countries, but we can't even discuss it in the public media. So, the housing policy model should be established in a public, open, and qualified dialogue between the government and units of local self-government. The model would involve the role of the government and local self-government units. To make some progress on the housing market, we need to strengthen the offer of social and public rental housing. And for their construction, we need to establish transparent land, tax, and credit policies. For example, maybe the Catholic Church could donate land for the construction of such housing. On the other hand, we need to reduce municipal contributions for these buildings and reduce the VAT on construction materials and services to 5 percent. Land policy should enable projects for building family houses on the outskirts of cities and support them with an appropriate credit policy. The biggest challenges are social care for the elderly and helpless. Cities should offer these families a lifetime maintenance contract in exchange for their properties. The properties would be put into the function of social and public rental housing. Additionally, cities should be encouraged to buy unfinished housing investments in distress and complete them and bring them to the intended purposes. Let's not be naive, there are no quick and easy solutions, but things cannot be moved without political will! The mystery is how to get the political will for this crucial area of development, both for citizens and for the country as a whole. NET.HR: Do you think that POS lacks the criterion of income level? You can currently receive a subsidy if you earn 50,000 kunas. The only condition is that you don't have any property... BEŽOVAN: No one questions this in our country; there's no oversight. That's why we have situations where subsidized apartments are rented out and resold. As part of study trips to Zagreb, esteemed experts arrive, and as their host, I take them to see how our apartments and housing estates look. They are regularly surprised by the prices of apartments and ask how someone can afford them! When you take them to Špansko, they say that this is a radical form of social housing. They say that at least a quarter of the apartments are oversized. This won't change in the next hundred years, not in the next ten years. In Zapruđe, they are surprised that someone could build apartments there at all; there are no amenities. I've never taken anyone from this group to a speculative POS project in Kla. I took foreign experts to a failed project of apartments for young scientists in Borovje. I'd like to challenge you as a journalist to deal with this project and resolutely persuade the relevant ministry that the built apartments need to be refurbished and brought to their intended purpose. This project can be a springboard for many young colleagues in the academic community who, at the beginning of their careers, earn little and cannot afford decent housing. This is how it looks when the state builds apartments. On the other hand, private foundations have made a project of social housing and a student home in Zagreb, which is sustainable and serves a noble purpose. They are encouraging initiatives in smaller towns and cities where incentives are given for social care, and the land is being rezoned for building family homes. Maybe we could develop a program for building social housing for the EU perspective of 2021–2027. NET.HR: It appears that the interests of those who build real estate and banks are served more than those of citizens in our housing policies. BEŽOVAN: In Croatia, we do not have a housing policy. These are individual measures that have largely benefited the banking and construction lobby, which have achieved profits, and the more affluent citizens. The price of an apartment in Croatia is a mystery. In Zagreb, the price is such that a standard apartment cannot earn 80 percent of the average income of 80 percent of citizens throughout their working life. See, a city councilor from Split called me to ask if I would be willing to give an address on housing and possible strategies at the city council. I agreed. However, as an opposition member, he was unable to gather enough signatures from other councilors for the presentation to take place. I'm glad the ruling party might have found another expert to deliver a presentation and has a clear strategy for addressing the housing stress in Split! NET.HR: Housing prices and rents have increased significantly in recent times. The main causes cited are savings in real estate due to nonexistent interest rates on savings, the POS model, and tourism, or daily rentals. What do you think is the main reason, and can you estimate the importance of these factors? BEŽOVAN: It's hard to estimate this. However, we have the fact that people have nowhere to invest, so they invest in real estate. I checked the number of apartments in a relatively attractive real estate unit that were actually bought for housing, and it was less than 20 percent. People are saving in real estate, and another part of the problem is over-apartmentization. Cities in Europe are seriously fighting against over-apartmentization with various measures. We have a situation where most apartments in a building are rented out, and we have effectively converted a residential building into a commercial one. This will negatively affect the quality of life of citizens – tourists will arrive early in the morning and late at night, and you'll constantly meet unfamiliar people... Everywhere in the world, real estate that serves housing has a favorable treatment for municipal services – when you rent out an apartment, the municipal service should be higher. When an apartment is converted from a residential to a commercial space, it should be heavily taxed, and there should be a limit on how many apartments can be converted. For example, Barcelona has introduced a decision that no apartment can be converted into a commercial space for rental if it doesn't have its own separate entrance, so the interests and the quality of life of citizens who share that space are not compromised. NET.HR: In our country, people have always saved in real estate. Even in Yugoslavia, saving in real estate was perceived as some kind of strong value. Do you think that citizens in our country save in real estate because of the state of the market or due to some traditional legacy, mentality? BEŽOVAN: We have a phenomenon of our diaspora saving and investing in real estate in Croatia. This demand increases prices, and those investors often don't pay taxes. For example, if you have 10 hectares of land in Slavonia, you're poor, but if you have 2,000 square meters of urban land in a coastal town, you're wealthy. This would be one of the reasons for introducing a tax on real estate that would tax the real value of the property. The concept of social care for housing has been deeply ingrained in Croatia. Young people rely on the help of their parents when deciding to move out. Young people who come from provincial areas where there's little real estate value are significantly disadvantaged compared to those living in areas where real estate prices and potential earnings are much higher. After a good tourist season, apartment prices surge in Zagreb. When you try to buy an apartment in Opatija, you have to pay the wealth tax for holiday homes. But when someone from Opatija buys an apartment in Zagreb, no one will ask them to pay that tax. In this context, how are the profits from renting out apartments taxed? Very lightly. Someone who owns two double apartments in Dubrovnik can earn as much as a surgeon, and the taxes they pay are very low. NET.HR: You mentioned the tax on real estate. Critics say that our tax burden is already too high, and introducing such a thing wouldn't be needed. We already have municipal assessments, which can be seen as a form of tax on real estate, and our administrative system finds it easier to calculate this. Why do you think we should introduce a tax on real estate? BEŽOVAN: Municipal assessments are a different institution. We pay them to maintain the construction land we live on. The Constitutional Court has abolished the tax on undeveloped construction land, the tax on unworked agricultural land, and the tax on unused business property. In this way, the Constitutional Court has effectively institutionalized a rentier economy. Construction land has real value. If my green area becomes construction land, and yours doesn't, we are in a very different position. Moreover, municipal assessments are only paid in urban areas. However, we do not have the civic competencies to manage ourselves and introduce such a tax – those in power have the most real estate. And they, together with rich real estate owners from the shadows, won't let such a tax be introduced. EU recommendations won't help. NET.HR: Do you think that cities like Zagreb should introduce a limit on daily rentals? There have been some initiatives to that effect, but they were seen as a step towards socialism... BEŽOVAN: This should be addressed by the government, and we should examine the scale of the problem and the consequences of the Airbnb program. One of the significant problems of Croatian public awareness is that we have no insight into what the EU is doing and what EU topics are being discussed. We function like a country that is not a member of the European Union. I participate in EU forums where we discuss important EU topics, but they don't have any impact here. NET.HR: Why is this so? BEŽOVAN: This is because we are a backward, abandoned country. A province.

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