Catalytic capital investment as an enabler of affordable rental and cooperative housing - Investor Report

The Investor Report titled "Catalytic capital investment as an enabler of affordable rental and cooperative housing" was created by Zsuzsanna Pósfai and Csaba Jelinek, with contributions from Ivon Pavlović. Published by the Periféria Policy and Research Center and supported by the Catalytic Capital Consortium Grantmaking, this report explores the potential for catalytic capital investments to address the pressing issue of affordable housing in Central and South-Eastern Europe (CSEE). The report highlights the unique challenges faced by the region, including low energy efficiency, high rates of housing deprivation, and a significant portion of the population struggling with housing affordability.

In CSEE, at least 20-30% of the population, including many middle-class households, encounter affordability issues. The public housing sector is typically marginal, and private rental markets are underregulated and expensive. Notably, over half of the population in major cities like Budapest, Belgrade, Ljubljana, and Zagreb are open to changes in their housing situations, with 13-26% meeting criteria for potential rental or cooperative housing solutions. Despite this demand, existing housing finance products fail to meet the needs of large segments of the population, particularly those with incomes above average.

The report identifies significant gaps in the current housing finance landscape. Most available housing finance products are short-term, failing to provide the long-term financing necessary for sustainable rental and cooperative housing projects. Individuals often struggle to access loans due to high capital requirements and a lack of secure employment contracts. The existing financing models do not adequately support the development of a non-profit rental sector, which is crucial for meeting the demand for affordable housing.

Two main obstacles hinder the emergence of a non-profit housing sector in CSEE: short loan maturities for organizations and the absence of adequate financial tools for housing providers. The report suggests that introducing catalytic capital investments can bridge the gap in long-term financing. Such investments could complement traditional bank loans, addressing the initial funding needs of housing developments and enabling a shift in the housing finance landscape.

Catalytic capital investments are defined as more patient and flexible than conventional capital, providing essential support to the housing sector. By facilitating long-term financing, these investments can stabilize the economy and the real estate sector while promoting energy-efficient building solutions. The report emphasizes that the affordable rental and cooperative housing sector can contribute to combating climate change and creating jobs in a sustainable manner.

One example of a proactive approach is the MOBA Housing SCE, a network of cooperative housing initiatives across CSEE. The MOBA Housing Finance Accelerator aims to collect capital through various means, including donations and equity investments. This initiative seeks to provide essential financing for startup housing cooperatives, addressing the financial bottlenecks they face.

In conclusion, the report outlines the urgent need for new financial instruments tailored to the needs of the rental and cooperative housing sectors in CSEE. By leveraging catalytic capital investments, it is possible to create a robust, sustainable housing market that meets the growing demand for affordable housing solutions in the region.