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

This investor report, published by the Periféria Policy and Research Center, explores the potential of catalytic capital investments to enhance affordable rental and cooperative housing in Central and South-Eastern Europe (CSEE). The report is authored by Zsuzsanna Pósfai and Csaba Jelinek, with contributions from Ivon Pavlović. It addresses the unique challenges in the CSEE housing sector, emphasizing the need for new financial instruments to address the growing demand for affordable housing.

The report highlights that CSEE countries face significant housing issues, including low energy efficiency, high housing deprivation rates, and a growing affordability crisis affecting 20-30% of the population, including middle-class households. The private rental sector is underregulated, leading to instability for tenants, while the public housing sector is minimal. Surveys indicate that over half the population in four major cities (Budapest, Belgrade, Ljubljana, and Zagreb) is open to changes in their housing situation, with a notable percentage qualifying for new affordable housing models.

According to the report, existing housing finance products do not meet the needs of many social groups, particularly those with above-average incomes who still struggle to secure housing loans. The current financial landscape is characterized by short-term project financing that does not support the long-term nature of rental and cooperative housing. Key obstacles include high requirements for own capital and short loan maturities, which limit the capacity of housing providers to scale their operations.

The authors propose that catalytic capital investments can bridge the gap in long-term financing, enabling the development of rental and cooperative housing. This type of investment is described as patient, risk-tolerant, and flexible compared to conventional capital. The report suggests that introducing catalytic capital could kickstart a shift in the housing finance landscape, eventually drawing in conventional lenders to provide more sustainable financing solutions.

To effectively utilize catalytic capital, the report recommends the establishment of intermediary organizations that can manage and allocate funds to housing providers. These organizations would not only distribute capital but also support capacity development for housing providers, ensuring they can successfully absorb and utilize the investments.

The report focuses on eight specific countries in the CSEE region: Bosnia and Herzegovina, Bulgaria, Croatia, Czechia, Hungary, North Macedonia, Serbia, and Slovenia. The authors stress the importance of building a robust evidence base for future investments and the necessity of long-term financing models to foster affordable housing solutions that are environmentally and socially sustainable.

The report concludes by arguing that developing a sustainable affordable rental and cooperative housing sector can enhance economic growth and create jobs while addressing urgent housing needs. The potential for catalytic capital investments to stabilize and transform the housing finance landscape in CSEE presents an opportunity for innovative housing solutions that meet the demands of the population while contributing to sustainability efforts.