Barcelona’s housing mission: from a market-fixing to a market-shaping approach
By Eduardo González de Molina
I n many major cities around the world the housing rental market is broken. Barcelona is a case in point: rent is skyrocketing, and is now at record levels when compared with wages. Meanwhile, affordable dwellings are not being delivered by the market at the scale needed to satisfy present and future demand. There is, in short, a market failure. What went wrong?
The mainstream approach to addressing the housing crisis has been to move from a rental and social housing model to a private homeownership-based system where the market is the leading housing provider. In line with the neoliberal approach to policy in other areas, the role of the public sector was reduced to being a market-fixer; only correcting market failures when they arise. In the case of housing, this meant that the public sector only aimed to provide social rented housing for extremely low-income families where targeted, means-tested housing allowances were introduced, while public investment in social housing construction was dramatically decreased
The result of this policy approach is clear: it has been a massive failure. Not only has it failed low-income families — it has also failed the middle class. As a recent report by the UN Committee on Urban Development, Housing and Land Management concluded: “The failure of free markets to provide housing for all socio-economic segments was clear to all”.
The main problem with the market-fixing approach is the assumption that the housing market is perfectly competitive. However, it is essential to acknowledge that the fundamental nature of the housing market is not competitive. Housing as a commodity has its peculiar characteristics: immobility, heterogeneity, long lifespan, lack of substitutability, and high transaction and construction costs. In addition, housing lies on top of an extremely uncompetitive and fictitious market: the land market. In the land market, the golden rule is location, location, location, and its natural scarcity produces rent extraction.
Since 2015, Barcelona has changed the paradigm of its housing policy, moving from a market-fixing to a market-shaping approach where the role of the public sector is to shape and direct the market to meet a public goal: the creation of an affordable housing market. The mission is clear: to ensure access to decent, green, healthy, and affordable housing for all. Inspired by the successful case of Vienna, but developed in a century and a context rather different, Barcelona is developing a new approach that seeks to provide stronger tenant protection while building abundant housing for all. The aim is to provide stability and affordability to existing and future residents; balance the housing market among the private, public, and third sector housing providers; equilibrate the tenure structure between homeownership and renting; and consider housing policy as a new pillar of the Welfare State in an universalistic approach.
To do this, a mission-oriented approach to local housing policy is needed based on the assumption that the housing crisis is a ‘wicked problem’ — urgent, systemic, interconnected, and complex — acknowledging that housing policy is by definition slow, expensive, complex and controversial, where there is neither a silver bullet nor shortcuts.
As Professor Mariana Mazzucato has pointed out, a successful mission-oriented approach requires rethinking the role of the government (towards an entrepreneurial state) and the private sector (towards purposeful stakeholder companies), along with a different approach to public, private and civic collaboration (towards symbiotic and mutualistic ecosystems which risk and rewards are equally shared). Barcelona is developing this mission-oriented approach in the Right to Housing Plan 2016–2025. And one of its strategic goals is to increase and maintain the social and affordable housing supply.
“Barcelona has set a clear mission and has developed partnerships with purpose without losing internal capabilities.”
The mission of supply aims to build enough dwellings for all. More housing means matching supply and demand while balancing the market power of tenants and landlords. But not any kind of housing is needed. Instead, permanent social and affordable rental housing is critically needed, because only 2% of Barcelona’s housing stock is social housing. Barcelona’s target is to produce 18,169 social dwellings during 2016–2025, doubling the current social housing stock. In doing so, Barcelona has set a clear mission and has developed partnerships with purpose without losing internal capabilities. The new housing strategy has three distinct goals.
The first goal is to build 8,000 new units by investing €1.2bn using three complementary approaches. The first is to construct new council housing managed by the Barcelona Housing Authority (IMHAB). 67% of the new building is being delivered by the City Council, showing that the public sector increases its internal capabilities. Moreover, to deconstruct the siloed structure in local government, Barcelona has strengthened the coordination between the social services, urban planning, and housing authorities as a decentralised network of entrepreneurial public organisations. The other 33% of the new production is being delivered in partnership with the private and third sectors by creating instruments that reward those businesses willing and able to co-invest towards tackling the affordable housing crisis.
One such collaboration is with social housing providers (ESAL agreement) in a bottom-up and participatory process. The goal of the ESAL agreement is the promotion of 1,000 social rental and cooperative housing units, where the city council leases 99 years of public land and the social developers construct, refurbish and manage the housing. It is an innovative case of a city-led Community Land Trust with outcomes-focused finance, using a mix of loans, subsidies, taxation, and revolving funds. Another type of collaboration is the building of 4,500 permanent affordable rental housing on public land (leasehold) through a symbiotic public-private corporation (HMB) with value-sharing mechanisms. The public sector holds 50% of the shares, and the private the other 50%. This shareholding structure translates into a shared governance structure (with four public members, four private members and one neutral member on the board of directors) and ensures that the risks and rewards are equally shared.
The second goal of the new strategy relates to the public purchasing of existing buildings. Enacting the right to first refusal in the whole area of Barcelona (ATR), the city has acquired 1,324 units by investing €145m so far, buying existing buildings in the city centre, correcting the geographical imbalances and stopping speculative investments. As a step forward, the city is now launching a pilot project of a public-private fund to acquire existing buildings buy-to-rent, an excellent example of an urban wealth fund.
The final goal of the new strategy has been mobilising empty homes. 1,500 units have been introduced to the market so far, using renovation subsidies as a primary incentive to the owner. The policy has compromised €25m of investment through a public program (Borsa) and a partnership with a non-profit provider (Habitat 3).
All of these efforts would not have been possible without a long-term outcome-focused finance strategy consisting of public investment (in the form of tax reliefs, subsidies, public spending, equity stakes, and strategic procurement) alongside the critical financial support of public investment banks (EIB, CEB, ICO, ICF) through low-interest and long-term loans (€264m so far). This has provided a strong signal and a direction to the market, catalysing expectations about new cross-sectoral investment opportunities that crowd-in core and core plus investments to the housing market. Nonetheless, all these public-private housing investments have to fulfil three golden rules: the public land can never be privatised; the social and affordable housing has to be held in perpetuity; and it also must be green and healthy.
Achieving this mission in practice will be challenging. Increasing the housing stock at the scale and pace needed will require shared objectives, a broad consensus, strategic alliances, collaboration, and a massive increase in public and private funding. But the potential prize is huge: providing affordability and stability for all, and guaranteeing the right to housing along the way.