Budapest’s Novel Approach to Affordable Housing
City-dwellers’ rent-to-income ratio, or rent burden, tends to be highest among low-income and underrepresented minority communities. These groups are also more likely to rent, rather than own, a place of residence. Hence, rent burden is included in the Dynamic Cities Dashboard as a proxy to gauge socioeconomic disparities. Budapest is one such city tackling the issue head on.
What was the challenge?
Budapest has been grappling with a severe housing crisis in recent years. The city’s real estate prices have surged to unaffordable levels, making it exceedingly difficult for both residents and those with Budapest residency to find suitable housing. The housing market in Budapest has gained notoriety for its unpredictability and high costs, further exacerbating the problem.
Adding to the complexity, landlords have sometimes skirted legal procedures. For instance, instead of following standard eviction processes for late payments, property managers have resorted to extreme measures like cutting off utilities. Discrimination compounds the issue, with groups such as Roma individuals, families with young children, and minorities experiencing substantial bias from both individuals and rental and investment companies.
The consequences have been significant. Many Budapest residents have been forced to relocate to the outskirts while continuing to commute to the city center for work and essential services. This migration has not only worsened the housing crisis but also led to increased traffic congestion in the city.
What action was taken?
To address the pressing affordable housing challenge, Budapest’s Mayor, Gergely Karácsony, initiated a bold plan, “Home, for Everyone,” in 2022. One key step is the establishment of a dedicated housing agency. This agency will champion the development of non-profit housing initiatives, oversee property renovations, and serve as rental directors for municipal properties. It will also collaborate with property owners to optimize vacant homes effectively.
This innovative approach seeks to instill trust in housing processes without relying on international entities or private equity funds. The agency model emphasizes meticulous tax planning and efficient management. Property owners can rent their apartments at rates approximately 20-25 percent below the market average. The agency will handle tenant selection and rental collection, taking on the majority of associated risks. Property owners will primarily focus on taxation matters, while the agency can consider social factors when selecting tenants.
This model represents a novel adaptation of the traditional landlord-rental agency relationship. Instead of paying fees to rental agencies for tenant management, participating landlords opt for reduced rental income. This approach offers benefits to all parties, allowing property owners to generate income from vacant properties, even at rates below market levels.
The implementation of this housing agency program is already underway, with organizations like the Utcáról Lakásba Association (“From Street to Home”) and the Városkutatás Kft actively working to establish the agency. While the ultimate goal of constructing new housing comes with significant financial demands, initial discussions with private owners, shareholders, and local authorities are in progress. Budapest’s surplus of unoccupied houses and apartments presents ample expansion opportunities. As an incentive, the agency will shoulder the financial burden of renovations as a gesture of gratitude for property owner participation.
What changed?
While the full effects of the 2022-2031 “Home, for Everyone” strategy remain to be seen, the city has already made some progress in reducing the rent-to-income ratio by 5% on average per year between 2018 and 2023.