Building a Better City: Europe’s Affordable Housing Standard

In the United States, nonprofit builders of affordable housing often compete against each other as well as against larger, better-capitalized private builders for limited low-income tax credits and other scarce sources of low-cost financing. Because of this stiff competition, it’s not uncommon for needed and economically viable projects to be left on the drawing board. Even if money is available, nonprofits frequently must jury-rig financing from several different public and private sources. Financing packages to build affordable housing can be extremely time consuming and enormously complex.

Such is not the case in Europe, where affordable housing is dominated by nonprofit housing associations; few private builders are involved. Consequently, a sense of solidarity and cooperation has resulted among the nonprofit builders. This has led, in turn, to financing affordable housing projects by nonprofits in Europe that is much simpler, faster and more efficient than in the U.S.

I recently was part of a group of U.S. affordable housing officials, sponsored by the Housing Partnership Network, that saw first-hand the strides that the United Kingdom and the Netherlands have made in providing quality affordable housing. In both countries, affordable housing is a top public priority, and local and national governments have a well-articulated affordable housing strategy. Unlike California and many other parts of our nation where the lack of affordable housing is a continuing crisis, low-cost housing in the U.K. and Netherlands is available to people who need it, when they need it. Both countries have long histories of development and ownership of affordable housing through nonprofit housing associations dating back to the Industrial Revolution. Early housing associations were rooted in labor and church groups, although today’s organizations are non-sectarian and no longer affiliated with labor or interest groups.

Nonprofit affordable housing developers in the U.K. and the Netherlands don’t have to struggle for funding; they have direct access to significant financial resources. We met one developer who has $77 million in capital available to build projects. In the Netherlands a loan guarantee program, funded by the builders, allows developers to borrow funds from commercial banks at low rates. Moreover, these developers don’t have to submit endless and multiple funding applications. Two other major advantages that affordable housing developers in Europe have are size and strength. In the U.K. and the Netherlands, several large nonprofit housing entities own 50,000 to 70,000 dwellings; many others control more than 20,000 units. This is substantially larger than the largest comparable entity in the U.S., which owns approximately 12,000 low-income units. Because they are larger, European nonprofits are stronger and more politically connected than their U.S. counterparts. Their work usually has the blessing of both local and national governments, and consequently they face less opposition to their plans.

In most European cities, affordable housing is prevalent, an accepted part of the community. A case in point is Tillburg in the Netherlands, whose 165,000 inhabitants make it the nation’s seventh largest city. In Tillburg, 51 percent of the housing is owned by one housing association and is considered affordable. These units rent for one-half to two-thirds of market-rate rents. Another example is London, where developers are required to have 25 to 35 percent of their newly built units affordable.

These European countries have other advantages over the U.S. in providing lower-cost housing. One is “blending”: Affordable housing in Tillburg, London and in most other European cities is mixed with market-rate housing, so that affordable units and the people who live in them are indistinguishable from market-rate housing and their residents. Thus, there is no stigma associated with living in low-income housing.

Another major point of departure is income eligibility. In the U.S., those living in affordable housing must qualify for that housing annually. In the U.K. and Netherlands, once qualified, you are qualified for life, although if a resident’s income changes, any rental assistance may be increased or decreased.

The European housing associations that develop and manage affordable housing are social-oriented businesses, meeting housing needs in a responsible and professional manner that fosters quality of life and generates the new capital required for more affordable housing development. Certainly, not all is perfect. Both the Dutch and British housing associations are dealing with decreasing government assistance, privatization of public housing stock and organizational consolidation. But affordable housing is such an ingrained part of their societies that housing officials are able to work through these problems without interrupting or endangering the affordable housing supply.

The U.S. affordable housing industry does have its advantages and Europe’s housing associations are looking to the American affordable housing model for insight and inspiration. Whereas Europe’s affordable housing sector is largely centralized and institutionalized, the American system is more decentralized and has much less support from the federal government. This independence has generated more product innovation and management entrepreneurship, including creative partnerships with both the public and private sectors that many European housing officials find intriguing. One U.S. feature that is of particular interest to Europeans is the well-developed secondary market for affordable housing loans facilitated by Fannie Mae, Freddie Mac and others.

Housing officials and developers in the U.S. have much to gain from studying the construction, management, customer service and other practices of the Europeans. Ensuring that everyone, regardless of economic and social status, has adequate housing on a long-term basis is a practice that we in this country should adopt.

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