A new type of rental housing may appear in Ukraine

Ukraine may introduce social rental housing to address the issue of internally displaced persons and people in need of state support in solving their housing problems. The mechanism is based on a lower-than-market rate of payment, and all rental revenues will be directed to a revolving fund, which will be used to build new housing.

This was stated by Olena Shulyak, Chairman of the Verkhovna Rada Committee on the Organization of State Power, Local Self-Government, Regional Development and Urban Planning, head of the Servant of the People party.

According to her, such a tool is included in the draft law on the basic principles of housing policy, which was recently presented to the public.

The principle of affordable, i.e. social, rent is based on the fact that communities act as landlords. The community, which will own the relevant housing stock, will lease it out, with payments going to local budgets - revolving funds - where they will be accumulated for targeted use. This can be either to improve the housing stock that is already on the balance sheet or for new housing facilities that will be used for the same purpose.

Social lease mechanisms are quite popular in EU countries, but Ukraine needs to adapt them to its own needs and develop a legal basis for this, said the head of the relevant committee.

For example, in the EU, a social housing lease agreement is concluded between a local government and a tenant. The local government that leases the housing conducts annual monitoring of the tenant's income for the previous year. If the tenant's average monthly total income for the previous two consecutive years has become higher, this is grounds for termination of the agreement.

In the Netherlands, Austria and Denmark, social housing accounts for more than 20% of the total housing stock, while in the UK, France, Iceland, Ireland and Finland it ranges from 10-19%, and in Hungary and, for example, Finland, the social housing rental sector accounts for more than 50% of all rental housing. In Ukraine, however, its share barely reaches 1.5%, which is critically low given all the challenges posed by the full-scale invasion.
Given this, the parliamentarian believes that social renting is extremely promising for Ukraine, where, firstly, there is a huge number of internally displaced citizens, and secondly, the housing issue has not been resolved for decades.

"Of course, we need to understand that the European practice of social renting is the result of long-term and consistent policies that have been implemented over the years. Ukraine, in turn, has been following housing policies that for years have been limited to the direct transfer of apartments to new owners. Most state and municipal programs were aimed at subsidizing property rather than affordable rent. So we have a lot of work ahead of us," Shulyak said.

Currently, 98% of residential real estate in Ukraine is privately owned, so there is no affordable rental housing stock. That is why the government, according to Shulyak, is clearly aware of the need to reformat housing stock.

The necessary funding for this can be obtained, in particular, from the seized assets of the Russian Federation abroad. First of all, we are talking about the assets of Russian oligarch Konstantin Malofeev seized in the United States, but speaking in general, Shulyak noted, we are talking about tens of billions of dollars.

"We need to create conditions for our citizens to return. And this requires funds that we will have if the frozen assets are transferred. We agree to discuss constructive options. It is possible to transfer not the assets themselves, but, for example, the income from them. That is, they will remain abroad, where they will be stored, but will work for the benefit of Ukraine. We are currently in active negotiations on this," said the head of the Servant of the People party.

Property confiscated from Russian and Belarusian citizens and collaborators may also become a source of housing stock for social rent. In addition, a significant amount of abandoned housing stock can be modernized and transferred to the appropriate funds to meet housing needs. Funds from international technical assistance and development agencies can also be used to develop social housing.

Thus, funding for social rental mechanisms can come from a variety of sources and does not always require the construction and purchase of housing as such - it can also include the modernization and insulation of previous non-residential spaces or buildings in poor condition. In addition, Ukraine's integration into the European Union - in particular, through the European Social Development Fund, which is a key element of the EU's regional policy - can help create a housing stock for social rent.

At the same time, the first pilot projects to launch social renting mechanisms in Ukraine are already being tested. For example, with the support of the German government, the International Organization for Migration (IOM) under the UN launched the Housing project in Lviv region. The program involves the creation of housing for long-term residence of IDPs on affordable rental terms. In addition to IDPs, the program's beneficiaries are also local communities, as donors provide support measures for them as well.

Memorandums are being signed with several local communities in the region, after which they will start building new housing on their territory or re-equipping housing on the basis of the social infrastructure available in the communities.

IOM Legal Officer Hanna Selezniova noted that the social rental housing mechanism covers several needs at once. Firstly, it is about meeting the housing needs of IDPs and other vulnerable categories of the population. Secondly, it is a tool for community development, as rent payments to local budgets will be used to create a new housing stock, which will be further developed on a revolving basis.

"The EU example shows that the value of this instrument is extremely high. However, in the case of Ukraine, it should be taken into account that the EU countries do not have such a huge number of IDPs as Ukraine has due to the war.

Therefore, this tool needs to be adapted to Ukrainian realities. Another point that is also important to consider is the absence of such a thing as affordable rental housing in Ukrainian legislation. Instead, it prescribes a mechanism for leasing municipal property, but it is based on the principle of competition, i.e. auctions, when the highest bidder wins. This contradicts the principles of affordable lease, which aims to provide individuals with a lease at a price lower than the market value. Therefore, it is necessary to introduce the principle of affordability at the legislative level," Selezneva summarized.