Remarks by Angel Gurría
Paris, France - Wednesday, 17 June 2020
(As prepared for delivery)
Your Excellency, dear Minister, Ladies and Gentlemen,
I am delighted to present today the OECD report on Policy Actions for Housing Affordability in Latvia. I would like to thank the Ministry of Economics and Minister Vitenbergs, for their support. The study has also benefited from the close engagement of Latvian lawmakers, whom I would like to thank for their valuable insights.
The COVID-19 pandemic has converted our homes into our principal places of leisure, but also into our offices and the schools of our children. By bringing our professional lives into our personal ones, the crisis has shone a spotlight on the importance of housing policies for our well-being and the broader economy. But the pandemic has also provided a stark reminder of the pressing housing challenges that persist.
We are delighted that improving access to affordable housing is a priority for the Government of Latvia. In recent decades, Latvia has made impressive progress towards improving housing quality and affordability. Since 2005, the share of people living in poor quality housing has fallen by over a third, from 40% to 24% today.
Latvia has seen a similar drop in the share of households overburdened by housing costs. Also, fewer households report falling behind on their mortgage or rent payments, compared to previous years.
Despite this important progress, challenges remain. Let me outline three that our study highlights and the recommendations it puts forward to tackle them.
First, Latvia faces a persistent housing quality gap. Despite progress, over a third of Latvian households live in overcrowded dwellings. This is the largest share among OECD countries. Additionally, around a quarter of poor households live in dwellings without an indoor flushing toilet – compared to an OECD average of less than 7%. This is due, in part, to residential investment levels that have stagnated since 2008, accounting for around 2% of GDP, compared to the OECD average of 5%.
To face this challenge, our report recommends setting up a revolving fund, drawing on the experiences of Denmark and the Slovak Republic. The fund could draw on public and private resources, as well as EU structural funds, to support investment in renovation and new affordable housing development.
A technical assessment of the state of the housing stock should guide investments. This is key to understanding the maintenance, renovation and energy efficiency needs, as well as the level of investment that is required. The assessment and its results can prepare the ground for an environmentally sustainable, affordable housing refurbishment programme, following the experience of the Slovak Republic.
Second, Latvia’s housing market offers few affordable choices to its households. Latvia is a nation of homeowners, and the formal rental market is nearly non-existent. The country has one of the smallest social housing stocks among OECD countries, at less than 2% of the total stock – compared to an OECD average of over 7%.
Many people are stuck in poor quality housing because they cannot afford to move to a better home, or to upgrade their current dwelling. This not only threatens well-being, but is also a barrier to labour mobility, reducing opportunities to match workers to jobs.
To tackle this challenge, Latvia needs to give people more housing choices. Our study recommends ways to expand the affordable rental market, for example, by pursuing regulatory reforms in the private rental market, and diversifying the offer of housing providers. In addition to boosting labour mobility, a more attractive, affordable rental market can help support the economic recovery.
Lessons can be drawn from Austria and Germany, both with nearly a century of experience in this area.
The third challenge concerns current public support for housing, which continues to exclude many people. Around 44% of Latvian households are ineligible for housing support and cannot reasonably afford a mortgage to buy a home.
Our report calls them the “missing middle”. They span much of Latvia’s income distribution, yet, are mostly made up of lower-middle and middle-income households, as well as elderly and single-parent households.
To close the gap, we recommend expanding housing support for lower-income households, notably through reforms to housing allowances. Our simulations show that housing allowances could reach more households at the lower end of the income distribution, while increasing current levels of support. In addition, introducing means-tested housing support could help middle-income families with children to buy a home.
Ladies and Gentlemen:
Latvia has made important progress in improving its housing sector, but important challenges persist. It is crucial, now more than ever, to build on this momentum and put in place the reforms that will improve well-being and ensure that everyone has access to quality, sustainable and affordable homes.
Rest assured that the OECD stands ready to support you in these efforts. Thank you.