Rethinking the Welfare State: The prospects for ... - e-Library

Low-income housing 65
towns and communities, and contributed to their decay, a bitterly ironic outcome for a
program intended to revitalize East German communities. 58 The inefficiency of the
highly ambitious 1973–90 Housing Program was compounded by the GDR leadership’s
resolute refusal to “see” inefficiencies endemic to its socialist economy; more
fundamentally, the GDR’s centrally controlled economy lacked the dynamism and
incentive measures required to realize the Housing Program’s massive goals. 59
“Architectural monoculture,” too inflexible to meet the wide range of housing needs, was
a side effect of state monopoly. 60 In the private low-rent housing sector, the steadily
shrinking class of property owners was impoverished by the artificial deflation of rents
(in rural areas, rents sometimes amounted to less than 0.9 percent of the average
household’s monthly income), while tenants saw their dwellings steadily deteriorate as
landlords could no longer afford to maintain them. 61 Finally, the housing preferences of
citizens were mostly ignored, resulting in both drastically over- and under-supplied
markets. 62
While the inadequacy of Marxist-socialist economic planning is ultimately responsible
for most of the failures of the GDR’s Housing Program, the example of the GDR does
help to identify a few principal problems with pure public provision of housing: the
absence of strong incentives for efficient production; the inability of a centrally planned
housing authority to respond rapidly to diverse and changing local needs and preferences;
and the difficulty of fixing affordable and sustainable housing rents without the economic
forces operative in a more liberal market system. Centrally planned housing in the GDR
and in the United States tended to be concentrated in large public housing projects, which
were often far from major centres of employment for low-income earners, resulting in a
labour mobility problem and the “ghettoization” of the poor. In contrast, the relative
success of the Swedish “interventionist” regime (the most “public” of existing housing
systems) in these regards can arguably be attributed to its “private” features; namely, its
judicious use of demand- and supply-side subsidies rather than heavyhanded central
planning and provision. In 1993, nearly 50 percent of spending on housing subsidies in
Sweden took the form of interest-subsidized loans for new private housing units. 63
Twenty-two percent of housing in Sweden is provided by non-profit corporations, who
receive construction subsidies from the state but retain local authority over the scale and
type of housing.
The only jurisdictions in which centrally planned public provision remains a strongly
favourable option are in certain LDCs where high levels of grossly inadequate housing
and “informal” residence (squatting and the erection of shanty towns) and an absence of a
capital market for low-income housing investment make public housing projects (such as
the “sites and services” model discussed earlier) seem viable alternatives. Even in such
states, however, public provision is seen as a palliative measure, a temporary solution
intended to prevail only until governments are able to establish a market for mortgages
and a more robust land-ownership and low-income rental strategy. 64
Supply-side subsidies
Supply-side subsidies, traditionally in the form of construction and operation funding to
private for- and non-profit housing associations, have formed the mainstay of most EU
housing programs. In the Netherlands, the SRH sector is divided between housing