MUNI ECON Plná verze článku / Full paper RAKOVÁ, B. (2021). A link between municipal spending on housing and other factors explaining housing conditions in a country. In (Klímová, V., Zítek, V., eds.) XXIV. mezinárodní kolokvium o regionálních vědách. Sborník příspěvků. Brno: Masarykova univerzita, pp. 399-405. ISBN 978-80-210-9896-1. DOI 10.5817/CZ.MUNI.P210-9896-2021-49. www.econ.muni.cz/kolokvium www.econ.muni.cz/colloquium MUNI ECON A link between Municipal Spending on Housing and other factors explaining Housing conditions in a country Author: Barbora Raková MSc Date: August 2021 2 Regionální ekonomie a politika 1 Big picture Dissertation topic: Direct and Indirect Instruments of Municipal Housing Policy 3 Regionální ekonomie a politika 1 muni ECON Big picture Dissertation topic: Direct and Indirect Instruments of Municipal Housing Policy Baseline information needs: Housing policy systems Stakeholders in Housing sector Factors influencing Housing sector Mechanisms of Housing Policies - how does it work Roots of up-to-date problems in Housing sector Roles of cities in Multilevel Governance of Housing 4 Regionální ekonomie a politika 1 muni ECON Big picture Dissertation topic: Direct and Indirect Instruments of Municipal Housing Policy Baseline information needs: Housing policy systems Stakeholders in Housing sector Factors influencing Housing sector Mechanisms of Housing Policies - how does it work Roots of up-to-date problems in Housing sector Roles of cities in Multilevel Governance of Housing 5 Regionální ekonomie a politika 1 muni ECON Aim of presentation COMMENTS 6 Regionální ekonomie a politika 1 muni E C 0 N Aim of presentation COMMENTS REAL WORLD QUESTIONS TO CONSIDER muni 7 Regionalnf ekonomie a politika 1 _ . . .. Aim of presentation COMMENTS REAL WORLD QUESTIONS TO CONSIDER SUGGESTIONS FOR RESEARCH: DATA, METHODS, RESEARCH TEAM TO JOIN 8 Regionální ekonomie a politika 1 im u n i ECON Outline 1) Introduction - What, Why, How: Why Housing and Why Municipal, Analysis aims and starting points 2) Methodology - Variables selection, Procedure 3) Outputs - Results of analysis and how to understand them 4) Summary - What to remember and What to do next 9 Regionální ekonomie a politika 1 muni ECON 1) Introduction - What, Why, How: Why Housing and Why Municipal, Analysis' aims and Starting points 1) Introduction - What, Why, How: Why Housing and Why Municipal, Analysis aims and starting points 2) Methodology -Variables selection, Procedure 3) Outputs - Results of analysis and how to understand them 4) Summary - What to remember and What to do next 10 Regionälni ekonomie a politika 1 muni ECON What: Impact of Municipal Housing Expenditure Proportion of Municipal spending on Housing Factors explaining Housing conditions in a country muni 11 Regionalnf ekonomie a politika 1 _ . . .. What: Impact of Municipal Housing Expenditure Proportion of Municipal spending on Housing I I Factors explaining Housing conditions in a country muni 12 Regionalnf ekonomie a politika 1 _ p n [ U U What: Impact of Municipal Housing Expenditure Proportion of Municipal spending on Housing I I Factors explaining Housing conditions in a country What aspects of housing may be linked with the level of municipal spending on Housing and how muni 13 Regionální ekonomie a politika 1 _ p n [ U U Why: Municipal Housing: THE Topic for Future - Housing policy identified as an important topic for urban development 14 Regionální ekonomie a politika 1 muni ECON Why: Municipal Housing: THE Topic for Future - Housing policy identified as an important topic for urban development - Municipal governments are often reluctant to do much about it (Hulchanski, 2006; Lewis, 2016; Feather, 2018) 15 Regionální ekonomie a politika 1 muni ECON Why: Municipal Housing: THE Topic for Future - Housing policy identified as an important topic for urban development - Municipal governments are often reluctant to do much about it (Hulchanski, 2006; Lewis, 2016; Feather, 2018) - Housing spending often viewed only as a National Government's task -> such a system is no longer sustainable (Feather, 2018; OECD, 2020) 16 Regionälni ekonomie a politika 1 muni ECON How: Quantitative analysis Correlations matrix & Linear regression - Reasonable Variables selection - Correlation matrices - Quantitative model tested by a linear regression 17 Regionalnf ekonomie a politika 1 muni ECON 2) Methodology - Quantitative analysis, Variables selection, Procedure 1) Introduction - What, Why, How: Why Housing and Why Municipal, Analysis aims and starting points 2) Methodology - Analysis starting point, Data, Variables selection, Procedure 3) Outputs - Results of analysis and how to understand them 4) Summary - What to remember and What to do next 18 Regionální ekonomie a politika 1 muni ECON Analysis' starting point: municipal spending Average of 1,35% of municipal budgets are designated for housing programmes (Feather, 2018) 19 Regionální ekonomie a politika 1 muni ECON Analysis' starting point: municipal spending Average of 1,35% of municipal budgets are designated for housing programmes (Feather, 2018) Is this little? Is this sufficient? Does it matter? 20 Regionální ekonomie a politika 1 muni ECON Data introduction & weaknesses - OECD database on Housing (OECD, 2020a, 2020b) -Years 2017 & 2018 !!! Drawback - only data for 21 observations !!! !!! This study is just to set a baseline for further investigation Regionální ekonomie a politika 1 Dependent variable Abbreviation Relevance for inclusion in the model % Housing in Local Budget City spending on affordable housing (Basolo, 2016) Need for Municipal involvement in Housing (Feather, 2018) 22 Regionální ekonomie a politika 1 muni ECON Explanatory variables - social aspects Abbreviation Relevance for inclusion in the model % Household's expenditure on Social aspect-well-being of people Housing (Hulchanski, 2006) Mortgage owner Support for upper class (Hulchanski, - %Household Cost/Income 2006) Rent Support for lower class (Hulchanski, - %Household Cost/Income 2006) % GDP on Housing A social factor of housing policy Allowances (Hulchanski, 2006) GDP per capita Author's addition 23 Regionální ekonomie a politika 1 muni ECON Explanatory variables - political priority Abbreviation Relevance for inclusion in the model % Housing in National Various levels of Government and their Budget role in Housing (Hulchanski, 2006; Feather, 2018) Construction - % New Land policy as a crucial factor for Dwellings/All development Debrunner & Hartmann (2020); Kanq & Groetelaers, (2018); Lawson & Ruonavaara, (2020); Turner, 2017, Lewis, (2016) 24 Regionální ekonomie a politika 1 muni ECON 3) Outputs - Results of analysis and how to understand them 1) Introduction - What, Why, How: Why Housing and Why Municipal, Analysis aims and starting points 2) Methodology -Variables selection, Procedure 3) Outputs - Results of analysis and how to understand them 4) Summary - What to remember and What to do next 25 Regionální ekonomie a politika 1 muni ECON Correlation matrix N. 1 Fig 1: Correlation matrix of data selected for analysis of Municipal Spending (see first column/row; Local Budget Housing National Budget Housing ing in Local Budget sing in National Budget Renter's spending on Housing % GDP on Housing lousehold Cost/I lousehold Cost/lm expenditure on Mousing - % New Divellirgs'A Source: Author's calculation with use of data from OECD (2020a,b) 26 Regionální ekonomie a politika 1 muni ECON Correlation matrix N. 2 Fig 2: Scatterplot Matrix of data selected for analysis of Munioinal Snendina Csee first oolumn/rowl Local Budget Housing National Budget Housing GDP per capita %GDP on Housing Mortgage owner's spending on Housing Renter's spending on Housing %Household's expendit. on Housing %New Dwellings constr. 27 Regionální ekonomie a politika 1 2 4 6 5 10 5 1.5 2.5 0.005 0.015 40 60 30 101 10 15 20 25 0.16 0.20 0.24 Source: Author's calculation with use of data from OECD (2020a,b) muni ECON Linear Regression HO: The variation of Municipal Housing is sufficiently explained by the total variation of selected variables explaining Housing sector % Housing in Local Budget = const + &1 % Housing in National Budget + Q>2 % GDP on Housing Allowances + fc3 GDP per capita + Q>4 %Household Cost/Income (Mortgage owner) + Q>5 %Household Cost/Income (Rent) + Q>6 % Household's expenditure on Housing + Q>7 Construction - % New Dwellings/All dwellings in year 28 Regionální ekonomie a politika 1 Source: Author's calculation with use of data from OECD (2020a,b) muni ECON Linear Regression HO: The variation of Municipal Housing is sufficiently explained by the total variation of selected variables explaining Housing sector % Housing in Local Budget = const + &1 % Housing in National Budget + Q>2 % GDP on Housing Allowances + fc3 GDP per capita + Q>4 %Household Cost/Income (Mortgage owner) + Q>5 %Household Cost/Income (Rent) + Q>6 % Household's expenditure on Housing + Q>7 Construction - % New Dwellings/All dwellings in year 29 Regionální ekonomie a politika 1 Source: Author's calculation with use of data from OECD (2020a,b) muni ECON Linear Regression HO: The variation of Municipal Housing is sufficiently explained by the total variation of selected variables explaining Housing sector % Housing in Local Budget = const + &1 % Housing in National Budget + fc3 GDP per capita + Q>4 %Household Cost/Income (Mortgage owner) + Q>6 % Household's expenditure on Housing + Q>7 Construction - % New Dwellings/All dwellings in year 30 Regionální ekonomie a politika 1 Source: Author's calculation with use of data from OECD (2020a,b) muni ECON Output N. 1 The level of priority that the national government gives to Housing is strongly reflected on city level. One possible explanation may be, that Housing policies are set by law and municipal governments use only limited power to act on their own in this field (Hulchanski, 2006; Feather 2018; OECD, 2019). 31 Regionální ekonomie a politika 1 muni ECON Output N. 2 Well-being of a country (GDP) does have a positive, but only very limited link with municipal will to spend on Housing. 32 Regionální ekonomie a politika 1 muni ECON Output N. 3 - relevatory There is a hint of positive relationship between municipal spending on Housing and cost/income ratio on Housing of people who have a mortgage. The more more money goes to housing, the higher expenditure on private housing there is a) Does it mean, that the more a city spends on housing development areas, the more high-quality (expensive) apartments people buy? This assumption would be supported if construction rate was positively and significantly linked with municipal spending on Housing. The exact opposite, however, has proved to be true. 33 Regionální ekonomie a politika 1 muni ECON Output N. 3 - relevatory There is a hint of positive relationship between municipal spending on Housing and cost/income ratio on Housing of people who have a mortgage. The more more money goes to housing, the higher expenditure on private housing there is b) Does it mean that the city invests in public housing, which causes presence of less private dwellings and consequently more difficult and expensive possibility to buy an apartment? This assumption is supported by the fact, that also total expenditure of households on housing is negatively and significantly linked with municipal spending on housing. In such a place then there might be more public dwellings, which are generally less costly for their renters. 34 Regionální ekonomie a politika 1 muni ECON Output N. 3 - relevatory There is a hint of positive relationship between municipal spending on Housing and cost/income ratio on Housing of people who have a mortgage. The more more money goes to housing, the higher expenditure on private housing there is c) Does it mean, that cities, which spend more on Housing, are inhabited by rather poorer people, and those who can afford a mortgage pay relatively more for it in a proportion to their income than rich people in rich cities? This construct would be supported by a negative relationship with Households' expenditure. 35 Regionální ekonomie a politika 1 muni ECON Output N. 3 - relevatory There is a hint of positive relationship between municipal spending on Housing and cost/income ratio on Housing of people who have a mortgage. The more more money goes to housing, the higher expenditure on private housing there is To answer the questions, it is important to understand what exactly are the financial instruments, which are used by the cities and what target group are these aimed for. 36 Regionální ekonomie a politika 1 muni ECON 4) Summary - What to remember and What to do next 1) Introduction - What, Why, How: Why Housing and Why Municipal, Analysis aims and starting points 2) Methodology -Variables selection, Procedure 3) Outputs - Results of analysis and how to understand them 4) Summary - What to remember and What to do next 37 Regionální ekonomie a politika 1 muni ECON What to remember There appear to be links between Municipal spending on Housing and POSITIVE - Housing in National Budget POSITIVE - GDP per capita POSITIVE - %Household Cost/Income of Mortgage owner NEGATIVE - %Household Cost/Income of a Renter NEGATIVE - Household's expenditure on Housing NEGATIVE - Construction - % New Dwellings/All dwellings in year 38 Regionální ekonomie a politika 1 muni ECON What to remember There appear to be links between Municipal spending on Housing and POSITIVE - Housing in National Budget POSITIVE - GDP per capita POSITIVE - %Household Cost/Income of Mortgage owner NEGATIVE - %Household Cost/Income of a Renter NEGATIVE - Household's expenditure on Housing NEGATIVE - Construction - % New Dwellings/All dwellings in year 39 Regionální ekonomie a politika 1 muni ECON What to remember There appear to be links between Municipal spending on Housing and POSITIVE - Housing in National Budget POSITIVE - GDP per capita POSITIVE - %Household Cost/Income of Mortgage owner NEGATIVE - %Household Cost/Income of a Renter NEGATIVE - Household's expenditure on Housing NEGATIVE - Construction - % New Dwellings/All dwellings in year THESE NEED TO BE FURTHER PROVED 40 Regionální ekonomie a politika 1 muni ECON What to consider and do next MULTIPLE PHENOMENA NOT TAKEN INTO CONSIDERATION Ex. SYSTEM DIFFERENCES IN COUNTRIES - Only appear when conducting case studies Cluster Dendrogram s i E z 41 Regionální ekonomie a politika 1 s..: d d =■ hclust f* "averaae") muni EC0N What to consider and do next MULTIPLE PHENOMENA NOT TAKEN INTO CONSIDERATION Ex. IMPACT OF SPECULATION ON HOUSING MARKET - Let's find data on this and investigate! 42 Regionální ekonomie a politika 1 muni ECON What to consider and do next TOO LITTLE DATABASE let's extend it! - Data for multiple years available - time-series analysis to improve this paper's relevance in process Regionální ekonomie a politika 1 mu EC Literature 1. BASOLO. V., (2000). City Spending on Economic Development versus Affordable Housing: Does Inter-City Competition or Local Politics Drive Decisions?. Journal of Urban Affairs. Vol. 22, no. 3, pp. 317-332, DOI 10.1111/0735-2166.00059. 2. FEATHER. C, (2019), Municipal finance for housing: local government approaches to financing housing in cities. Commonwealth Journal of Local Governance, vol. 21, DOI 10.5130/cjlg.v0i21.6517. 3. Debrunner, G., Hartmann, T., (2020). Strategic use of land policy instruments for affordable housing - Coping with social challenges under scarce land conditions in Swiss cities. Land use policy, vol. 99. article no. 104993. DOI: 10.1016/j.landusepol.2020.104993. 4. DiGAETANO. A., STROM. E., (2003). Comparative Urban Governance: An Integrated Approach, Urban Affairs Review, vol. 38, no. 3, pp. 356 - 395, DOI 10.1177/1078087402238806. 5. HULCHANSKI, J.D., (2004). What factors shape Canadian Housing Policy?, Municipal-Federal Provincial Relations in Canada. Montreal & Kingston: McGill-Queen's University Press. ISBN 1-55339-016-4. 6. Kang, V, Groetelaers, DA., (2018). Regional governance and public accountability in planning for new housing: A new approach in South Holland, the Netherlands. ENVIRONMENT AND PLANNING C-POLITICS AND SPACE, vol. 36, no. 6, pp. 1027-1045. DOI: 10.1177/2399654417733748. 7. Lawson, J., Ruonavaara H., (2020), Land policy for affordable and inclusive housing An international review, RMIT University - University of Turku - Strategic Research - Academy of Finland, [online], [cit. 2021-02-13]. Available at: https://smartland.fi/wp-content/uploads/Land-policy-for-affordable-and-inclusive-housingan-international-review.pdf. 8. LEWIS, P.G., (2016). Offering Incentives for New Development: Te role of Social Status, Politics, and Local Growth Experience. Journal of Urban Affairs, vol. 24, no. 2, pp. 143-157, DOI 10.1111/1467-9906.00119. 9. OECD, (2020a). National Accounts of OECD Countries, General Government Accounts 2020. [online]. [23-4-2021] Available at: https://www.oecd-ilibrarv.org/economics/national-accounts-of-oecd-countries-general-government-accounts-2020 67c17a09-en. 10. OECD, (2020b). OECD Affordable Housing Database, [online]. [23-4-2021] Available at: https://www.oecd.org/housing/data/affordable-housing-database/. 11. Turner, MA., (2017). Beyond People Versus Place: A Place-Conscious Framework for Investing in Housing and Neighbourhoods. Housing Policy Debate, vol. 27, no. 2, pp. 306-314. DOI 10.1080/10511482.2016.1164739. muni Regionální ekonomie a politika 1 ECO MUNI ECON Thank you! A link between municipal spending on Housing and other factors explaining housing conditions in a country Author: Barbora Rakova MSc Date: August 2021 Contact: 321838@mail.muni.cz, +420 777 832 723 45 Regionální ekonomie a politika 1