**4. Institutions and economic tools to support housing**

The present condition of housing in Slovakia is the result of complicated historical development. Before 1989 the whole system of housing construction development unwound from the system of planned management of the national economy, which meant the state share in complex housing construction is almost in the whole range. After the year 1990, the responsibility for the financing of housing moved from the state to citizens in Slovakia.

In the Slovak Republic, the system of tools for the support of housing was realized in the form of direct or indirect support.

**1.** The direct state support:

interest to provide the help just for those who need it and cannot solve their difficult situation themselves. In the field of housing, the state help is oriented just to low-income and handicapped groups. Financing of housing is through private sources, and public ones are

*The fourth*, the theoretically determined type of housing policy, is derived from the so-called rudimentary welfare state, whose social policy in the broadest sense of the word is not developed, so the state provides for citizens just a rescue social net. This approach is usually also related to the conception of housing policy, which means that any care for housing is left on a citizen and the state is involved minimally. The examples of this approach are more likely

The harmony between housing (the real estate market) and working opportunities (the labour market) became an essential part of public policy of the state and self-government. There are several reasons why the availability of housing is still related to the availability of working

• the improvement in the quality of life for a better approach to work, education and services,

As Cervero [4] presents, the response to this discrepancy might be so-called the job and housing balance policy. He proceeds from a general condition that the ratio between work opportunities and flats leads to a higher efficacy, equality, quality of life and environmental sustainability. However, the measures of housing and work balance policy do not have apparently a housing character but vice versa; they function in cooperation with other policies,

According to Krcmar and Rychtarik [5], the analysis of housing affordability in Slovakia can be done on the background of economic and financial cycle. Even if the time series for Slovakia is too short, the available data do suggest a positive correlation between the changes in the real GDP and the flow of loans. On this background housing affordability appears to move against the cycle. In the booming times of 2007 until the first half of 2008, when the GDP growth as well as the lending market reached its historical maxima, average housing became unaffordable for average families. This can be explained by soaring property prices that outperformed growing disposable incomes of households. As the growth of income levels could not keep the pace of the one of the housing market, the lending activity accelerated even more

• request by companies for workers accommodated in close surroundings,

• solution of problems with transport (high travel fares),

• more effective utilisation of land resources and so on.

especially of social protection, labour market and transport policy.

provided partially. In the EU the examples are mainly England and Ireland.

agrarian countries, such as Portugal or Greece.

**3. Housing affordability**

• protection of environment,

opportunities:

24 Housing

	- bank guarantee for the renewal of blocks of flats for the loan provided by the state housing development fund (hereinafter SFRB),
	- state subsidy for young, the height of which is determined by the state each year in the Act on the state budget—the Ministry of Finance of the Slovak Republic (hereinafter MF SR),
	- state premium to building savings, the height of which is determined by MF SR; the process of determination of percentage height of the state premium is automated and unwinds from the formula, which is defined in the Act on Building Savings (**Figure 1**).

It might be said that the state created a particular (some) system of supportive tools for the development of housing differentiated according to the income structure of households.

sum for the financing of housing is repaid by the Bratislava people. The average height of provided mortgage to inhabitants in the Bratislava region (in 2017) was 95,874 Euros and the

Housing Policy in the Slovak Republic http://dx.doi.org/10.5772/intechopen.78611 27

It is necessary to emphasize that the key factor of development of the real estate market from the view of development of new financial tools in the field of legal entities as also in a retail area was the entrance of foreign investors into the Slovak financial market. The priority financing by commercial banks becomes investment credits oriented mainly to flat construction. A new form of financing of housing gradually became also project financing, investment financing of legal entities in combination with mortgages and purpose-tailored building credits. The

Taxes and subsidies are mutually closely related and might induce the demand for housing. The developed countries consider housing and real estate a significant source of income for the state budget (especially the real estate tax), which is also one of the reasons why they support the development of housing. Tax relief plays a vital role in the development of housing construction in the world, which encourages the participation of the private sector in the development of housing construction, and so they replace direct state intervention. The provision of tax relief is easier and simpler to be managed as a subsidy, because their implementation does not require the creation of new institutions, as the tax offices already exist. Besides that, the tax relief is not too frequently re-evaluated and changed. It makes their acting more stable and more long term than the utilization of other tools of housing

A unique possibility from the view of tax relief in Slovakia is the exemption from the property sale tax after 5 years since the day of acquisition or its elimination from commercial property

**Figure 2.** The trend of housing credits in Slovakia. *Source*: own processing by the National Bank of Slovakia [7].

average height of their monthly instalment is 403 Euros [6].

trend of housing credits in Slovakia is presented in **Figure 2**.

**4.2. Taxation policy**

policy.

**Figure 1.** Institutions providing public and private sources of financing in Slovakia.

*The particular category from the view of financing is rental flats determined for social housin*g, which present flats procured with public sources. They are determined for adequate housing of natural entities, who cannot gain housing by their own efforts. The applicants for such a flat have to fulfil the conditions, which are defined by the Act on Subsidies for the Development of Housing and Social Housing No 443/2010 Coll. as amended.

Public sources for the support of social housing might be provided mainly as:


#### **4.1. Credits for housing**

Important factors which distinctly contribute to the dynamisation of the real estate market in Slovakia are accessibility of credit sources and low interest rate. The volume of new credits for housing presents the in long term a crucial part of the overall volume of drawn credits by households. But the aim of new credits for housing is not a priority investment to a purchase of new real estate but also renewal and modernization including the insulation of existing residential buildings as well as the refinancing of older and unfavourable credits. The highest sum for the financing of housing is repaid by the Bratislava people. The average height of provided mortgage to inhabitants in the Bratislava region (in 2017) was 95,874 Euros and the average height of their monthly instalment is 403 Euros [6].

It is necessary to emphasize that the key factor of development of the real estate market from the view of development of new financial tools in the field of legal entities as also in a retail area was the entrance of foreign investors into the Slovak financial market. The priority financing by commercial banks becomes investment credits oriented mainly to flat construction. A new form of financing of housing gradually became also project financing, investment financing of legal entities in combination with mortgages and purpose-tailored building credits. The trend of housing credits in Slovakia is presented in **Figure 2**.

## **4.2. Taxation policy**

*The particular category from the view of financing is rental flats determined for social housin*g, which present flats procured with public sources. They are determined for adequate housing of natural entities, who cannot gain housing by their own efforts. The applicants for such a flat have to fulfil the conditions, which are defined by the Act on Subsidies for the Development

• irrecoverable contributions for operation of a building, in which social housing is provided.

Important factors which distinctly contribute to the dynamisation of the real estate market in Slovakia are accessibility of credit sources and low interest rate. The volume of new credits for housing presents the in long term a crucial part of the overall volume of drawn credits by households. But the aim of new credits for housing is not a priority investment to a purchase of new real estate but also renewal and modernization including the insulation of existing residential buildings as well as the refinancing of older and unfavourable credits. The highest

of Housing and Social Housing No 443/2010 Coll. as amended.

**Figure 1.** Institutions providing public and private sources of financing in Slovakia.

• irrecoverable contributions lowering the cost related to housing,

• subsidies for procurement of housing,

**4.1. Credits for housing**

26 Housing

• advantageous loans for procurement of housing,

Public sources for the support of social housing might be provided mainly as:

Taxes and subsidies are mutually closely related and might induce the demand for housing. The developed countries consider housing and real estate a significant source of income for the state budget (especially the real estate tax), which is also one of the reasons why they support the development of housing. Tax relief plays a vital role in the development of housing construction in the world, which encourages the participation of the private sector in the development of housing construction, and so they replace direct state intervention. The provision of tax relief is easier and simpler to be managed as a subsidy, because their implementation does not require the creation of new institutions, as the tax offices already exist. Besides that, the tax relief is not too frequently re-evaluated and changed. It makes their acting more stable and more long term than the utilization of other tools of housing policy.

A unique possibility from the view of tax relief in Slovakia is the exemption from the property sale tax after 5 years since the day of acquisition or its elimination from commercial property

**Figure 2.** The trend of housing credits in Slovakia. *Source*: own processing by the National Bank of Slovakia [7].

in the wording of valid legislature (the Act on Income as amended). The relief is related just to the first owner or his close person according to the Civil Code.

Lowered rates for social housing are applied in Belgium, the Czech Republic, Spain, France, Ireland, Italy, Hungary (since 1 Jan 2016), Poland, Portugal, Romania, Slovenia and Great

Housing Policy in the Slovak Republic http://dx.doi.org/10.5772/intechopen.78611 29

As Sutovska [9] presents, these lowered rates in the member states are applied just in case of fulfilment of other specific conditions determined in the domestic regulations. In Hungary the lowered VAT rate of 5% is valid just for social housing, where the floor area is lower than

Even the European Union requires from the member states the implementation of housing policy to the higher VAT rate; some countries rank housing construction for socially weak layers into a lower VAT rate. These countries realise that based on the lower or zero VAT rate for the construction of small-area flats of common standard, the availability of housing might be increased. The stated possibility is not allowed by the present legislative in the Slovak

Much more attention is paid to the development of real estate prices, namely due to the need to investigate their influence on price stability in the Eurozone. Recently as a distinctly differentiated development, there might be considered the development of prices of particular types of real estate determined for living not only in Slovakia, but also in the particular EU member states. The development of real estate prices determined for living from the view of currency stability has a substantial impact on the economic activity and changes of prices as a whole. The growth of flat prices contributes to the increase of economic activity not only via the growth of investments into housing but also by increase in household consumption through effects of ownership related to assessing real estate determined for housing. But the intensity of these effects differs distinctly in various countries and depends on the extent of private ownership of houses and flats. On the other hand a possible decline of prices of real estate prices determined for living presents a risk for the stability of the bank system with serious macroeconomic impacts as from the view of financial stability, the immovable asset is

Demand for housing is significantly higher in those areas of Slovakia which provide more job opportunities, which can be based on economic and social parameters, considered as more advanced. For example, due to the currently implemented mega-investment Jaguar Land Rover in Slovakia, the pressure on prices of flats in the region of Nitra has increased. The arrival of the new investor makes the surrounding of Nitra a lucrative locality which greatly contributed to an increase of apartment prices to about 10–15%, in some cases up to 20% in

Average prices of real estate for housing in the Slovak Republic are in the long term determined mainly by flat prices, as in the market with housing just the offer of flats represents two-thirds from the overall offer of real estate for housing. More than 80% from all realised

. Otherwise the basic VAT rate of 27% is applied.

Britain.

150 m<sup>2</sup>

Republic.

**5. Housing prices in Slovakia**

one of the main forms of collaterals of credit resources.

comparison, towards the end of 2015.

The tax reform in Slovakia implemented equal tax since 2005, lowering of tax burden and simplification of the tax system, which also stimulated the entry of foreign investors. This reform prefers provision of subsidies, the effect of which seems to be predictable for reform creators. The reform cancelled almost all types of tax relief and at the same time provided minimum space for their sufficient implementation, because it would mean the lowering of the income side of the state budget. Therefore, it limits also the possibilities of implementation of tax relief as a supportive tool of housing policy.

A controversial point of tax reform in Slovakia was the implementation of the unified VAT rate [8], which besides other important commodities also overprices flats, subsequently leading to the lowered accessibility of housing for lower-income groups of inhabitants. However, the majority of the EU countries have kept lower VAT (see **Table 1**).

*Source*: VAT rates applied in the member states of the European Union, 2016—taxud.c.1, taken from Sutovska [9].

In **Table 1**, we show the overview of rates in the EU member states in two categories, where "ex" means exemption from taxation and "N/A" means not applied lowered rates.

From **Table 1**, we understand that lowered VAT rates for social housing and reconstruction and repair of private flats are applied just in the national legislative of some member states.


**Table 1.** Overview of VAT in EU member states for selected categories.

Lowered rates for social housing are applied in Belgium, the Czech Republic, Spain, France, Ireland, Italy, Hungary (since 1 Jan 2016), Poland, Portugal, Romania, Slovenia and Great Britain.

As Sutovska [9] presents, these lowered rates in the member states are applied just in case of fulfilment of other specific conditions determined in the domestic regulations. In Hungary the lowered VAT rate of 5% is valid just for social housing, where the floor area is lower than 150 m<sup>2</sup> . Otherwise the basic VAT rate of 27% is applied.

Even the European Union requires from the member states the implementation of housing policy to the higher VAT rate; some countries rank housing construction for socially weak layers into a lower VAT rate. These countries realise that based on the lower or zero VAT rate for the construction of small-area flats of common standard, the availability of housing might be increased. The stated possibility is not allowed by the present legislative in the Slovak Republic.
