**5. Housing prices in Slovakia**

in the wording of valid legislature (the Act on Income as amended). The relief is related just

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

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,

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

In **Table 1**, we show the overview of rates in the EU member states in two categories, where

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.

"ex" means exemption from taxation and "N/A" means not applied lowered rates.

to the first owner or his close person according to the Civil Code.

the majority of the EU countries have kept lower VAT (see **Table 1**).

of tax relief as a supportive tool of housing policy.

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

from Sutovska [9].

28 Housing

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 one of the main forms of collaterals of credit resources.

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 comparison, towards the end of 2015.

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

which cannot exceed triple of life subsistence by 31 Dec of the previous calendar year, and

Housing Policy in the Slovak Republic http://dx.doi.org/10.5772/intechopen.78611 31

• Contrary to western countries, in Slovakia, at the beginning of 1990s, "a massive privatisation of flats" took place. Consequently within a few years, originally state flats or cooperative flats turned into flats under private ownership (as their original "tenants" bought them

• This situation did not happen in western countries, and the real estate market went its natural way; this is also the reason why the share of rental housing in Slovakia is signifi-

The difference between Slovakia and countries, where rental housing is presented with a high

• In the Slovak Republic, it is prevailingly assessed as "social housing" for socially weaker

• In countries, where housing is presented with a high percentage, rental housing is determined for all layers of the society and not only for that one with a lower social standard. • A majority of inhabitants solve the question of housing mainly with the purchase of a flat into private ownership, while it is a life-long investment with mortgage burden for many

Housing in rental flats is under the conditions of the Slovak Republic, contrary to foreign countries, where it is still understood as "the assessment of a social status" of a dweller and is prevailingly also assessed as "social housing" for the socially weaker class of inhabitants. On the other hand, in the countries where rental housing is represented by high-volume flats,

Currently there is only one type of rental housing supported by the state for the socially disadvantaged. Subsidies for rental housing, subsidies for the construction of technical infrastructure and loans from the State Housing Development Fund are public sources of funding which are currently the most utilised and also the most preferred. Other funding opportunities are own resources of towns, villages and commercial loans. Their availability for municipal entities is limited in terms of higher interest rates and limiting factors for spending commercial loans in terms of the Financial Regulation, which municipal entities must comply with. It should be noted (based on the Law of the Financial Regulation of towns and villages) that the loans from the State Housing Fund are not added to loan indebtedness of the given municipal subject (unlike commercial loans, which are added

at the same time the applicant cannot be an owner of any real estate).

cantly lower than in several countries of the European Union.

**6.1. Sources of funding for municipal rental housing in Slovakia**

A severe argument for the lack of rental flats is:

for residual value).

percentage, is that:

years.

to debt).

layers of inhabitants.

they are available for all social classes [10].

**Figure 3.** The trend of housing prices in Slovakia: residential property prices by the types of flats and houses. *Source*: own processing by the National Bank of Slovakia [7].

transactions in the residential market are flats. The average price of a square meter of a flat is kept during the last years minimally 10% over the reported overall price of real estate for housing in the Slovak Republic. **Figure 3** presents residential property prices by the types of flats and houses.

## **6. Public rental housing**

Availability of tenement, contrary to home ownership, is limited in Slovakia. The reason, besides its lack, is also high rent. Thus, this fact might be considered as one of the important reasons as to why the share of rental housing in Slovakia is significantly lower than in several countries of the European Union. On the other hand, we might assume that those who finance housing through mortgages are not to be able to repay them and they will lose their existing housing. In a horizon of several years a new group of people will originate, who will have problems with the availability of housing not only due to difficulties to get mortgage but also due to quite high rents in bigger towns (e.g., Bratislava, Košice, Banská Bystrica and Žilina, where the prices of rents remain high for a long time, at present at the level of repayments). Rental flats in Slovakia are possible to be divided into two groups:


which cannot exceed triple of life subsistence by 31 Dec of the previous calendar year, and at the same time the applicant cannot be an owner of any real estate).

A severe argument for the lack of rental flats is:

transactions in the residential market are flats. The average price of a square meter of a flat is kept during the last years minimally 10% over the reported overall price of real estate for housing in the Slovak Republic. **Figure 3** presents residential property prices by the types of

**Figure 3.** The trend of housing prices in Slovakia: residential property prices by the types of flats and houses. *Source*: own

Availability of tenement, contrary to home ownership, is limited in Slovakia. The reason, besides its lack, is also high rent. Thus, this fact might be considered as one of the important reasons as to why the share of rental housing in Slovakia is significantly lower than in several countries of the European Union. On the other hand, we might assume that those who finance housing through mortgages are not to be able to repay them and they will lose their existing housing. In a horizon of several years a new group of people will originate, who will have problems with the availability of housing not only due to difficulties to get mortgage but also due to quite high rents in bigger towns (e.g., Bratislava, Košice, Banská Bystrica and Žilina, where the prices of rents remain high for a long time, at present at the level of repayments).

• Flats built before 2000 which were initially state rental flats and in the 1990s they moved to

• Flats whose construction since 2000 has been covered by villages and towns and they are financed from the Programme for Housing Development. These flats have to keep the rental character for at least 30 years and their tenants can be households with income to "a certain fixed height" (to the general conditions there belongs the income of an applicant

Rental flats in Slovakia are possible to be divided into two groups:

the ownership of towns and villages.

flats and houses.

30 Housing

**6. Public rental housing**

processing by the National Bank of Slovakia [7].


The difference between Slovakia and countries, where rental housing is presented with a high percentage, is that:


Housing in rental flats is under the conditions of the Slovak Republic, contrary to foreign countries, where it is still understood as "the assessment of a social status" of a dweller and is prevailingly also assessed as "social housing" for the socially weaker class of inhabitants. On the other hand, in the countries where rental housing is represented by high-volume flats, they are available for all social classes [10].

#### **6.1. Sources of funding for municipal rental housing in Slovakia**

Currently there is only one type of rental housing supported by the state for the socially disadvantaged. Subsidies for rental housing, subsidies for the construction of technical infrastructure and loans from the State Housing Development Fund are public sources of funding which are currently the most utilised and also the most preferred. Other funding opportunities are own resources of towns, villages and commercial loans. Their availability for municipal entities is limited in terms of higher interest rates and limiting factors for spending commercial loans in terms of the Financial Regulation, which municipal entities must comply with. It should be noted (based on the Law of the Financial Regulation of towns and villages) that the loans from the State Housing Fund are not added to loan indebtedness of the given municipal subject (unlike commercial loans, which are added to debt).

#### **6.2. Donation and loan policy in the rental housing**

Public funding sources, which are currently provided for the development of the construction of rental apartments, have two forms—subsidies and "cheap" loans from the State Housing Development Fund. It should be noted that in terms of economic theory, direct subsidies are considered as one of the least efficient housing policy instruments and should therefore be used only where the market is unable to provide the needs of certain groups in the construction or reconstruction of housing fund, which is a source of serious problems.

diversify the supply of housing—not only at the level of different types of ownership and usage but also diversity in the supply cost to provide housing. The reason is particularly the availability of quality housing, which will proportionally correspond with the financial resources of households. Also, instant availability of housing for employees is an essential condition for the development of a dynamic labour market—the development of employment

Housing Policy in the Slovak Republic http://dx.doi.org/10.5772/intechopen.78611 33

In Slovakia, the real estate market is characterised by a high proportion of owner-occupied real estates and almost non-existent rental housing. Moving for work is therefore complicated because of the lack of availability of rental housing. The current structure of the housing market is largely due to historical development —both in the development before 1989 and in the lack of adaptation of the housing sector to the new conditions in recent decades. After the change of the political system in 1990, the transformation process began, which also included the privatisation process. Part of the privatisation process in 1992 was the introduction of the right to redeem the property for tenants in state apartments at very reasonable prices (apartments were redeemed into private property at prices that correspond to 5% of their market value), resulting in a change in the ownership structure. A large proportion of public rental housing was subsequently purchased by tenants into the private sector. For example, in Bratislava, the share of private housing increased from 12% in 1992 to 70% in 1998. The high occupation of flats, the rise of prices and rents, geographic differentiation of wages and so on lead to the reduced labour mobility [13]. While the historical development has helped to shape the current structure of housing, housing support policy helps to preserve this structure and thus contributes to the slower development of rental housing. At present, most public expenditure spent on housing support is used for the subsidy of owner-occupied housing. Cheaper financing of owner-occupied housing has a direct impact on the entire housing market. Subsidised owner-occupied housing is financially more attractive and more accessible than rental housing. This promotes the demand for owner-occupied housing at the expense of rental housing. The market reacts to a lower demand for rental housing with lower investments for the creation of new rental housing, which leads to a slower development of

Flexible labour market enables workers in the better choice of employment and the efficient allocation of labour among companies. In Slovakia, one of the obstacles of labour mobility in the labour market is low regional mobility. Comparing internationally, Slovaks move for work much less than people in neighbouring EU countries. One of the factors that may negatively influence this condition of the labour market is the housing market. Low mobility on the labour market has a negative impact on economic growth. Regional unemployment is rising while jobs remain unoccupied. The low labour mobility also reflects regional differences in unemployment rates. It leads to inefficient use and allocation of human resources. People are forced to refuse job opportunities in other regions, where they could generate more economic value and thus earn more money. Higher unemployment and limiting productivity growth are associated with lower GDP and lower living standards. Labour mobility involves changes in the physical location of workers (geographical mobility) or their movement across jobs and sectors (occupational mobility). Two main types of internal labour mobility are in the centre of attention—internal migration and commuting. Migration is usually associated

is blocked by the lack of housing.

this segment of market.

*Subsidy* (*donation*): they are subsidies for rental flats and the construction of technical infrastructure. According to the legislation, applicants can be only municipalities, respectively boroughs. This means that applicants for grants cannot be housing organisations that would be interested in rental housing for low-income groups.

*Government loans*: they are provided by the State Housing Development Fund and are considered as "cheap loans" because their interest rate is at 1.0%, with a repayment within 40 years, and the maximum loan amount per dwelling is 60,000 EUR [11].

However, the reality is that for the loan from the State Housing Development Fund as well as different types of subsidies for the development of housing services provided by the Ministry of Transport and Construction of the Slovak Republic, there is no legal entitlement and its provision and purposive fullness is set by strict conditions in the relevant law.

*Donations for housing* are one of the claims in the provision of assistance in the material need to cover housing costs. The height of the contribution for housing is [12]:

