Political Promises on Housing Policy: What is Realistic and What is Unachievable?

Parliamentary elections are just around the corner, and one topic continues to be debated. Although the state has made certain tax reliefs for citizens and businesses, there is also room for property taxation – a sensitive issue when discussing policy implementation. This primarily concerns real estate, which, apart from partial taxes, has not been significantly affected. So far, likely due to a lack of political will, no consensus has been reached regarding the model and method of real estate taxation.

However, one possibility emerged a few months ago. Namely, a property tax could be introduced instead of a utility fee and would affect almost all properties in the country, of which 600,000 are residential and unused. This move would be the first phase of full property taxation in the country.

– Croatia has been under pressure for a long time to introduce a property tax, as we are one of the few countries in the EU and beyond that does not have it. If you remember, we introduced it and then withdrew it. Politically, the introduction of this tax is very unpopular in a country where more than 90 percent of citizens own at least one property, where most investments are made in real estate, and where other taxes are high. This means that any government that introduces it will not be popular.

Its introduction would certainly have a stimulating effect in several ways: it would ‘activate’ properties that were purchased to maintain the value of money (owners with excess funds who do not know where else to invest), as well as those that are neglected, abandoned, and whose owners do not know what to do with them – says Lana Mihaljinac Knežević, director of the real estate agency Zagreb West.

However, to conduct a mass assessment of properties, which would make their taxation fair, a much better and higher quality sample is needed on the basis of which properties could be assessed. The available databases do not take into account and do not record some of the key variables that determine the actual value of a property, Mihaljinac Knežević added, such as age, condition of the premises, and so on. The tax, she believes, should be progressive concerning the number of properties and should exclude from taxation properties that are already taxed by some other tax. Additionally, the tax should be balanced with tax relief on labor and other bases of taxation.

Unaffordable Housing

Political parties have touched on housing, but more as demographic measures and the need to address this issue due to high prices. They have dedicated much more time to taxes, especially on real estate, but also existing ones, such as the real estate transfer tax or the tax on tourist rentals.

HDZ has announced the adoption of a housing strategy. In it, as one of four measures, there should also be a correction of existing taxes, primarily for the purchase of the first property, which was abolished for a time but has been reinstated due to the lack of a more comprehensive tax policy regarding property. HDZ also announces a reduction in the real estate transfer tax, which is currently three percent of the purchase price of the property.

– Housing policy is a very complex concept that should encompass detailed analyses and take into account economic, fiscal, and tax variables. The reintroduction of tax relief for the purchase of the first property is an excellent measure. In the profession, we have never understood why it was abolished.

The market would be stimulated by a lower real estate transfer tax, but the transfer tax is one of the smallest items when purchasing. Variables such as interest rates, renovation costs, etc., have a much greater impact – added Mihaljinac Knežević.

SDP and their ‘Plan for Housing’ plan to provide young people with affordable housing through various models such as long-term leases and sales of ‘socially affordable apartments’, and they also want to create a special fund for the construction and renovation of apartments with a plan to build 15,000 apartments in six years. They have not yet explained the implementation of this plan.

Mihaljinac Knežević believes it is unrealistic to expect that states or cities will be able to completely eliminate the problem of unaffordable housing, but ‘they should at least try’. It may be utopian to expect that they will be able to provide quality housing for all those who need it, but meeting one of the basic human needs, which is a roof over one’s head, should be on the radar of those who govern states and cities. The most important thing would be to release as many apartments onto the market as possible, as one of the fundamental problems is that there is not enough supply, she added.

– There is the example of the city of Vienna, which is consistently at the top regarding housing policy, where about 60 percent of the urban population lives in city or subsidized apartments where the rent price and the quality of housing are controlled. Of course, there is a limited income level that individuals interested in this type of subsidized apartments must meet.

Additionally, in Vienna, there is a model of subsidized construction in collaboration with private developers where the focus is on creating housing supply through a land purchase fund in Vienna that is reserved only for social housing, allowing the citizens of Vienna affordable and sustainable housing – said Karlo Jurić, an analyst in the Valuation and Consulting Department at Colliers.

‘Tourism Contributes to the Devastation of Cities in Various Ways’

The Možemo party has also dedicated a good part of its program to housing, but in a quite different way. They mention limiting apartment prices, as well as the possibilities of daily rentals. Dubrovnik and Split have already made decisions to ban the ‘conversion’ of existing apartments into tourist apartments, and Možemo seems to want to stop further apartmentization throughout Croatia. They also want to introduce a property tax, or ‘on excess residential wealth’.

This would tax the third and every subsequent property, leaving room for citizens to have weekend homes, but also at least one apartment or house for rent. They would also expand the circle of taxpayers for the income tax on the transfer of real estate, which is charged upon the transfer of four or more identical properties at a rate of 20 percent. Only those who sell the property in which they lived would be exempt from it. Young people buying their first properties would be exempt from paying taxes, and legal entities would also have to pay taxes on vacant properties.

– Tax exemption for the purchase of the first property is always a stimulating measure, available to everyone. We had such a measure, and we abolished it, who knows why. I am glad that most political options think of returning it, but it must be well defined and later well implemented.

Many cities and countries with developed tourism activities have introduced quotas and restrictions on apartmentization; I agree with such measures if they are well analyzed and researched. Tourism contributes to the devastation of cities and the unaffordability of housing in various ways. But for such measures to have a real effect, it is necessary for citizens engaged in renting to have an alternative for earning – believes Mihaljinac Knežević.

Increasing Supply, Affordability, and Transparency

On the other hand, the Homeland Movement wants to abolish all taxes, while Most wants to abolish the tax on the first property and revise the rental tax. We could not get comments from real estate experts we spoke with regarding their proposals, but the executive director of Imperium Immobiliarea, Filip Brkan, in a conversation with dnevno.hr, called most of the measures populist, adding that the market situation has been best felt by President Milanović and Možemo.

– The ultimate goal of any tax policy in the context of the housing market should be aimed at increasing supply, affordability, and transparency, while not increasing or reducing the overall tax burden on citizens. The introduction of a property tax requires careful planning, and in the case of its introduction, the income tax should be reduced to avoid a double reduction in the economic strength of taxpayers – both through property tax and income tax.

Furthermore, the first property, or the one in which the owner lives, should be exempt from property tax to facilitate the acquisition of the first property and avoid increasing social inequality. On the other hand, taxing each subsequent acquired residential property could encourage the activation of unused housing stock, as the owner would have the motivation to generate income from the property at least equal to the amount of tax. This could increase the availability of housing units for rent or sale and reduce the imbalance between supply and demand – concluded Anita Grbavac, an analyst in the Valuation and Consulting Department at Colliers.