Davor Njirić: Returning apartments in buildings to the housing stock is a realistic goal, but putting all vacant apartments on the market is not realistic

After Finance Minister Marko Primorac recently announced the basic guidelines for the new tax policy measures, this has become the number one topic, commented on by experts from various fields. Given that some measures of the new tax policy are simultaneously measures for the implementation of the National Housing Policy, announced by Minister Branko Bačić, and the new tourism policy announced by Minister Tonči Glavina, we asked former chief advisor to the Minister of Tourism, now consultant Davor Njirić, to comment on the announced new housing, tax, and tourism policies.

The preparation of the legal framework (several laws) with measures for the implementation of the National Housing Policy, which will be presented by the end of the year, will be the most important ‘hot topic’ this autumn. The preparation was initiated by Minister Branko Bačić with the announcement of the new housing policy, followed by the presentation of the proposal for the Law on the Management and Maintenance of Buildings. Ministers responsible for finance and tourism have announced reforms in their respective policies, which will include measures that will contribute to the implementation of the housing policy, which is the most important part of demographic policy. Namely, this is the first time these policies are being aligned, Njirić points out.

– From the terse statements of the ministers, it can be concluded that there is political will to change the unreasonable housing and tourism policies of all previous governments, which for years allowed and incentivized the apartmentization of buildings, destroying the housing stock to the detriment of young families who cannot afford an apartment, tenants who cannot live in peace, students who cannot afford an apartment, and quality tourism that is becoming mass – he says.

The country of apartments

Croatia has, in fact, become a country with the highest number of apartments in the structure of accommodation capacities, ‘the country of apartments’, ‘an eldorado for landlords’, and the only country in the world where entire buildings are being converted into apartments. We are the record holders!, Njirić states.

He says there are several key questions: What will be the goals of the housing policy? What measures will be prescribed in several laws as tools for its implementation? Which laws will be changed?

– When the National Housing Policy is adopted, its goals will be known. Now they can only be discerned from the short, sometimes contradictory, statements and measures contained in the proposal for the Law on the Management and Maintenance of Buildings. It is logical that the goal of the National Housing Policy should be reformist, to return all apartments in buildings to the housing stock, i.e., a return to the initial state. Unfortunately, from the proposal for the Law on the Management and Maintenance of Buildings, we can conclude that this is not the goal.

The goal is to significantly reduce the growth of new apartments in buildings, but not to return all existing apartments to the housing stock. The reduction in the growth of new apartments is intended to be achieved by the measure of ’80 percent consent of co-owners’, while existing apartments are not returned to the housing stock. These are not reformist but ‘cosmetic’ measures that cannot remedy the damage of the previous policy. This is a somewhat milder variant of the old harmful policy – says Njirić.

He adds that it is interesting that former Minister Brnjac transferred the responsibility for solving the problem of apartmentization of residential buildings to local self-government units through the Tourism Act, while now Minister Bačić is returning that responsibility to the state level, i.e., to the ministries responsible for housing, tourism, and tax policy. In other words, the measures to solve the problem of apartmentization of the housing stock will not be addressed by cities and municipalities but by the Government of the Republic of Croatia.

Minister Primorac presented the basic guidelines of a minor tax reform, primarily for the purpose of adopting measures for the realization of housing policy, such as: tax on unused (vacant) apartments, a new method of taxing short-term rentals of apartments as apartments and vacation homes that are rented short-term as holiday houses (villas). The goals of this tax reform are to put unused apartments into function and reduce the illogical large differences in taxes for short-term and long-term rental of real estate.

Balancing the tax on short-term and long-term rentals is a logical, or long-awaited change in tax policy. However, the introduction of a tax on vacant apartments is difficult to implement and unfair to their owners, who acquired the property legally by paying all taxes, and now would have to pay another. Other countries also have a problem with vacant apartments and houses, but it is not known that any has successfully solved this problem with a tax. In Athens, for example, there are 300 thousand vacant apartments, Njirić points out.

Many questions

The new higher tax on short-term rentals will not contribute to the de-apartmentization of residential buildings because it will not be a significant burden for landlords that they could not pay and earn more than long-term rentals, he believes.

It is unclear what will happen with the tax lump sum, i.e., whether it will be completely abolished or partially retained. It is not logical to abolish the lump sum even for social categories of family households that provide accommodation services in family homes with a smaller number of accommodation units. The tax lump sum should be retained for a capacity of at least 3 accommodation units, rooms, and/or studio apartments. It is necessary, namely, to reduce the existing maximum capacity of 10 accommodation units or 20 beds on the lump sum, but not to go to extremes, i.e., its complete abolition.

It is logical that for a weekend house (second home) that the owner uses for personal needs, they pay, let’s call it an affordable ‘luxury tax’, as before, while for a weekend house registered as a holiday home (villa), they pay tax on short-term rentals. Surely it will not happen that the tax on weekend houses is affordable only for foreigners and not for our citizens, so that even the few citizens who have them must sell them! The tax base on vacant apartments should be a demanding and expensive assessed value of the property, not as before a tax for weekend houses per square meter. This tax should have progressive rates, says Njirić.

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Davor Njirić

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– The primary goal of housing policy must be the de-apartmentization of buildings, i.e., the return of apartments in buildings to the housing stock. The ministries are dealing with estimating the number of vacant apartments, but not with estimating the number of apartments in multi-family buildings that must and can be returned to the housing stock. It is indisputable that we have lost more apartments due to apartments in buildings than we could manage to return to the housing stock through taxes.

Isn’t it absurd that instead of returning apartments to the housing stock, so that buildings are without apartments as they once were, the state protects landlords/renters, while taxing owners of vacant apartments forces them to sell or rent them long-term – he wonders.

– Remedying the damage to the housing stock from the apartmentization of buildings can only be solved by their de-apartmentization, i.e., a return to the initial state, and not through repressive tax policy. The primary goals of tax policy are filling the budget and redistributing the tax burden among different groups of taxpayers, depending on their financial status, for the purpose of implementing a fair social policy, and not forcing owners of vacant apartments to sell or rent them. Paying tax on vacant apartments to put them on the market must not be the goal of tax policy. The state can only put its properties: apartments, business premises, agricultural, construction land, and forest land on the market far more than it has done so far – says Njirić.

What about tourism?

Why doesn’t the state put large tourist zones of vacant non-prospective barracks on the market, which have been ‘dead capital’ for years (Tustica, Šepurine, Jasenovo, Konavoska Prevlaka, etc.)? Why is there no talk about a tax on unused agricultural land? Because it is difficult to implement. Why is there no talk about a tax on vacant devastated hotels from the time of privatization (Belvedere Hotel in Dubrovnik, Haludovo in Krk, Lipik Hotel in Lipik, etc.)? At least that is feasible, he points out.

Minister Primorac was not clear about what he means by the term ‘property tax’. Namely, properties are: weekend houses, vacant apartments, unused agricultural land, devastated hotels, and other business buildings out of function, etc. It is clear that the minister intends to increase the tax on weekend houses and introduce a tax on vacant apartments.

It is also expected that Minister Gravina will announce guidelines for the development of measures for the new tourism policy, which will primarily prevent the apartmentization of residential buildings. He only repeats that he advocates for sustainable tourism. The public is tired of ‘advocacy’, i.e., clichés and expects concrete measures of the new tourism policy. He announced that he is preparing changes to the law to define the terms ‘host’ and ‘household’ to distinguish hosts providing accommodation services in family homes through personal labor from landlords/renters who rent apartments in residential buildings. The abolition of ‘garage apartments’ is also expected. Why has this been prepared for more than three years?, Njirić says.

Return the buildings

For the new housing policy, it is not important what the tax policy will be, it will be what it will be, it is important to return apartments from buildings to the housing stock, so that there are no more apartments in them, he adds. The goal of returning apartments in buildings to the housing stock is a realistic goal, while the goal of putting as many of the supposedly 600 thousand vacant apartments on the market is not a realistic goal.

De-apartmentization of buildings is the most effective measure of housing policy, which can be implemented by a Government Regulation with the force of law. For this, three decisions are needed: Decisions on the approval of providing hospitality services in buildings have a five-year term (all permits must have a term). Further issuance of Decisions is stopped. Within five years, de-apartmentization will be carried out, so that there are no more apartments in buildings. Such a Regulation is based on the provisions of the Law on Ownership and Other Real Rights, which protects (co)ownership rights, on the provisions of Articles 34 and 35 of the Constitution, which protect the right of tenants to a peaceful family life, and paragraph 5 of Article 90 which allows for individual legal provisions to have retroactive effect if there is a justified reason, and Article 8 of the Convention for the Protection of Human Rights and Fundamental Freedoms (the right to home, rest, and night peace).

It is indisputable that there is political will to implement housing policy reform, which should be welcomed. However, this is not enough; courage is also needed – “a loop”. Time will tell if we have it – concludes Njirić.