The polish government, as well as other governments in the region, should support the construction of affordable housing with the demographically appropriate size, location and finishing standard.

Poland, like most countries in Central and Eastern Europe, has been struggling with the same housing problems for many decades. There is a shortage of affordable flats and houses; especially more spacious homes that are suitable for larger families.
The rental market is underdeveloped – in smaller towns it is impossible to rent anything, and the few available listings are so exorbitantly priced that even people with average income cannot afford them. In big cities, there are more offers, but due to high prices and the risk of quick termination by the landlord, renting is not a viable alternative to ownership. As a result, flats are overcrowded, often in poor technical condition, and young people continue to live with their parents for many years after reaching adulthood. As a result, Poles are increasingly frustrated with their housing situation.

Past Experiences

During the systemic transformation, private ownership was supposed to be the panacea for everything, including the housing situation. Towards the end of communism, the state had virtually no money for anything, and renovating the deteriorating municipal and cooperative housing stock was low on the list of priorities; construction of new properties was even further down. Private ownership was supposed to encourage citizens to voluntarily spend money on both. At least in theory, after being granted property rights, flat users were supposed to have an incentive to renovate their properties, and the rapid rise in nominal property prices that accompanied inflation was supposed to generate an automatic increase in wealth. As a result, new flat owners were supposed to get rich and spend this money on consumption, bolstering the young capitalist economy. Private ownership was also supposed to encourage those who already had savings to invest in the construction of new buildings.
And yet, economic reality stubbornly refused to follow the path set out in macroeconomics textbooks. During the 1990s, housing construction practically froze and the technical condition of existing flats continued to deteriorate. The reason for this was a shortage of capital. Inflation and recession had drained domestic savings, and large streams of foreign capital were not yet flowing into Poland. The few investors who had enough money to potentially build housing estates preferred to use their funds to buy failing factories or build new ones. Returns on such investments were greater and quicker. In addition, construction of multi -family homes in the 1990s was high-risk; building materials were of lower quality than in the communist era, builders had no experience in technologies other than prefab, and the law was very volatile. As a result, investing in construction that would take several years, when small entrepreneurs were getting a new Polonez car in a matter of a few quarters, was a decision made only by enthusiasts.
Despite that, rapidly rotating governments were unable to change course. Privatisation of municipal and cooperative housing was progressing, and alternatives such as subsidised social housing, although very popular with the population, quickly died under the axes of successive finance ministers, who had to rescue unbalanced state budgets. In the 2002 census, only 6.5 million of 11.8 million inhabited flats were owned by individuals. Municipal stock amounted to 1.4 million properties – admittedly less than at the end of the transition period (in 1995, municipalities owned over 1.5 million properties), but still enough to consider the state an active participant in the housing market, especially since the State Treasury had an additional 204,000 flats at its disposal. In addition, more than 1 million flats were cooperative tenant flats and another 0.3 million company-owned flats. Over the next two decades, 3.4 million new flats were built in Poland, and the number of those in the hands of individuals increased by as many as 5 million, reaching a record 11.5 million flats and homes. Another 2 million-plus were new and privatised cooperative member-owned flats. As a result, in 2021, as many as 86.8 per cent of Poles declared that they owned their place of residence. This was the fifth highest result in the entire European Union, far higher than in Spain (75.8 per cent), Ireland (70 per cent), France (64.7 per cent) or Germany (49.5 per cent).

Housing Dreams

This begs the question of how, despite such a rapid increase in the number of owner-occupied properties, purchasing a new home in 2023 remains a pipe dream for most of the population, not to mention why the overcrowding rate is the fourth highest in the EU, the wait for social housing lasts months and there are not enough properties relative to the needs of households, the number of which has, after all, declined by as much as 0.8 million during this time?
There are many reasons for such a state of affairs, as the housing market is a very complex part of the economy, affected simultaneously by economic, demographic, institutional and even cultural factors. Therefore, contrary to regularly repeated populist claims, there is no clear-cut culprit such as banks, investors, the government or developers.
I would, however, indicate three structural factors that further entrench existing problems in the Polish housing sector. First, demographic processes. Just as in the interwar period, Poland's largest cities and their suburbs are struggling with a constant influx of people from smaller towns, rural areas and even from abroad. This means that housing in cities is still in short supply, while in the countryside more and more houses are standing empty.
As the last census data revealed, one in eight residential properties in rural areas is unoccupied – the highest percentage of all types of municipalities. Additionally, large city centres are inhabited by the ageing segment of the population, and the value of properties they occupy is over 100 times higher than their disposable income with no associated benefits; frequently, they don’t even have the means to make the necessary renovations.
This stems from the second, cultural factor determining the shape of the Polish real estate market, i.e. housing being treated as a family heirloom. Unlike the Germans, French or British, Poles often are not aware of the actual value of their property, and the dwellings they inhabit have never been traded on the market. What is more, in many cases they are not even interested in knowing.
This is because flats, not to mention houses and inherited property, are treated like the family silver – an asset to be disposed of as a last resort, in the event of war or financial crisis, and its primary value is symbolic, linked to the possibility of passing the property on to future generations. Because of this, to date no government has dared to introduce a cadastral tax in Poland, and the price elasticity of housing supply on the secondary market is very low. This is because, as the price increases, the number of sellers does not increase concurrently; actually, what increases is often the number of buyers, who fear that soon they may not be able to afford their own flat at all. This is the opposite behaviour of that observed on other asset markets, such as for shares or bonds.

Who Is Driving up Prices?

Treating a flat as a family heirloom also distorts the rental market. Poles either do not want to rent the flats they own, or they rent them temporarily until they are needed by a family member, and the tenants are not allowed to interfere with the interior design in even the slightest way. This reduces the tenants' sense of security and as a result, Poles do not consider renting a flat as a serious, long-term alternative to buying.
Thus, a vicious circle is formed, perpetuating the view that real estate is a family resource and that an owned flat is the only place to light the proverbial hearth and start having children. This phenomenon is exacerbated by the meagre supply of institutional rentals, i.e. flats for rent offered by specialised companies. These, in turn, are afraid to invest because of the unfavourable legal conditions and historically conditioned resentment of the public towards owners of large numbers of flats. Many people fear that development of institutional rental would deprive them of the opportunity to buy flats and that rents would only go up. Such fears are unfounded. Poles should be much more concerned about individual property investors who periodically drive up prices.
This is because the third problem on the Polish housing market is growing wealth inequality. Exact statistics are not available, but circumstantial evidence suggests that there is a systematically increasing group of people who own more than one property, with a relatively constant number of people who own no property at all. In recent years, the number of flats completed in Poland (the highest in 50 years) has largely consisted of investment flats purchased for rental purposes, as well as holiday homes or holiday suites by the sea, in the mountains or in cities with tourist appeal.
According to a study by the National Bank of Poland, in 2021, as many as 46 per cent of buyers in the secondary market of large cities bought flats for investment purposes, while only 29 per cent purchased their first flat. In turn, according to census data, the highest percentage of so-called vacant properties, i.e. unoccupied flats, is found in tourist cities such as Szklarska Poręba, Hel and Kołobrzeg, where it exceeds 30 per cent of the housing stock.

A Rethinking of State Policy Is Necessary

Consequenty, we are trapped in a vicious circle in which investment -oriented purchases of real estate drive up prices, benefiting landlords who can use their growing wealth to buy more property, and hurting middle- and low-income earners who have to bear the cost of rising rents. This Matthew effect in the housing sector is driven by state policy, which, almost from the beginning of the transformation, has been focused on supporting individual construction and promoting borrowing. The latter aspect in particular has gained in popularity since the housing price surge of 2006-2007. Programmes geared towards supporting borrowers aim to help Poles enjoy the benefits of rising property prices. At the same time, however, they generate a number of additional social costs, such as the problems of those who decided to take out Swiss franc-linked mortgages or those taking out variable-rate loans during the pandemic, when interest rates were at a historic low.
Most importantly, however, as recent studies have shown, in the long term, borrower support only results in an average increase in housing prices. Therefore, the ones who benefit from such programmes are banks, developers and debt-free property owners, while the uncreditworthy lose out, and supported borrowers enjoy the same opportunities to buy flats as if these programmes did not exist.
That is why breaking Poland and other countries in the region out of the vicious circle of their housing problems requires, first and foremost, a radical rethinking of state policy – moving away from borrower support towards support for affordable housing of the demographically appropriate size, location and finishing standard. ©℗