Local governments hope to get good apartments built with European money. A co-payment would be required and the municipality would only recover the property from the investor after 25 years. In the meantime, municipalities would have to pay affordability support so that the target group could afford to live in the new houses.
The signing of a letter of intent with 13 municipalities committed to building housing for young professionals and their families - teachers, firefighters, police officers, military personnel, and others - took place with speeches by Finance Minister Arvils Ašeradens (New Unity) and European Investment Bank (EIB) Vice President Thomas Östros.
The Minister of Finance stressed that the budget situation over the next four years will not be easy, therefore the development of public-private partnership projects is very important. For example, 50 successful PPP projects have already been implemented in Lithuania, but only the Ķekava bypass in Latvia. This will be the second prpject.
The project is based on a private partner "Design, Build, Finance, Operate, Maintain" model, with the public sector accessibility payment being included in state and municipal budget expenditure as of 2030, alongside housing accessibility for residents. In addition, the program provides that at the end of the project, the municipalities receive ownership of the land and the housing constructed.
In Latvia, 40% of the population cannot afford to buy or rent a new home. The biggest problem is outside Rīga, according to a study conducted in 19 municipalities, Ernst & Young Baltic partner Nauris Kļava said:
"There are municipalities where it becomes an economic problem. They cannot attract highly skilled workers because there is no housing.
"Developers are not interested in investing, but some people cannot afford to. There is what in economics would be called market failure, and this mechanism would be one solution to market failure. These are municipalities where economic activity is very high - Liepāja, Valmiera, Cēsis, and also municipalities in Latgale - Jēkabpils, Daugavpils. In fact, all the big cities that are far from Rīga face this problem."
This is also confirmed by the heads of several municipalities who signed a letter of intent today. For example, Cēsis has lost a number of young professionals due to a lack of housing, revealed Jānis Rozenbergs (New Unity), chairman of the Cēsis municipal council:
"At the moment, Cēsis, like many other municipalities, has a bottleneck in urban development. Although five or six years from now, it [the new project] marks something of a perspective on how we increase our housing stock for young families, existing families, and new businesses. The fact that we are still seeing high rents in Cēsis shows that demand is outstripping supply. So, according to the laws of economics, the pressure on rents is quite high."
100 new dwellings are planned in Cēsis. As they enter the market, supply and demand are expected to balance out, and the same will happen with prices.
Meanwhile, 250 apartments are planned in Liepāja, and the new program will help attract young professionals, said Gunārs Ansiņš (Liepāja Party), Chairman of the Liepāja City Council:
"In the past, municipalities fought among themselves over who would attract investors, but now the situation has changed dramatically. We are fighting among ourselves who will attract the smartest minds to develop the city and build the city's economy. This needs an incentive, and one of the most important issues is housing.
"If we look at Liepāja, a city where a third was military territory, mathematically speaking, there should be no housing problems. But at the same time, the population is demanding that the municipality implement an economic housing program."
The municipalities that signed the Letter of Intent have already reserved plots of land for housing construction.
The rent price together with utilities should not exceed 30% of the gross salary, property market researchers said.
The European Investment Bank's vice-president said it was too early to say what will happen. The Investment Bank expects each municipality to deliver a project that is innovative, an example for other European countries and interesting for investors.
"The first step is now very important. Sit down and understand what the needs are and how to finance them in an innovative way. Preferably with public-private cooperation. Then we will see the fruits. Let's not jump ahead, let them work and then we will help with funding if there are these serious pilot projects," said Thomas Ostross, Vice-President of the European Investment Bank.
The program has been entrusted to State Real Estate, which has already signed a contract with the European Investment Bank to carry out the financial calculations and consultancy, which will allow it to attract international investors.
A year has been set aside to prepare examples or projects. It will then be clear where and what kind of housing could be built, whether local authorities will ensure that rents are adequate, and who will be able to apply to live in these projects.
The most optimistic projections of the Ministry of Finance are that the first houses could be ready in three years' time, but the overall project is expected to be completed by 2030.
