The development of National Housing Policies had a difficult journey and places Romania among the countries of Central and Eastern Europe with the least effective policies in this field. The outcome, in the spring of 2009, of “First Home” program represented the top element of National Housing policies. This article is a critical analysis of Romanian National Housing Policies between 1990 and 2010.mortgage loan; Real Estate market; National Housing Policies

Ion Radu Zilişteanu

English

Research Papers in Economics

National Housing Policies in Romania Between 1990 and 2010  126 
NATIONAL HOUSING POLICIES IN ROMANIA  
BETWEEN 1990 AND 2010 
 
Ion Radu Zilişteanu
 
 
Abstract 
The development of National Housing Policies had a difficult journey and places Romania 
among the countries of Central and Eastern Europe with the least effective policies in this field. The 
outcome, in the spring of 2009, of “First Home” program represented the top element of National 
Housing policies. This article is a critical analysis of Romanian National Housing Policies between 
1990 and 2010. 
 
Keywords: mortgage loan; Real Estate market; National Housing Policies. 
 
JEL Classification: G21, R28. 
 
1. Introduction 
National  Housing  Policies  are  public  economic  and  social  policies  for  any 
country.  Governments  pay  particular  attention  to  such  policies  and  spend  huge 
amounts of money of national budgets to ensure and improve housing conditions for 
the  population.  This  is  true  even  for  most  advanced  countries.  In  communist 
regimes, the state had a crucial role in building and providing housing. After the 
economic transformation began in 1990, governments in transition countries have 
relinquished these duties. They now seek to formulate policies in accordance with the 
principles  of  building  a  market  economy,  essentially  similar  to  the  practice  of 
developed countries. 
 
2. Literature Review 
Unfortunately, the Romanian literature on this subject is very low represented, 
as the National Housing Policies were not declared in this way by the Romanian 
authorities. The sporadic measures that can be included in this concept were not 
characterized as a part of National Housing Policies. But the literature from other 
Central and Eastern European countries is richer. 
 
3. National Housing Policies in Central and Eastern Europe 
Policies  of  the  transition  economies  differ,  varying  in  accordance  with  their 
historical, geographical, social and economic features. 
First, to offset the decline of public new housing supply, the governments of 
these countries began to promote new buildings developed by private entities. Thus, 
various  incentives  have  been  applied  for  this  purpose,  including  subsidies  and 
preferential  tax  treatments.  In  addition,  some  countries  like  the  Czech  Republic 
                                                 
 Ion Radu Zilisteanu is economist, Ph.D in Bucharest. E-mail: rzilisteanu@consultanti.ro Romanian Economic and Business Review – Vol. 6, No. 1  127 
began  to  pay  attention  to  the  existing  housing  stock  by  creating  incentives  for 
renovation and improvement of houses. 
Secondly,  the  authorities  began  to  focus  their  responsibility  in  this  area  by 
helping low-income people and young families under adopted social policy. In this 
context, some countries such as Poland began to build public housing for subsidized 
rental. 
Thirdly,  governments  in  transition  countries  made  serious  efforts  to  build  a 
system of  market-oriented housing finance, enabling purchase of houses through 
market  transactions.  With the  abandon  of government‘s responsibility to provide 
public  housing,  they  shall  provide  free  trading  of  properties.  In  addition  to 
encouraging the building, governments have to create creditworthy demand through 
appropriate  financial  arrangements.  The  lack  of  a  coherent  system  of  real  estate 
financing is the main cause of lack of liquidity of real estate markets in transition 
economies. 
An important objective of creating a coherent real estate financing mechanism is 
relieving the burden of state budgets expenditure that governments would have as 
the only responsible for providing public housing. However, significant budgetary 
allocations were needed to support the creation of housing finance system. In this 
perspective, strategies aimed at providing a framework for housing provision to be 
made on a commercial basis and provide the necessary support of the less favored to 
adequate housing conditions. 
 
4. National Housing Policies in Romania after 1990 
After  the  political  changes  of  December  1989,  in  Romania  and  in  other 
countries in the region, there have been profound changes. The first measure taken 
was the sale of residential housing area to tenants for low price. The decision was 
taken mainly to ease the state and local budgets with the burden of maintenance and 
repair  of  housing,  especially  those  in  apartment  blocks.  Given  the  age  and  poor 
condition of these homes, the burden of the budget was extremely high. 
 
4.1. National Housing Agency 
Romania has never conceived in the period after 1990 a comprehensive set of 
integrated National Housing Policies. 
In  the  law  nr.152/1998  was  established  National  Housing  Agency  (NHA), 
which began to function effectively in 1999, the same year when the first mortgage 
loan law was adopted. NHA was established with the aim of developing national 
housing  construction  and  mortgage  loans,  as  the  main  form  of  financing  the 
acquisition, renovation and construction of housing. Initially, the NHA has started 
with funds of about 5 million USD, insufficient for any coherent initiative in the field 
of housing. National Housing Agency has received major competitive advantage over 
private developers, receiving for free public owned land from local authorities and 
viability public works of infrastructure, these benefits resulting in a climate of unfair 
competition  against  other  players  on  market.  NHA  can  be  compared  with  the National Housing Policies in Romania Between 1990 and 2010  128 
position  of  the  National  Savings  Bank  on  banking  market,  which  made  unfair 
competition  to  other  banks  in  Romania,  the  only  bank  to  have  guaranteed  the 
deposits of the public by the state. As a result of small funds, NHA projects favored 
corruption, given the low prices they practiced for housing compared to competitors 
and reduced the number of housing units that it has delivered. Thus, instead of 
delivering  the  housing  to  young  people,  in  many  cases  the  beneficiaries  were 
politicians and businessmen. 
Following the latest amendments to the law establishing the NHA, it has the 
following tasks: 
- Achieving financial arrangements; 
-  Attracting  and  managing  financial  resources  for  construction,  purchase, 
rehabilitation,  strengthening  and  expansion  of  housing,  including  those  operated 
under a lease; 
-  Promotion  and  development  on  youth  housing  construction  for  rental, 
building social and necessity housing, the construction of other residential property 
owned by state or local councils, and assistance on existing buildings in implementing 
the measures set by government programs; 
-  Acquisition  of  land  for  construction  of  housing  and,  where  appropriate, 
monitoring programs for carrying out of their viability; 
-  Initiation  and  /  or  development,  under  market  conditions,  of  housing 
programs with private mortgage loans; 
- Carrying out specific studies on the real estate market (supply and demand for 
housing, building land, costs, etc.). 
 
4.2. Thermal rehabilitation  
In 2002, the Romanian government issued an emergency ordinance (Ordinance 
nr.174/2002),  which  established  deployment  of  heat  insulation.  This  program 
provides  the  thermal  rehabilitation  of  blocks  of  flats  (condominiums  and  related 
facilities) built in 1950-1990 by standard projects, located in densely populated areas 
and connected to centralized heating systems owned by local councils. 
Special measures for the thermal rehabilitation of these estates included: 
1.  insulation  of  external  walls,  terraces,  floor  over  basement,  roof  or  roof 
structures repair or replacement, windows and exterior doors replacement, repair, 
strengthening and painting of exterior walls and other structural and non-structural 
elements constituting the exterior of building; 
2. interventions in pipes and fittings with loss of basement / heating owned by 
owners‘ association or individual owners. 
Because of bureaucratic obstacles and lack of coordination of central and local 
state institutions, this program has been lowly successful. 
 
4.3. Encourage construction of new homes  
The  Romanian  state  has  tried  to  encourage  construction  of  new  homes  by 
several types of measures: Romanian Economic and Business Review – Vol. 6, No. 1  129 
- Subsidize a share of the costs of building primarily for young people aged up 
to 35 years, not owning a house, but who have acquired land, or buy a house using a 
mortgage loan; initially, the share was up to 20% for homes costing not exceeding € 
100,000, then, due the budgetary restrictions, the subsidy was capped at € 10,000; 
- Provision of land free of charge by the local authorities to young people up to 
age 35 years to build a house on the land. 
Both  programs  were  unsuccessful  because  of  too  many  conditions  to  be 
fulfilled, and the lack of land at local authorities. 
Romanian  state  has  subsidy  programs  to  cover  utilities  costs  for  more 
economically disadvantaged categories. They were taken measures to protect tenants 
from homes recovered by former owners abusively dispossessed by the communist 
regime and measures to strengthen the buildings reported by experts with earthquake 
risk. 
 
4.4. “First Home” Program 
The financial crisis that hit USA in July 2007, also known as subprime crisis, as 
many economists named it, had as the main source mortgages securitization with 
high  levels  of  leverage,  reaching  values  of  50-70,  and  falling  prices  in  the  U.S. 
housing market. The economic crisis that followed the financial crisis led to negative 
developments  in  North  American  and  European  real  estate  markets,  as  regards 
transactions and prices. 
On Romanian property market, the beginning of crisis can be placed in the 
spring of 2008, earlier than the general economic crisis broke, in September 2008. 
The reason is mainly the large participation of foreign capital on the Romanian real 
estate  market.  Between  March  2008  and  November  2009,  price  dropped  in 
residential buildings with about 50% and in first 9 months of 2009 the number of 
property transactions was 43% lower than the same period of 2008. 
These  market  developments  have  had  serious  consequences  for  real  estate 
developments, construction industry and mortgage loans market. 
Mortgage loan bank financing experienced quasi-stagnation during 2009. The 
funding needs of Romanian state, in order to cover growing budget deficit, made the 
authorities to turn to the domestic banking market. Available liquidity to credit non-
governmental  sector  became  smaller.  Due  to  economic  crisis,  defaulted  loans 
increased their share three times in the first 9 months of 2009 compared to same 
period of 2008. Commercial banks faced asset impairment related risk in granting 
mortgage loans. 
In  general  terms  above,  the  Romanian  Government  decided  to  launch  the 
program on "First Home", to facilitate access of Romanians to cheap financing by 
guaranteeing mortgage loans by the state. The program was launched on May 20, 
2009, with the following characteristics: 
- Can be eligible for the program people buying first home and have never 
received a mortgage loan; National Housing Policies in Romania Between 1990 and 2010  130 
- State guarantees 80% of the mortgage loan on houses not exceeding € 60,000; 
- State guarantee is provided through National Credit Guarantee Fund for Small 
and Medium Enterprises (FNGCIMM), which would be changing the statutes; 
- Ceiling amount guaranteed was set at € 1 billion; 
- Program was intended for existing houses; 
- Houses acquired through the program could not be sold earlier than 5 years 
after the date of acquisition; 
- Any acquired house to be mortgaged in favor of the Romanian state and the 
executor set for cases of default was the National Taxation Administration Agency. 
The program was clearly inspired by similar programs implemented in countries 
with developed economies under the concept of first time buyer, programs designed 
for buyers purchasing a first home. These programs assume that first home purchase 
is the most difficult, given the age of applicants, lack of credit history, their position 
on the lower rungs of the occupational hierarchy and lack of sufficient funds for 
down payment required to obtain a mortgage loan. 
Also, the "First Home" Program was conceived as part of National Housing 
Policies, chapter in which Romania has not excelled since 1990. 
Initially, the program was not conceived as a way to boost the construction 
sector, given that it was intended only to existing buildings. 
The bill governing the program, Emergency Ordinance 60/2009, published on 
June 4, 2009, changes the prospects for the program: 
- Implement the anti-crisis measures initiated by the Romanian Government to 
support priority economic sectors; 
- Unlock lending process and boost construction activity affecting economic 
growth and job creation; 
-  Facilitating  access  by  individuals  to  purchase  residential  property  for  the 
current context of financial and economic crisis. 
However, there was no possibility of purchasing unfinished homes, which is not 
in any way led to boost construction activity. 
Subsequently, the program has undergone significant changes: 
- Despite the concept of first time buyer, which was the basis of the program, 
the access to the program has become possible for all those who did not own a home 
on the effective date of the bill; 
- The ban on sale of property acquired through the program for 5 years was 
lifted, but maintained the requirement of approval of the Ministry of Public Finance; 
- The program was expanded to unfinished buildings or off plan, the funding to 
be made by the developer, the applicant receives a promise of loan guarantee from 
the FNGCIMM and a promise of credit from the lending bank, and thereafter the 
amount credited to be released on finishing of the building. 
The auction for commercial banks allow pets in the program first imposed the 
following conditions: 
- Don payment 5% of the property price; Romanian Economic and Business Review – Vol. 6, No. 1  131 
- The maximum interest rate on loans denominated in lei: ROBOR at 3 months 
plus 2.5 percentage points; 
-  The  maximum  interest  rate  on  loans  denominated  in  euros:  Euribor  at  3 
months plus 4 percentage points; 
- Commission for credit granting: 0; 
- Anticipated reimbursement commission: 0. 
20 commercial banks showed interest in this program. They oversubscribed the 
amount of € 1 billion with 47%, bids being corrected with pro rata. 
During  the  program,  FNGCIMM  has  taken  some  measures  against  some 
commercial banks, which did not grant any loan or just several loans, by lowering the 
ceiling of each bank by the redistribution of about € 200 million. 
Romanian state is to guarantee by allocating € 100 million, starting from the 
assumption that the rate of default loans cannot exceed 10%. 
A  last-minute  amendment  stipulated  that  persons  who  are  owners  of  an 
inherited property can participate in the program. 
In 2010, the program was continued under another form. The state decided to 
reduce  the  program  to  €  700  million  instead  of  €  1  billion.  To  encourage  the 
construction of new homes, the Government decided to extend the guaranteed sum 
to € 70.000 and up to € 75.000 in certain conditions: association of minimum 7 
individuals  having  a  piece  of  land  in  ownership,  their  decision  to  build  a 
condominium. This was a wrong decision. As far as we know, it couldn‘t be found 
any association of 7 individuals to meet the legal requirements. 
For 2011, the third form of the program will be adopted, the conditions being 
unknown for now. 
Occurred during a pre-election period, the Program „First Home‖ through its 
successive amendments gave the feeling of a populist and electoral action. Although 
it started from the concept of first time buyer, the program has become successively 
being diverted from its original purpose. 
Program  development  through  FNGCIMM,  non-bank  financial  institution, 
specialized in guaranteeing loans for small and medium companies, induced failures 
in carrying out the process of guaranteeing mortgage loans through this program. 
 
5. Conclusions 
The Romanian state must consider in the future conceiving a coherent system 
of modern National Housing Policies, according to best international practices. They 
are many models of such public policies, which can be inspired from.  
The  programs  must  be  extended  for  many  years,  being  known  that  the 
production cycle of real estate assets is very long. 
The present crisis can be a good opportunity for building from ground National 
Housing Policies. 
Lack of performance in this area places Romania in an inferior position in the 
ranking of countries in Central and Eastern Europe in terms of National Hosing 
Policies. National Housing Policies in Romania Between 1990 and 2010  132 
The elements that could make such a successful program could include: 
- Program availability only to those who are first time buyers of a home; 
- Granting a tax credit for people admitted to the program instead of State's 
guarantee, able to cover the down payment; 
- Insurance of risk given by low down payment; 
- Adjusting the ceiling of lending to market conditions. 
 
Bibliography 
Akey, Randall, The Effect of Property Institutions on Efficiency in Housing 
Markets, The Journal of Law and Economics, Vol.52, No.2, May 2009, pp.398-410 
Budişteanu,  Ileana,  „Long-term  implications  of  the  housing  finance 
arrangements in Romania‖, Metropolitan Research Institute, 2004, Budapest 
Hager, Rainer, The efficiency of the Bauspar-system in Eastern Europe, The 
Eastern European Workshop on Housing Finance and Housing Affordability, Budapest, 2004 
Struyk, Raymond R.; Hegedüs, József, Housing Finance - New and Old Models 
in Central Europe, Russia, and Kazakhstan, Open Society Institute, Budapest, 2005 
Tsenkova, Sasha, Housing Policy and Housing Markets in South East Europe: 
Nations of Homeowners, ENHR, Ljubljana, 2006 
Yoveva, Antoaneta, Housing finance and affordability in Bulgaria - result of the 
household survey in 2003, Metropolitan Research Institute, Budapest, 2004 
Zilişteanu,  Ion  Radu,  Creditul  ipotecar,  rol  şi  perspective  în  economiile 
contemporane –Ph.D. thesis, ASE, 2010 
***,  EU  Framework  for  Cross-Border  Crisis  Management  in  the  Banking 
Sector,  European  Union, 
http://ec.europa.eu/internal_market/bank/crisis_management/index_en.htm 
***, Latvia – Country Paper, OECD, Warsaw, 2002 
***, Slovenian Country Note, OECD, Warsaw, 2002 
 

The Effect of Property Institutions on Efficiency in Housing Markets, The Journal of Law and Economics,

NATIONAL HOUSING POLICIES IN ROMANIA BETWEEN 1990 AND 2010

http://www.rebe.rau.ro/RePEc/rau/journl/SP11/REBE-SP11-A12.pdf

NATIONAL HOUSING POLICIES IN ROMANIA BETWEEN 1990 AND 2010

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics