Housing crisis

What will be the impact of the Housing Pact 2.0?

Martin Schnögass and Eric Rosin from act360° advise developers and municipalities in the framework of the Housing Pact 2.0. (photo: act360°)

Martin Schnögass and Eric Rosin from act360° advise developers and municipalities in the framework of the Housing Pact 2.0. (photo: act360°)

The Housing Pact 2.0 adopted by the Chamber of Deputies last July will look to stimulate the creation of affordable housing in Luxembourg, so we asked act360° consultants Martin Schnögass and Eric Rosin about the direct consequences of this rethought partnership between the State and the communes.

What are the biggest changes involved in the implementation of the Housing Pact 2.0?

Martin Schnögass. - "We have identified four main points of change for developers. Firstly, the number of square metres for affordable housing will increase. When building more than 25 units in a special 'new neighbourhood' development plan (PAP NQ), developers are already obliged to make 10% of the gross building area (GBA) available for affordable housing. With the Housing Pact 2.0, this percentage increases to 20% or even 30%. These levels (30%) already existed before, but only if the areas concerned were in the sectoral housing plan. In return, the density coefficient is revised and increased by 10%, without the need to introduce an amendment to the general development plan (PAG). This increase in the density coefficient is intended to compensate for the land that is given to the municipality for affordable housing.

Eric Rosin. - For example, if more than 25 housing units are built in a reclassified zone with a surface area of 2,000m2 (SCB housing), the developer will now have to cede 20% to the municipality, or 400m2, for affordable housing. This leaves 1,600m2 available for the open market, which can be increased by 10% as compensation. This leaves 1,760m2 of housing space that can be sold freely on the market.


In your example, there is therefore a loss of profit for the developer. Isn't there a risk that the developer will choose to sell even more expensive square metres, including those for affordable housing, to make up for this lost space?

E.R.: "There is not only the loss of surface area, but there is another major change that has a significant impact on the income of developers: the change in the selling prices of surface areas intended for affordable housing. These prices will now be set according to the cost of construction. For the time being, there are no official regulations for defining the selling price of affordable housing space. Until now, the prices of affordable housing areas were based on the prices of the Housing Observatory from which 10-20% was deducted. In future, this will no longer be the case, as affordable housing will have to be sold to the municipality at the construction price. This does include a small percentage for project management by the developer. But it is not yet clear how this will be calculated. Probably it will refer to the specifications for affordable housing which were published in their latest version in July this year. However, we have recently been informed that some municipalities, such as the City of Luxembourg, are considering giving a fixed price for housing, including for construction.

If we refer to the specifications, this means that the price is fixed at the beginning of the project, i.e. on an estimate. Are adjustments envisaged to match the real and final price of the construction? We have seen in recent weeks, for example, that the price of materials can fluctuate a lot.

M.S.: "To date, the price is effectively fixed at the time of signing the initial agreement with the municipality, i.e. at the beginning of the project. An adjustment of the price is not yet envisaged, but it is possible that this avenue will be pursued. This question of transfer is regulated by Article 29 bis of the 2004 law, for which a Grand Ducal regulation is yet to be written.

We have talked about construction, but what about the land? Is it taken into account in the sale price of these affordable housing units to the commune?

M.S.: "The land is not taken into account in this selling price, which is determined solely on the basis of the cost of construction. The fact that we can take advantage of an increase in the density coefficient for the entire project is supposed to cover this provision of land for affordable housing.

E.R.: "It is important to note, however, that even if the density level changes, it is not necessary in this case to request an amendment to the PAG, which would normally be the case. This therefore avoids additional administrative and technical procedures, and therefore a potential loss of time and money."

You mentioned the increase in the percentage of affordable housing, the change in the calculation of the purchase price of such housing. What is the third major impact you have identified?

E.R.: "In the future, it is planned that the plan for the construction of the housing and the specifications will be attached to the agreement between the developer and the municipality. Until now, only the sale price and the construction terms were stipulated. However, it is not yet clear when these documents should be introduced. The law speaks of a 'multi-stage agreement', which means that it will be implemented in several stages. Today, we do not yet know exactly what the content of these agreements will be and the different stages of implementation. But that will come. In any case, we interpret this new request as a safeguard to avoid extreme cases, such as flats delivered unfinished or the creation of surfaces that are not adapted to the demand.

And what is the fourth point?

M.S.: "The fourth point is the profile of the buyer of affordable housing. Until now, the developer normally sold the low-cost housing directly to eligible households. It was possible that the municipalities would also buy these dwellings. In the new law, the affordable housing areas are exclusively transferred to the municipality. If the municipality is not willing or able to purchase these areas, then the beneficiary of the sale becomes the Ministry of Housing. The latter can buy directly or via the public developers SNHBM and the Housing Fund. The aim is for these areas to become part of the public housing stock.

The municipalities will have to invest to acquire these new housing areas. Will they receive subsidies from the state to achieve this?

E.R.: "There were already state subsidies defined by the amended law of 25 February 1979 concerning housing aid for stone, which remains in place. The Housing Pact 2.0 is an additional instrument. The municipalities can benefit from additional subsidies, but these are very restricted. At the time of the initial agreement between the state and the municipalities (in the context of Housing Pact 2.0), the latter must draw up a report on the state of affairs in relation to housing, but also on residential quality. On the basis of this inventory, municipal objectives and fields of action are to be defined. This is all part of the local housing action programme (LAP). From the LAP, housing-related projects must be defined. These projects must then be implemented in a second agreement. If all this process is respected and the results correspond to the objectives, then the municipalities can receive subsidies to finance them.

Can you give details of the subsidies that can be requested by the municipalities?

M.S.: "When the initial agreement between the municipality and the State is signed, the municipality can receive a grant of €25 per new inhabitant in its municipality, with a minimum of €100,000 and a maximum of €500,000. This is only valid for municipalities that sign the initial agreement until 2021.

Secondly, the municipality can receive a grant of €10,000 per housing unit located on their territory, the acquisition or realisation of which benefits from a financial contribution on the basis of an agreement signed between 1 January 2020 and 31 December 2020 by the Minister in the framework of the aid for the construction of complexes provided for by the amended law of 25 February 1979 concerning housing aid. This amount increases to €19,000 from 2022 for each unit for which an agreement is signed between 1 January and 31 December of the previous year. Finally, from 2022 onwards, the municipality will receive a bonus of €2,500 per year and per dwelling for any dwelling located on its territory and entrusted with social rental management.

E.R.: "All these subsidies are allocated in the form of theoretical budgets that can then be used to carry out projects planned and approved by the Ministry of Housing.

Could you give us some examples of projects that could be financed by these subsidies?

M.S.: "The projects must fall into one of three categories:

- The acquisition of buildings, public and collective equipment projects, such as schools, crèches, halfway houses, land to build other affordable housing...

- Projects that concern the living environment and urban renewal. We are talking about the construction of playgrounds or the redevelopment of public squares, for example.

- Finally, there are projects related to human resources, communication and social dynamics. These are, for example, citizen participation projects, costs related to feasibility studies or services provided by urban planners or architects.

Do you see any weak points in this new law?

M.S.: "The idea of the Housing Pact 2.0 is to conclude a contract with the municipalities to create housing, to increase publicly owned land and to improve the residential quality of the municipalities. Many points are still open at the moment, but should be covered by the two Grand-Ducal regulations that are referenced in the law and are still being developed. Another interesting point will be to see if the new regulation will have an impact on the selling price of open market areas.

Many municipalities do not have the capacity to develop affordable housing projects themselves. It is likely that some of them will buy land and entrust their development to the SNHBM or the Fonds du Logement, which are already very busy and will find it difficult to take on these additional projects.

E.R.: "The big challenge at the moment is to find land available for construction. It exists, but is also not on the market. However, some municipalities do have land and may decide to develop it. For the moment, the Ministry of Housing prefers that affordable housing units are owned by the public hand of the State and for this reason there is a tendency to take up mainly public developers for the creation of these housing units. However, it is true that if these new projects are only entrusted to the SNHBM or the Fonds du Logement, there is a risk of reaching the limits of their capacities. It might then be interesting to open the construction of affordable housing to other actors. The law already foresees that private developers such as non-profit organisations, Kierchefongs, foundations or companies with social impact can also be subsidised for the construction of affordable housing. In other countries, such as Belgium, the UK, the Netherlands, the affordable housing market is open to other actors such as investment funds. There are many people active in the market who also think in terms of human respect and social responsibility. It would be interesting to open up the market and think about including as many players as possible in the creation of affordable housing."

This story was first published in French on Paperjam. It has been translated and edited for Delano.