Country-specific context and institutional arrangements influence the design and implementation of housing policies, as well as their outcomes. Typically, functions are assigned among the different layers of public administration, calling for intergovernmental coordination mechanisms for the effective design and implementation of housing policies. There are a range of policy tools for subnational governments to use in improving housing outcomes, including in the area of immovable property taxation and land-use regulations.
Brick by Brick
Building Better Housing Policies
8. Improving the Governance of Housing
Abstract
Main policy lessons
Governments utilise a variety of policy instruments to meet housing policy objectives. In addition to national governments, local and regional governments are also essential agents in the overall governance of the housing sector, with the bulk of housing expenditures being performed by subnational governments. The provision of social housing together with land-use regulations are two instruments related to housing for which subnational governments play critical roles. For social housing in particular, decisions regarding inputs, outputs and monitoring are mainly under the purview of subnational governments and housing providers, while for land-use, local governments set specific regulations and rules that adhere to general national standards.
Policies to improve housing outcomes and better align housing policies across levels and sectors of governments call for:
Developing spatial planning frameworks together with strong coordination measures across the levels of government and administrations, which can help to avoid functional fragmentation and overlap, while addressing inclusivity and access of certain groups;
Ensuring that land-use regulations are flexible in addressing local housing needs at the level of metropolitan areas, while promoting the efficient use of land and facilitating attractive built-environments;
Providing appropriate decision-making authority to local governments, notably with regard to spending and investment on social housing;
Implementing and reforming taxes on immovable property.
While the organisation of the housing market varies a lot across OECD and partner countries, a broadly shared trend has been to allocate more housing responsibilities to the local levels. Over the last 30 years, many national governments have implemented policy reform to allow local governments to assume a larger role in developing, coordinating and implementing housing policies, including those focused on the social housing stock and affordability challenges. Subnational expenditure on housing and community amenities is the most decentralised area of spending; as noted in Chapter 2, current spending on housing has been rising while investment in social housing has been on a declining trend.
Consequently, in the majority of countries, housing policy responsibilities are shared between national and local governments. National governments are usually responsible for setting overall policy priorities. Local governments typically have more responsibility for the output and budgeting decisions of social housing provision. This chapter discusses the impact of governance arrangements and the need, in some cases, to strengthen coordination mechanisms to ensure intergovernmental policy coherence and consistency.
Streamline governance across and within government levels
In the majority of OECD and key partner countries, the governance of the housing sector is shared between national and local governments, with national governments having a more predominant role in setting the overall housing policy priorities, and local governments being generally responsible for the implementation and allocation of housing programmes, such as social housing, land-use regulation and sustainable urban development. The recent trend of decentralisation experienced by most OECD countries in the last 30 years has resulted in subnational governments being responsible for more than 75% of expenditures in housing and community amenities.
The shared governance of social housing between central and local government should be used to combine local adequacy with portability
National and local governments share social housing responsibilities in most OECD countries. Typically, national governments are more responsible for decisions regarding the budget of social housing, while local governments are in charge of output and monitoring of social housing provision (Figure 8.1). Canada, Estonia, Colombia, Iceland and the Netherlands are among countries with the most decentralised setting (Figure 8.2) (Phillips, 2020[1]). The delivery and management of social housing is often provided through non-profit social housing organisations: the case of Denmark is typical in this respect (Box 8.1).
While local delivery helps to ensure that the supply is adapted to local conditions, there is a role for national coordination to ensure that social housing rights are portable. Without effective portability, there is a risk that being allocated a social housing dwelling becomes an obstacle to mobility, in particular complicating the take-up of better jobs (Chapter 6).
Figure 8.1. Social housing responsibilities are spread across government levels
By actor, average of respondents (%)
Source: OECD Fiscal Decentralisation database.
Figure 8.2. Social housing spending is decentralised in most countries
Social housing spending autonomy indicator (0-7 scale in ascending order of decentralisation).
Source: Phillips (2020[1]), based on 2019 OECD QuASH Survey data.
Box 8.1. Denmark’s experience with social housing
Denmark has a two-tier system of local government which underwent reform in 2017 to produce five regions and 98 municipalities. The Danish social housing sector comprises a total of about 700 social housing organisations with 7 500 divisions (estates) in total, all of which are run on a non-profit basis. There are approximately 615 000 social dwellings, which add up to about 21% of the total housing stock. Investments are made through the Denmark’s National Building Fund, an independent institution outside the state budget and partly funded by tenants’ rents (see Box 2.4).
Denmark’s social housing system only has minimal eligibility requirements. Waiting lists are open to everyone from a minimum age of 15 years. Housing is allocated to people according to time spent on the waiting list and household size. Although there are no income ceilings for beneficiaries, there are limits for costs of construction and therefore rents and size of the dwellings. The waiting lists for the most popular estates can be several decades. In return of their co-funding of non-profit housing, local governments have the right to assign people in acute need of housing to 25% of vacant dwellings. Priority can be given, for instance, to families with children, disabled people, refugees, elderly, students, divorced people or people who need to move closer to their work.
Source: “Social housing: A key part of past and future housing policy”, OECD Policy Briefs on Affordable Housing (OECD, 2020[2]).
Effective alignment of objectives across levels of government is essential in the area of land-use
Land-use planning is generally a responsibility of local governments and sometimes of regional governments (OECD, 2017[3]). In contrast, many of the policies that shape patterns of spatial development and the demand for land are decided at the national level. As a consequence, national policies would need to be evaluated concerning their impact on land-use at a local scale. They would also need to become more responsive to the objectives of local and regional governments concerning land-use. Currently, many countries lack the structures to achieve the required co-ordination across levels of government. One of the few organisations in place today that can provide such coordination is the Austrian Conference on Spatial Planning that assembles representatives from all levels of government to discuss spatial policies (Box 8.2). Further, as it is located at the centre of government (within the office of the chancellor), it may also be able to carry out the necessary cross-sectoral policy co-ordination between different branches of the national government.
Box 8.2. The Austrian Conference on Spatial Planning
The Austrian Conference on Spatial Planning is an organisation dedicated to co-ordinating spatial planning policies between the three levels of government in Austria (the national level, the states and the municipalities). Its decision-making body is chaired by the Federal Chancellor and its members includes all federal ministers, the heads of all federated states and representatives of associations of local governments. Furthermore, business and labour organisations are represented on the body as consulting members. The work of the decision-making body is supported by a permanent secretariat with a staff of approximately 25-30.
One of the central tasks of the ÖROK is the preparation of the Austrian Spatial Development Concept, which covers a planning period of approximately 10 years and provides a vision and guidelines for spatial development that is shared by all levels of government. Beyond the preparation of the Spatial Development Concept, the ÖROK also monitors spatial development across Austria. It has developed an online tool that provides a mapping function of a variety of important indicators at the municipal and regional level and releases a report on the state of spatial development every three years.
Source: (OECD, 2017[3])
Strategic spatial plans spanning functional territories are needed to introduce mechanisms for better inter-municipal collaboration
In countries where there has been a rescaling of the governance of land-use planning, spatial plans that transcend local government borders can establish new ways for localities to work with one another despite sometimes conflicting interests and different capacities. Furthermore, other land-use policy instruments, such as tradable/transferrable development rights, can become much more effective when these transfers occur within the same metropolitan area. Additionally, spatial planning objectives related to housing and the residential environment are expected to be better met when strategic spatial plans at the regional/metropolitan level provide more detail and are enforceable.
However, the majority of the regional plans only provide general guidelines (Figure 8.3). A study carried out by the OECD (2017b[4]) found that dedicated metropolitan and inter-municipal plans are rare in the OECD: only 11 types of such plans were identified at the time of the study. Some of the plans, such as the new Territorial Coherence Plans (TCPs) in France (Box 8.3) and the Metropolitan Area Plan in Korea are prepared for every metropolitan area of the country. However, many others are unique plans that are prepared only for a single metropolitan area. In this category falls the Finger Plan for Copenhagen. It was developed in 1947 and is one of the oldest examples of planning for transport oriented development. Other metropolitan plans for specific metropolitan areas include the Auckland Plan, the Budapest Priority Region Plan and the London Plan. Some of them are prepared and approved by the national government (Budapest, Copenhagen) and others (Auckland, London, Portland) by metropolitan authorities (2017b[4]).
Figure 8.3. The objectives of spatial planning vary among OECD countries
Source: OECD (2017a[5]), Land-use Planning Systems in the OECD: Country Fact Sheets, OECD Publishing, Paris.
Box 8.3. France’s Territorial Coherence Plans
France enacted the Territorial Coherence Plan (TCP) in 2000 as a key mechanism for intercommunal planning using a sustainable development framework. It covers the “local labour market” or “urban area” for parts of the country. Established by the Solidarity and Urban Renewal law, the Territorial Coherence Plan links housing, urban planning and transportation plans more effectively than they otherwise would be and supports cohesive development strategies for the entire area.
There is no compulsory requirement for communes or groups of communes to participate in a TCP, but there are incentives to do so. For example, according to national law, natural areas can be developed only if the area is covered by a TCP. Such incentives have been further strengthened by the requirement that developed areas that are not covered by a TCP cannot be expanded starting from 1 January 2017 onwards. To encourage the adoption of TCPs, the State has set up annual calls for proposals starting in 2010 to increase participation in rural territories with limited human and financial resources to draw up TCPs.
The plan establishes a reference framework for territorial planning over a time frame of 20 years. As such, it does not give granular detail on land-use development – that task falls to plans and planning decisions at the scale of the commune, but these must align with the principles or fundamental guidelines. Every municipality covered by the same TCP commits itself to integrated and joint development, which can help mediate and settle territorial issues for the whole area. In total, 448 TCPs have been approved or are presently in the process of being developed. This covers 25 137 communes (nearly 70% of the total), 50.5 million inhabitants (77% of the French population) and almost 60% of national territory (Government of France, 2015).
TCPs have become the reference strategic planning documents for urban planning and development in large residential zones or urban areas. They constitute plans that go beyond commune, inter-commune or across departmental administrative boundaries. The TCP must, for example, set statistical objectives regarding the consumption of agricultural, natural and woodland spaces. It must also create a link between development and other policies; for example, the TCPs specifies conditions that favour the development of urbanisation as a priority in areas already served by public transport, but it can also promote creating new public transport services in locations that require them to improve access. However, it should be noted that this policy is not always successfully implemented. Many city regions in France have not succeeded in setting up a TCP even though attempts have been made (Hoggart, 2016[6]).
National governments have a role to play in land-use governance
National policies can embed housing strategies within a broader vision for cities and regions by providing guidance about the long-term strategy and goals (Table 8.1). Together with local planning systems, a national strategy could specify the land-uses that should co-exist within cities, the service provision levels linked to new developments, the densification thresholds and the specific conditions for urban boundary expansion, links between public transport and economic and social activities (OECD, 2013[7]). National governments can also provide technical assistance to local governments to identify and catalogue underdeveloped land, and to create reliable and updated information systems.
Table 8.1. Governance of spatial or land-use plans
Note: * indicates federal or quasi-federal country.
1. All levels of government in Austria prepare a Spatial Development Concept jointly for the entire country.
2. The United Kingdom has a separate National Planning Policy framework for England and Scotland each, a Spatial Plan for Wales and a Regional Development Strategy for Northern Ireland.
3. The government of Belgium was responsible for the preparation of a zoning plan for the entire country. While this responsibility has been delegated to the regions, large parts of the plan that was originally prepared by the national government are still in place today.
4. While urban planning is delegated to communities in France, the national government nonetheless affects its rollout by defining general orientations, setting norms and delineating priorities.
Source: OECD (2016[8]), Land-use Governance Survey 2016.
National housing governance needs to overcome sectoral silos
Housing policymaking is distributed across ministries at the national level, with different aspects of housing policy assigned to different agencies. A few OECD countries have a dedicated housing ministry, but on average three ministries are directly involved in housing policymaking across OECD countries (Figure 8.4). For example, there is no lead housing ministry in Greece, and, in Australia, responsibility is shared across the national government, states and territories, and the local governments. Sweden shares housing responsibilities across several national ministries, including the Ministry of Finance, the Ministry of Justice (most housing and real estate related legislation), and the Ministry of Health and Social Affairs (housing benefits, homelessness, housing for the elderly). Better integration and intergovernmental policy coordination are essential given the wide range of policy instruments used to influence housing outcomes.
Figure 8.4. In most countries, multiple ministries are involved in housing policymaking
Note: Number of ministries in charge of housing policies.
Source: Phillips (2020[1]) based on 2019 OECD QuASH Survey data.
Promote flexible land-use planning
Land-use planning contributes to shaping cities and driving housing affordability
Land-use regulation is a key determinant of housing supply. It plays a central role in meeting housing demand by opening up new areas for development, transforming existing spaces and uses, and setting parameters that influence the shape and population density of cities. Land-use regulations are a leading factor behind increases in housing costs. Land-use regulations that restrict the conversion of undeveloped to developed land constrains the responsiveness of supply to changes in demand and therefore affect house prices (Chapter 4). Where land is already developed, regulations may limit the amount of floor space that can be built at a location, thus constraining supply responsiveness. There is a statistically significant negative relationship between the growth of built-up area per capita and the growth of house prices (Figure 8.5).
On the other hand, unregulated land-use fails to incorporate the hidden costs of additional developments, for example for the environment. Developers would ignore the negative externalities of new buildings (i.e. the undesirable effects on nearby residents), and the supply of public goods, such as open spaces or roads, would be insufficient. Furthermore, it would be difficult to provide public services and transport to entirely unplanned neighbourhoods. The environmental impact of unregulated land-use in the form of noise, pollution, and loss of historic character would also be severe, detracting from the liveability of neighbourhoods. A balance between the two extremes is therefore needed for optimal housing outcomes. In places where house prices are above construction costs – as is the case in many cities across the OECD – imposing too-stringent land-use regulation could undermine housing affordability (Cheshire and Sheppard, 2005[9]; Cheshire and Hilber, 2008[10]). By favouring the adjustment of housing supply to demand pressures, flexible land-use regulations can further play an important role in facilitating the efficient reallocation of labour and capital towards more productive areas. Herkenhoff, Ohanian and Prescott (2018[11]), for example, estimate that easing land-use restrictions in California and New York would significantly raise the U.S. aggregate productivity and consumption. Policy reforms that remove obstacles to labour reallocation, such as making land supply more flexible, are particularly important in the wake of the huge shock generated by the COVID-19 crisis.
Figure 8.5. House prices are higher where built-up density is low
Note: Built-up statistics are calculated using Florczyk et al. (2019) 30m resolution multi-temporal built-up grid (GHSBUILTLDSMTGLOBER2018A385730V20), http://publications.jrc.ec.europa.eu/repository/handle/JRC117104; population used for per capita values is taken from UN World Population Prospects; "Built-up" is defined as the presence of buildings (roofed structures). This definition largely excludes other parts of urban environments and the human footprint such as paved surfaces (roads, parking lots), commercial and industrial sites (ports, landfills, quarries, runways) and urban green spaces (parks, gardens). Consequently, such built-up area may be different from other urban area data that use alternative definitions. The figure refers to 2000‑14 time span.
Source: OECD House Price database, BIS (2018), Residential Property Price (database); UN World Population Prospects, Florczyk et al. (2019) and OECD calculations.
Avoid restrictive zoning regulation and single-use zoning
Zoning should be sufficiently flexible to allow neighbourhoods to change over time according to evolving population patterns and changes in housing demand. Single-use zoning, (see Annex 8.A1 for definitions) except for specific purposes, such as hazardous industrial areas, has the disadvantage of rigidity while also increasing the use of personal vehicles. For example, zoning regulation can prevent the construction of a grocery store in a neighbourhood that is defined as residential even if most residents would benefit from being able to do their daily shopping nearby instead of driving further away.
Many of the shortcomings of zoning regulation can be avoided by using flexible regulations of permitted uses in different zones that focus on preventing the most important negative externalities and do not regulate land-use beyond what is required for this purpose (OECD, 2017b[4]). For example, such zoning rules do not prohibit mixed-use developments as long as they do not create nuisances. They generally would not include frequently used requirements, such as a prohibition of multi-family homes, mandatory design criteria that rule out entire classes of buildings or the prohibition of commercial activities that cause no nuisances. Furthermore, flexible zoning regulations do not set tight density restrictions or include provisions that allow for a gradual increase in the density of a neighbourhood in line with infrastructure capacity and population growth. An example of a flexible approach to zoning that focuses primarily on the prevention of negative externalities is the national zoning of Japan (Box 8.4).
Box 8.4. National zoning system in Japan
An example of a flexible approach to zoning is the national zoning strategy of Japan. The country has instituted a system of 12 standardised zones in urban areas. They range from low-rise residential zones to exclusively industrial zones that allow successively denser development and greater nuisance levels. Essentially, each zone specifies the maximum level of nuisances allowed in an area. Any development that causes fewer nuisances than the maximum allowed level may be constructed in the zone. For example, it is possible to build any type of residential building in a commercial zone, but many commercial activities are prohibited in a residential zone. The only exceptions are industrial zones that allow potentially dangerous activities. In these zones, residential and commercial buildings are restricted.
None of the zones in the Japanese system are strictly single-use. Even the most strictly regulated residential zones allow other small-scale functions adequate for residential areas, such as neighbourhood stores, small offices, and elementary schools. The main instruments to control densities in neighbourhoods are maximum floor to area ratios. Generally, no restrictions on whether buildings are single-family or multi-family homes are imposed.
Despite being affected by a generally challenging macro-economic environment, Japan has consistently had a higher rate of housing starts (Figure 8.6). At least to some degree, this is likely due to the flexible zoning system that allows cities to adapt to economic, cultural and technological change by changing the building stock.
Figure 8.6. Japan has high rates of housing starts
Total number of dwellings completed in the year, as a percentage of the total existing housing stock
Source: OECD (2020[12]). OECD Affordable Housing Database. OECD Publishing, Paris. Data for 2010 and 2018 refer to the responses as in the 2019 OECD Questionnaire on Affordable and Social Housing (QuASH), except for Korea, Czech Republic, Croatia, Slovenia, Slovak Republic, Hungary where they refer to responses as in the 2016 QuASH. Data for around 2000 refer to the responses as in the 2016 OECD Questionnaire on Affordable and Social Housing (QuASH).
Regularly re-evaluate urban boundaries as needed
Flexible instruments, such as urban growth boundaries (UGBs), urban service boundaries (USBs) and greenbelts, set temporary limits on urban expansion (see Annex 8.A1 for definitions). They are effective at increasing infill development and limiting sprawl in certain circumstances. Receding these boundaries can better contain development in areas that face population decline, while expanding them can provide more room for housing development in areas with increased housing demand. As in the case of pro-densification policies, however, regulation that alters urban area boundaries need to take into consideration the environment and citizens’ quality of life.
Increasing the flexibility of land-use allows housing construction to adapt to changing socio-economic and demographic trends
Flexible zoning plans allow developers and investors to put underused areas and office space to new uses, which can increase the density of development and improve environmental sustainability, while reducing burdens on transport infrastructure. Flexible zoning also ensures efficient patterns of spatial development, especially in low-density areas close to city centres and along public transport corridors. Relative to rigid zoning restrictions, transferable development rights can be used to compensate landholders when their development has been restricted by land-use regulations, such as downzoning or establishment of protected areas. However, increased flexibility may come at the price of uncertainty, and -requires local government capacity to monitor land-use and intervene when development falls short of policy objective. It also requires ongoing collaboration with higher levels of government and other actors of the spatial planning system.
Use of recurrent taxes on immovable property can promote efficient land-use, yet interactions with land-use regulation may limit their ability to increase density
Recurrent taxes on immovable property play a role in attaining an efficient allocation of resources, a less unequal distribution of income and stable house prices. As a result of value-based property taxes’ relative inelasticity – taxpayers usually only modestly react to changes in tax policy because their tax base is immovable – they are relatively efficient and among the taxes that are least detrimental to economic growth (Brys et al., 2016[13]; Cournède, Fournier and Hoeller, 2018[14]). In the case of residential property taxation, there is also a close link between taxes paid and public services received, which follows from the benefit principle of taxation in public finance, with expenditure often having a high degree of progressivity. Finally, they can be used as a policy instrument for property price stabilisation since they tend to reduce the volatility of house prices.
These taxes are also seen as an effective tool for containing urban sprawl and promoting compact and environmentally-friendly land-use (Chapter 7). Nevertheless, in the context of land-use regulation, recurrent taxes on immovable property are best employed as a complementary tool. While taxing vacant or under-used land can have strongly positive effects on densification in the use of newly developing areas, with building height restrictions in an already built-up area, for instance, the use of property taxes as a tool to affect land-use can be limited. In this situation, the tax burden may translate into higher property prices rather than affect land-use decisions. Thus, although pure land taxes and split-rate taxation can be used to foster denser development under certain conditions, their success depends on their interaction with other land-use policies and the stage of development of the targeted region (OECD, 2021[15]).
Annex 8.A1. Definitions
Urban growth boundary (UGB): A dividing line drawn around an urban area to separate it from surrounding rural areas. Areas outside the boundary are zoned for rural uses where urban development is restricted, and inside for urban use where urban development is promoted.
Urban service boundary (USB): A dividing line restricting where public services, such as water supply and sewers, can be administered. These regulations make it illegal for utility companies or local authorities to provide services outside of these boundaries.
Greenbelts: Areas of open space surrounding urban areas that act as physical boundaries against city expansion.
Single-use zoning: Sometimes also called Euclidean zoning, single-use zoning operates according to the principle that only one specified land-use is permitted in a zone. For example, a zone defined as commercial may only contain commercial buildings such as offices.
Social housing: Social (subsidised) housing is defined by the OECD broadly as residential rental accommodation at sub-market prices that is allocated according to specific rules.
Tradable/Transferable Development Rights (TDR): A market-based incentive programme generally structured so that landowners forfeit development rights in areas targeted for preservation and then sell those development rights to buyers who want to increase the density of development in areas designated as growth areas by local authorities.
References
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[1] Phillips (2020), “Decentralisation and inter-governmental relations in the housing sector”.