Analysis 11/2017: The institutional lease agreement simplifies apartment renting
Act on the National Property Resources awaits the signature of the President. It introduces the so-called institutional lease agreement, a new type of agreement that provides for a simplified eviction procedure. It is a good solution that has the potential to curb the pace of rent increase and make it easier for Poles to rent apartments.
- The current dysfunctional eviction procedure increases the risk of property owners, as it is difficult to remove tenants who do not pay rent or damage the property. Instead of helping the needy, it gives impunity to the dishonest. The risk that the owners bear increases the rents and limits the development of the rental market. In the cities with the highest salaries, rental rates are higher than mortgage rates - owners have to count in the increased risk of problems with tenants in the cost of rent. As a result, there are strong incentives to buy housing instead of renting it.
- Renting apartments is much less popular in Poland than in Western Europe. There is no developed rental market, where developers would build blocks of flats for rent (as opposed to private people renting their flats). It blocks migrations from the poorer regions of the country to fast-growing cities, increasing income inequalities, and pushes young Poles to emigrate. Greater emphasis on the ownership of housing instead of rent also limits the mobility of workers and makes it difficult for young Poles to start a family.
- Poland has the most restrictive rules for evictions of all OECD countries. Even the court's decision is limited by the wide catalog of people who are entitled to social security in case of eviction. These premises are few and far between. During the time of waiting for social premises, the municipality pays the owners of the dwellings compensation, which is often lower the losses they incur. In this way, the problem is shifted to private property owners. The necessity of court proceedings, and then the wait for a social place, drastically prolong the eviction procedure and raises the risk of the owners.
Full analysis by FOR (in Polish) aviliable here.
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Rafał Trzeciakowski - Economist at FOR
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