Red Vienna as a Business Model for Europe’s periphery? Public land grab disguised as affordable housing solution

Abstract

After more than thirty years of individualized housing procurement policies and more

than twenty years of individualized demand-side financial products being the only game in town, affordability of housing in Central, Eastern and Southeast Europe is at an all time low with many excluded from the ownership race. Accumulated pressure has prompted state and local authorities to transform their approach to housing procurement with developing supply-side affordable solutions. This political pressure has provided a sufficient stimulus for the banks to offer a new financial product.

Commercial banks whose central organizations reside in countries of Western Europe have, for more than twenty years, played a pivotal role in shaping the housing market in the EU periphery. For the individual household, housing loan was the only avenue towards housing security. Value was thus extracted through household debt, while differential in interest rates provided for banks to enjoy higher profit margins on assets compared to their countries of origin. Constant flow of housing loan demand, high profit margins and state guarantees as well as subsidies created an environment in which there was neither interest nor stimuli for a diversity in housing investment. Yet, banks are coming up with offers to accommodate change in the state and local policy by offering to extract value through asset accumulation with a narrative twist.

The most prominent new housing investment program comes from the Austrian based Erste Bank and is presented as the model of Viennese social housing. The bank is offering to build and manage affordable rental properties where rent is priced just 1/5 under the market price only if the municipalities are prepared to offer free of charge land and waive all communal taxes. In 2022 the municipal council of Brno passed the Deník Referendum, establishing such a cooperation between the city and Česká spořitelna (Erste Bank). The same model was offered and for months negotiated with the city of Zagreb: After Erste Bank was not willing to give up their claim that the model only works with transfer of land ownership rights to the bank, negotiations failed.

What is sold here as the successful Viennese model fundamentally contradicts the principles of the original model based on historic Red Vienna, which has been sustained to consist of long-term secured affordable housing in public ownership. What Erste Bank refers to is the “Wohnbauinitiative” – a point of deviation from the model that opened the doors for private market players which significantly influences affordability and stability of housing.

Our paper critically assesses housing financial products created by commercial banks for EU periphery and shows how they differ in key aspects from the Vienna Model they claim to mirror. We examine how the Model is used as a tool for public urban land grabbing schemes that deepen uneven development and financialization of housing.