Streetlawyer Association’s Opinion about the Amendment on the Privatisation of Public Housing Scheme

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On 11 May 2021, László Böröcz, Fidesz MP, initiated the amendment of the Housing Act and the National Property Act. Under the proposal, tenants of municipal and state-owned flats will be entitled to buy the flats for a discounted price. According to several NGOs, research institutes specialized in housing and the Streetlawyer, this will further reduce the stock of state and municipality-owned housing schemes, further increasing the housing crisis. 

In our view, the amendment violates fundamental rights, as it infringes the right to property, the right to social security and the principle of self-government. 

While the state is criminalising people living in housing poverty, underfunding local authorities that makes it difficult to carry out their social duties, this amendment makes it impossible to develop a social rental housing system by making the privatisation of housing property compulsory. 

The Streetlawyer Association believes that the amendment is unacceptable in its current form and should be withdrawn. 

The Amendmentl

The Housing Act governs tenancies in general, and in particular tenancies between the state, municipalities and private individuals. Under the draft amendment, tenants will have the right to purchase state and municipal housing in case of tenancy contracts concluded before 31 December 2020. 

Therefore tenants may buy the flat owned by the state or a municipality, regardless of 

  • when they started the tenancy before 31 December 2020,
  • whether they currently have a fixed-term or indefinite tenancy contract, or
  • the title under they obtained the tenancy contract.

In addition, the proposal  sets the price of the flats at a very favourable rate, 30% of the market value subject to additional discounts: The price will be further reduced depending on the length of the tenancy, by 1% per year to a minimum of 15% of the market value. In case of a lump sum payment, an additional discount will be applicable, reducing the price to 70% of the amount thus established. 

Constitutional concerns

We think that the amendment is largely identical to the provisions of the law that the Hungarian Constitutional Court found to be unconstitutional and annulled in 1993. The law adopted then was not voted for by the current governing party, Fidesz.

The current amendment further restricts the autonomy of municipalities and reduces their leeway for making a housing policy:

  1. In 1993, the right to purchase applied only to municipal flats rented for an indefinite period – the present amendment does away with this aspect. It now covers both fixed-term and indefinite tenancies, both state and municipal housing.
  2. In the 1993 legislation, the right of purchase did not cover almost all the housing assets of municipalities, only those that were transferred to municipal ownership free of charge by the transfer of public housing assets, and not those created or purchased after the entry into force of the Act. 
  3. Under the previous rules, there was no right of purchase for listed buildings, while the current amendmentl requires the consent of the authority for cultural heritage. The latter, as the criteria for its assessment are not known, gives rise to arbitrary decisions, with the authority being able to refuse consent in some cases.
  4. The legislation repealed in 1993 set the maximum purchase price at 50% of the market value, whereas the proposed law provides for a purchase price of 15-30%.
  5. For the lump-sum payment, the old law only laid down guidelines, while the current proposal sets the mandatory level of the discount (minus 30%).

The Hungarian Constitutional Court said in its reasoning in 1993 that “housing is of a special place among the assets of the municipalities by virtue of its function, because it serves to provide the most basic living condition of the people living in the municipalities’ area, namely shelter.” 

In essence, the Court held that the state imposed a heavy burden on municipalities to alienate their properties, thereby infringing both the right of local authorities to property and the principles of social housing.

We agree with the arguments put forward in a concurring opinion, which are still valid and relevant today:

“A right to purchase granted to tenants of flats owned by municipalities does not become a constitutionally justified expropriation even if it is accompanied by full compensation, because the public interest condition is missing. Housing management is not such a reason, because the transfer of municipal housing stock to tenants makes any kind of public housing policy and housing management impossible. Apart from that, it is not possible for the state to pursue a housing policy (or any other economic or social policy) at the expense of other property without constitutional restrictions. If these policies entail the taking of property, this is only possible in the context of expropriation. The adoption of a right to purchase in the Housing Act, even with a guarantee of value that is otherwise covered by the concept of expropriation, bypasses strict constitutional safeguards imposed by both the right to property and the rules of expropriation: by making the right to purchase no longer subject to the conditions of either the right to property or rules of expropriation.”

After the decision of 1993, the recodified provisions of the Housing Act were in force from 31 March 1994. In accordance with the decision of the Court, the right to purchase was valid for only one year and applied only to housing acquired for free from the state previously. In addition, the amendment did not set a ceiling on the price, but only laid down the principles and left the detailed regulation to municipalities. 

The detailed legal opinion of the Streetlawyer Association will be published on our website soon.

Photo: portfolio.hu