The Danish social housing sector

Social housing

Social housing is constructed and run by social housing organisations. Social housing for the elderly may, however, be constructed and run by the Danish municipalities, regions and independent organisations.

The term “social housing” is a collective designation for three different types of housing; social family dwellings, social dwellings for the elderly and social dwellings for young persons. Where care and service areas are attached to social dwellings for the elderly, the dwellings are termed care homes. Social family dwellings and social dwellings for the elderly may be established as shared housing arrangements.

The Danish social housing sector comprises a total of approx. 700 social housing organisations with 7,500 divisions (estates) in total, all of which are run on a non-profit basis. There are a total of approx. 595,000 social dwellings, which add up to about 20 per cent of the total Danish housing stock of around 2.7 million dwellings. 490,000 social dwellings or 82 per cent of the Danish social housing stock are family dwellings, while 75,000 (12 per cent) and 30,000 (6 per cent) are dwellings for the elderly and dwellings for young people respectively.

Housing organisations are subject to municipal supervision, and a number of regulations etc. exist on the types of business which these organisations may undertake. Their main objective is to construct, rent out, manage, maintain and modernise social dwellings with ancillary common facilities, yet these organisations are further able to carry out more closely defined ancillary activities, so long as there are watertight barri-ers between these activities and the main area.

The regulatory framework regarding the Danish social housing sector is found in two principal acts, i.e. the Consolidation Act on Social Housing etc. and the Consolidation Act on the Rent of Social Dwellings, as well as a number of executive orders.

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New management of social housing construction
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The management of social housing construction was changed as of 1 January 2010 and is now based on a model of target and agreement management. The central aspect of the model is dialogue and collaboration between the local council and the housing organisation, and is focused on problem resolution and long-term development. Furthermore, the model allows for greater scope for locally adapted solutions, which is essential due to the great variances between local housing markets. 

The main elements of the management model are as follows:

  • Objectives and management targets. Objectives and management targets for social housing have been laid down in a number of different areas. The use of target management aims to highlight management targets and values, which the social housing sector is to work towards achieving. Fur-thermore, it should form a solid basis for management work in housing organisations and local councils.
  • Management dialogue. A proactive management dialogue should be established between local councils and housing organisations.
  • Agreements. Increased focus on the use of agreements between local councils and housing organi-sations, for mutual coordination, decisions regarding exceptional efforts etc.
  • Self-policing. The self-policing of the housing organisations must be strengthened, including man-agement audits and quality control. This will contribute to moving the focus of the municipal su-pervision from the organisation’s internal matters to more general and cross-disciplinary problems in the housing organisation or the housing sector as a whole.
  • Documentation. Documentation of the operations and outcomes of the housing organisation to be used for the management dialogue between the housing organisation and the local council must be improved.

As part of the implementation of the management reform, administrative rules were laid down and a handbook was published. The reform was gradually introduced during 2010.

Objectives and management targets

The overall objective of the Danish social housing sector is to solve urgent social problems in housing. This objective is implemented in an objects clause for the social housing sector, namely section 6 (1) of the Consolidation Act on Social Housing etc., which states that the main objective of social housing or-ganisations is to provide appropriate housing for those in need thereof at a reasonable rent, and to allow tenants influence over their own living conditions.

In the following paragraphs a number of general management targets for social housing organisations are laid out:

  • The housing organisation must ensure the responsible and efficient management of the hous-ing organisation and its divisions.
  • The social housing divisions must function well financially as well as socially and appear physi-cally to be modern and well-maintained.
  • Buildings must be of high quality, and the housing organisation should seek to obtain the high-est possible value for the funds invested. Expenses and rent such be kept to such a level as to allow the dwellings to be let in accordance with the objectives.
  • When letting dwellings, the housing organisation must favour groups that have difficulties in acquiring housing at general market terms. Moreover, the housing organisation must promote a varied composition of residents.
  • The housing organisation management must exercise good management ethics and work to promote efficient resident participation.

Finally the act states that the housing organisation and the local council are bound to work together to implement the objectives and targets of the act. 4

The purpose of the objects clause and targets is to commit the housing organisations to work towards specific goals within central areas. Moreover the rules express fundamental standards for the social housing sector and for the cooperation between housing organisations and local councils.

Management dialogue

Previous supervision was determined to be based excessively on legality control and the approval of isolated issues. It was found necessary to establish a framework for a more proactive, dialogue based supervi-sion, which was better able to accommodate the local development in housing policy.

Due to this assessment, the local council is now bound to engage in dialogue by way of annual meetings with the individual housing organisations regarding their activities, including development of individual housing divisions (management dialogue). Once a year the housing organisations must prepare and submit a report on its activities to the local council, which forms the basis of the annual meetings. Furthermore the local council must publish a report on the management dialogue undertaken on the municipality’s website.

The local council may issue orders deemed necessary to ensure the sound operation of a social housing organisation and its divisions. Furthermore the local council may appoint a manager to take overthe administration of a housing organisation, in the event that the existing rules have been violated.

Ghettos
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The Danish ghetto policy comprises efforts aimed at large, typically social, housing estates, which are char-acterised by massive unemployment, a worryingly large number of children and a severe over-representation of ethnic minorities.

The ghetto policy has been put in place to consider both:

  • The residents: Parallel societies create constraints rather than opportunities, have a negative effect on immigration, counteract efforts in the areas of employment and social welfare and leave chil-dren and young people with poor job and education prospects.
  • The community: Housing estates which are physically and socially isolated from the surrounding community create good conditions for the emergence of parallel societies with deviant norms of behaviour and values, and constitute a democratic threat to social cohesion.

Since 2002, the ghetto policy has been presented in a number of government proposals, most recently in "Denmark 2020", the Danish government’s policy programme from February 2011. In this programme, the Danish government vowed to formulate a comprehensive ghetto strategy, and this strategy was introduced in the autumn of 2010 under the name "Bringing the ghetto back to the community – breaking away from parallel societies in Denmark".

The rationale for this strategy is that certain housing estates shut them-selves off to the surrounding community, and their residents remain more deeply attached to their country of origin than to Denmark. The ghettos are thus to be transformed, so that they may become an integrated part of Danish society.

As something completely new to this strategy, the targeted areas were mentioned by location. A total of 29 areas were pointed out, all of which are characterised by having a large number of unemployed residents, a relatively high number of criminals and a large number of people with immigrant backgrounds. 5

The strategy focuses on five areas:

  • More attractive housing estates. Through demolitions and disposal of property, the fortress like appearance of these estates must be broken.
  • A more balanced composition of residents. The inflow of residents must be controlled through a halt in the allocation of dwellings to fugitives and people from non-EEA countries.
  • A strengthened effort for children and young people. Young people must improve their qualifica-tions and learn to read Danish. This is to be achieved through modified school districts and schools which combine school activity with after school programmes, for example. Furthermore, obligato-ry public day care for bi-lingual children as well as strengthened parental responsibility has been introduced.
  • A move away from passive income support. Job centres should be established in ghetto areas to help residents on public income support back into employment or education. The Danish 450-hour rule, which means that both partners of a married couple have to document having worked 450 hours in a regular unsubsidised job within the past two years in order to retain both of their wel-fare checks, must be tightened, and housing benefits are to be reduced, where a lack of parental responsibility is seen.
  • Combating social fraud and crime. A country wide police effort as well as an increased coordina-tion of efforts to combat the exploitation of unemployment benefits, social assistance and early retirement benefits should reinstate a sense of respect for Danish law.

The strategy comprises a total of 32 initiatives as well as a broadened strategic alliance with the 17 Danish municipalities in which the ghetto areas are found. The aim of this strategic alliance is for the Minister for Social Affairs to agree on initiatives with each of the municipalities involved.

Financial independence
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The housing organisations’ divisions are the foundation of the operations of the housing organisations. The divisions are generally managed by the housing organisation under which they belong. The divisions are financially independent from each other and from the housing organisation. Each individual division is thus an independent financial unit, which means that its income (=rental income) must cover its expenses. A division is only liable for its own engagements and is thus never liable for engagements of other divisions or engagements of the housing organisation. Likewise, a housing organisation is not liable for the engage-ments of its divisions, unless it has assumed such liability.

Financing
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Over the years, social housing has been financed in different ways, and the amount of funding provided by the state, the local authorities and the tenants, respectively, has varied. One common feature has been that the municipalities have provided both a direct grant as well as loan repayment subsidies. Since 2008, the acquisition price for social housing to which the local council has committed to granting loan repay-ment subsidies has been financed as follows:

  • Tenants’ lease premiums: 2 per cent
  • Municipal basic capital: 14 per cent
  • Mortgage loans: 84 per cent

For social dwellings for young people, further subsidies are granted to ensure that resident payments may be kept low. 6

For the service areas which are established in connection with housing for the elderly, the state provides subsidies amounting to DKK 40,000 per dwelling, yet a maximum of 60 per cent of the acquisition price for the service areas.

Lease premiums

Lease premiums are paid by tenants upon taking up residence, and are repaid to the tenants at the end of tenancy. The lease premium is not adjusted.

Basic capital

Basic capital loans are provided by the municipality in which the dwellings are intended to be established. The loans are interest-free as well as amortisation-free up to 50 years after the occupancy of the property, and cover 14 per cent of the acquisition price of the dwellings. As a rule, the municipalities are not able to raise loans of their own to finance the basic capital.

Mortgage loans

The type of loan which may be used to finance new construction is specified by the Minister for Social Af-fairs in collaboration with the Minister for Economic and Business Affairs, so that the mortgages may swiftly and flexibly be adapted to market conditions, for the purpose of minimising state expenditures. At present new dwellings must be mortgaged with 30 year adjustable rate mortgages, and the remaining balance is refinanced annually. As a requirement, the municipality must provide a guarantee for the mortgage loans.

Resident payments

As a rule, resident payments amount to 2.8 per cent annually of the property acquisition price, plus current contributions to mortgage loans, amounting altogether to 3 per cent of the property acquisition price. Payments are due initially three months after the borrowing date and are adjusted annually for 45 years; for the first 20 years subject to the entire increase in the net consumer-price index, and subsequently by 75 per cent of the increase. The first adjustment is made one year after the first payment.

Loan repayment subsidies

The difference between the residents’ payments and the total payments on the loan is paid by the state as loan repayment subsidies.

As described, resident payments are set and adjusted irrespectively of the loan type. If resident payments exceed the total payments on the loan within the 40 years following the borrowing date, the excess amount will be transferred to Nybyggerifonden (a new construction fund). As the loans have a 30 year maturity, the state gains considerable revenue between the 30th and 40th year after the borrowing date. After the 40th year, rent fees are not lowered; instead the funds are transferred to the Danish Nation-al Building Fund (Landsbyggefonden), the housing organisation’s Disposition Fund and the Nybyggerifonden, one third to each, see other.

Ordforklaringer

Nybyggerifonden

Lovbestemt konto oprettet i 1998 i Landsbyggefondens regnskab med henblik på at yde ydelsesstøtte til etablering af almene boliger i fremtiden.
New construction
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The municipalities make commitments to supporting the construction of new social housing, and thus de-cide the number of new social housing divisions to be constructed. These municipal commitments are sub-ject to the following conditions:

Firstly, the municipalities must co-finance new construction by providing basic capital, as explained above. The size of the loan is of major significance to the scale of operations and is used as an overall management tool.

Secondly, a ceiling has been imposed on acquisition costs. The cost ceiling took effect on 1 January 2004 with the purpose of avoiding very expensive housing, by establishing an upper limit for the acquisition cost. The aim was to maintain rents at a reasonable level.

Rent
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The rent for social housing is fixed based on a balance principle, which means that the income of the hous-ing organisation must cover all its expenses. Besides the aforementioned capital expenses (approx. 3 per cent of the property acquisition price), the rent covers all operating expenses, such as maintenance, cyclical renewal, renovation, taxes and duties, administration etc.

Letting rules
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The basis for the letting of social family dwellings is that they are let out according to a seniority-based waiting list.

In order to ensure the most appropriate use of the housing stock, certain groups of people take priority over others on the waiting list:

  • Elderly and handicapped persons take priority with regards to certain dwellings, which are suitable for the elderly and handicapped.
  • People who already reside in one of the housing organisation’s dwellings take priority over external applicants (right of advancement).
  • Arrangements can be made between the housing organisation and the local authority to ensure that families with children have priority with regards to family-sized dwellings.

In order to solve urgent social problems, which normally means homelessness, the local council can decide to exercise its right to nominate tenants for one quarter of vacant family dwellings and dwellings for young persons.

Beyond this point the local council and the housing organisation can agree to extend the right to nomination to include up to 100 per cent of vacant dwellings. The nomination right takes priority over the waiting list. When the municipality nominates a tenant, it guarantees to pay for any repairs to the dwelling when the tenant vacates the premises.

The use of waiting lists, including the rules on the right to advancement, was fixed by law in 1992 to create a transparent, fair and simple set of renting rules. However, it also created a more rigid system, which left little room to influence the composition of residents.

Due to this fact a number of changes have been made to create flexibility in the waiting list system. With flexible letting rules the local council and the housing organisation can agree to allocate vacant social family dwellings based on selected criteria. As a maximum, however, the arrangement may include all vacant dwellings for which the right to nomination is not exercised by the municipality.

There are no limitations on the criteria which may be selected, as this will be subject to local conditions. In less privileged social housing divisions for instance, arrangements can be made to give selected groups, e.g. students or commuters who work in the municipality, priority over others on the waiting list. In more well-functioning divisions, on the other hand, it may be beneficial to make arrangements to prioritise disadvan-taged groups.

Additionally, where divisions have a high number of residents who are not in employment, the municipali-ties have been given the option of rejecting applicants who have received welfare benefits or a starting allowance for 6 consecutive months. The municipalities are further able to allow dwellings to be vacant for up to six months, if they are working actively to attract new tenants. When this happens, the housing or-ganisation and the local council make arrangements for the reimbursement of the lost rental income, so as not to put a strain on the division.

Finally, housing organisations and municipalities in troubled areas are able to rent out a number of vacant dwellings through public advertising, disregarding the waiting list.

The funds of the public sector
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Means are collected from the social housing sector and placed in numerous funds, with the purpose of increasing the sector’s self-financing and countering problems in existing housing. The collection of means takes place both locally in the individual housing organisation’s Disposition Fund, and centrally in the Na-tional Building Fund.

The Disposition Fund

The disposition funds belong to the individual housing organisations and function as local financial cush-ions. The funds are financed by the individual housing divisions, where a contribution to the fund is collect-ed through the rent, until the fund has reached a certain minimum size. Currently, DKK 227 per dwelling is collected annually, until the total capital of the fund amounts to DKK 4391 per dwelling (2011 figures). In addition to this, one third of the available funds from the repaid mortgage loans is transferred to the Dispo-sition Fund (see below).

The National Building Fund

The National Building Fund was established in 1967 with the purpose of providing financial support and skilled assistance to social housing organisations.

The National Building Fund is financed through payments from social housing divisions in the form of com-pulsory contributions from tenants of divisions established before 1970, as well as payments from repaid mortgage loans.

The compulsory contributions amount to a total of DKK 827 million per year (2011 level). The majority of the contributions are adjusted according to a regulatory index for housing construction.

Payments from repaid mortgage loans: As a central principle of the Danish social housing sector, the rent payments that cover a housing division’s mortgage expenses continue after the division’s mortgage loans are repaid. Housing financed prior to 1 January 1999 transfer two thirds of the liquid assets that are gained as the loans are repaid to the National Building Fund. The remaining third stays in the local Disposition Fund of the housing organisation and functions as a local financial cushion.

For housing financed after 31 December 1998, the liquid assets are divided equally with one third to the local Disposition Fund and two thirds to the National Building Fund. The National Building Fund transfers half of the assets to the Landsdispositionsfonden (a central disposition fund) and half to the Nybyggerifonden (a new housing construction fund).

In 2008, payments to the National Building Fund from repaid loans amounted to DKK 343 million. Payments will rise noticeably over the coming years and will amount to an estimated DKK 2,520 million in 2020 and DKK 2,440 in 2030 (2011 prices). 9

The means collected by the National Building Fund are re-channelled back to the social housing sector via the three following mechanisms:

Drawing rights

A housing organisation is entitled to grants of 60 per cent of its compulsory contributions. These grants can be obtained for construction, conversions and extensions, modernising and improvements etc. of social housing. As such, this scheme functions as a savings scheme.

Landsdispositionsfonden (The central disposition fund)

The remaining 40 per cent of the compulsory contributions are transferred to the landsdispositionsfonden, as are 2/3 of the liquid assets collected from divisions financed before 1999, and as well as 1/3 of liquid assets from divisions financed after 1998. The liquid assets are put to use in the following ways:

  • Grants for renovations. These grants can be used for renovations, improvements, maintenance, re-furbishing, jointing of flats, and environmental improvements. Between 1991 and 2002, the Landsdispositionsfonden granted an average of DKK 1,096 million for renovations. Between 2002 and 2006, the figure was DKK 1,780 million. Between 2007 and 2010 the fund was able to grant up to DKK 2,400 million. The sum total available for grants is DKK 5,140 million in 2011, DKK 4,140 mil-lion in 2012, DKK 3,640 million in 2013 and an average of DKK 2,640 million per year between 2014 and 2016.
  • Social and preventive measures. In an effort to reverse the trend in socially vulnerable housing ar-eas and to prevent the emergence of such areas in the future, the Landsbyggefonden was able to provide grants to social and preventive measures of up to DKK 400 million between 2007 and 2010. Of the DKK 400 million, DKK 200 million a year could be used to reduce rents in socially vulnerable housing divisions. This effort continued during the period 2011-2014, with DKK 440 million per year, of which DKK 220 million may be used for the reduction of rents. Grants are provided for the purpose of carrying out a broad spectrum of efforts in the areas in question. The subsidised effort must be part of a unified plan, approved by the municipality. Furthermore the effort must be coor-dinated and evaluated locally in the community to which the housing division belongs.
  • Funding for demolitions. From 2011 to 2014, the Landsbyggefonden is able to finance the fund’s share of funding for demolitions in vulnerable social housing areas with up to DKK 500 million in to-tal.
  • Changes to infrastructure. The Landsbyggefonden is able to provide up to DKK 150 million per year between 2011 and 2016 to support infrastructural changes in ghetto areas.
  • Support towards running expenses. On top of the above, the Landsdispositionsfonden is able to provide support towards the running expenses of troubled housing divisions, in the form of grants or loans. These can be used to cover deficits, for running expenses etc.
  • New construction grants. A part of the funds of the Landsdispositionsfonden is used to finance the construction of new social housing. For constructions financed between 2002 and 2004, the Landsdispositionsfonden reimburses the additional expenses for loan repayment subsidies which the state incurs due to the lowering of the municipal basic capital. For constructions financed be-tween 2005 and 2006, the fund reimburses 50 per cent of the state’s expenses towards loan re-payment subsidies. For constructions financed between 2007 and 2014, the fund reimburses 25 per cent of the loan repayment subsidies.

Nybyggerifonden (Housing construction fund)

The Nybyggerifonden collects means from housing financed after 1998 only. Firstly these divisions transfer any profits they may gain during the first 35 years following the time of financing to the Nybyggerifonden. Such profits are gained if resident payments towards the division’s mortgages exceed mortgage repayments, due to the annual mortgage refinancing (adjustable rate mortgages). Secondly these divisions transfer one third of liquid assets gained after the 35th year following the financing. As a result, it may take up to

30 years before the Nybyggerifonden gains any considerable funds. The resources of the fund must be used as loan repayment subsidies for the construction of social housing.

Ordforklaringer

Landsdispositionsfonden

Lovbestemt konto i Landsbyggefondens regnskab. Fonden kan yde særlig driftsstøtte til problemramte boligafdelinger. Oprettet ved lovændring i 1987.

Nybyggerifonden

Lovbestemt konto oprettet i 1998 i Landsbyggefondens regnskab med henblik på at yde ydelsesstøtte til etablering af almene boliger i fremtiden.
The Building Defects Fund (Byggeskadefonden)
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Besides the Landsbyggefonden, for housing financed after 30 June 1986, a Building Defects Fund has been established to cover these divisions’ potential costs towards defects and quality assurance in general (Year-one and year-five building inspections). The fund comprises all social housing as well as subsidised privately owned cooperative housing established after 30 June 1986. The fund's expenses are covered by grants of 1% of the initial construction costs from every housing scheme. Hence the fund functions as a sort of insurance scheme. The fund covers 95 per cent of the cost of any repairs, and the remainder is paid by the resi-dents.

As of 1 July 2011, the fund now covers damages incurred as a result of renovations of social housing and other subsidised housing. This is partly to protect tenants against unintended rent increases due to damag-es incurred during renovation

Supervision
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The local council of the municipality in which the construction of a new housing division is intended makes the commitment to subsidise the construction.

The local council of the municipality in which the housing organisation in placed supervises the actual hous-ing organisation, while the individual divisions are supervised by the local councils of the municipalities in which they are placed.

The local councils are to make sure that divisions are run in accordance with current legislation. Beyond this the local councils ensure a number of more specific matters, such as the sounds state of repair of housing divisions, and furthermore approve various isolated issues.