INNOVATIVE HOUSING POLICY TOOLS FOR LOCAL GOVERNMENTS IN SHRINKING COMMUNITIES WITH A LARGE SHARE OF PRIVATELY OWNED APARTMENTS: A CASE STUDY OF VALGA, ESTONIA.

• Author: Tintera, Jiri
• Position: Case study

1. Introduction

   Urban shrinkage is a frequently occurring phenomenon in older regions across the globe. Once prosperous industrial or trade centers are now reeling with a loss of population, outdated infrastructure, an oversupply of inadequate housing and financially strapped municipal governments unable to respond to this downward trend (Ryberg-Webster, 2016). Scholars (Elzerman and Bontje, 2015; Miota, 2015; Prada-Trigo, 2015; Sanchez-Moral, Mendez and Prada-Trigo, 2015; Sousa and Pinho, 2015) stress the need to develop coherent housing rehabilitation policies as one of the basic tools to deal with urban shrinkage. Impact of shrinkage on housing depends on the actual institutional settings and market conditions in a particular location. Wiechmann and Pallagst (2012) describe different local strategies to deal with housing in shrinking communities in Germany with a high rental housing sector and in the USA with prevailing owner-occupation of apartments. Similar to other type of revitalization urban brownfields, ownership constraints represent one of the main barriers to housing redevelopment (Adams, De Sousa and Tiesdell, 2010). Private ownership of problematic (abandoned, underused or low quality) residential houses weaken the position of municipalities as an active player in the residential market and is often used, often as an excuse, for the absence of housing policy in shrinking communities.

   Due to the large-scale privatization of apartments after the collapse of the Soviet Union, a large majority of apartment buildings in Estonia are owned by the private sector. In Valga, a small town in South Estonia, the sustained decline in population has resulted in a high rate of housing vacancies. Thus, the overarching research question for this study is: in an area of urban shrinkage, what kind of housing policy can local government develop considering the prevailing private ownership of apartments? This paper seeks to answer two main questions: (1) What role can housing policy play in dealing with shrinkage?; (2) What are the tools for local government to overcome ownership constrains in housing demolitions and redevelopment?

   This paper uses Valga as a case study to examine the complexity of housing policy within shrinking cities where a large majority of homes are privately owned. Firstly, the paper briefly sets the context of urban shrinkage and instruments of housing polices in Estonia and then gives a deeper overview of the drivers and consequences of urban shrinkage on housing in Valga. A set of applicable lessons and recommendations for local governments in dealing with housing in shrinking communities is then drawn from the example of Valga.

2. Causes and consequences of urban shrinkage

   The term 'urban shrinkage' generally applies to a city or region that is experiencing a decline in population due to reasons such as demographic composition (aging residents, low birth rates etc.) and lack of jobs or economic prospects (Reckien and Martinez-Fenandez, 2011; Martinez-Fernandez et al., 2012; Kotilainen, Eisto and Vatanen, 2015; Bernt, 2014; Sousa and Pinho, 2015; Wiechmann and Bontje, 2015). Shrinkage in Eastern Europe is more specifically the result of a combination of post-socialist and post-Fordist transformation including deindustrialization, suburbanization, post-Soviet re-composition and demographics factors (Wiechmann and Pallagst, 2012). The causes and consequences of urban shrinkage are well documented in scholarly literature. Initial attention to this phenomenon came from scholars in the US and Western Europe who discussed urban shrinkage from different points of view such as economic (Bogataj, McDonnell and Bogataj, 2016) and social aspects (Hollander and Nemeth, 2011; GroBmann et al., 2015; Rocak et al., 2016), impacts of depopulation on land use (Kroll and Haase, 2010) and the issue of urban governance of shrinking cities (Wiechmann, 2008; Rhodes and Russo, 2013). In recent years, Eastern European researchers have also discussed the issues at length (Leetmaa et al., 2015; Puzulis and Kule, 2016; Stryjakiewicz and Jaroszewska, 2016). While most of the research examines the causes and consequences of shrinkage in larger cities, a few authors have shed light on small cities and rural areas (Leetmaa et al., 2015; Puzulis and Kule, 2016; Wirth et al., 2016).

   Housing vacancies and urban brownfields are amongst the most prominent symptoms of shrinkage (Wiechmann and Pallagst, 2012; Haase et al., 2016). The overcapacity of houses and the outdated state of maintenance cause a decrease in real estate values (Elzerman and Bontje, 2015; Bernt, Colini and Foerste, 2017). As Mallach (2011) states, housing markets often cease to function in shrinking cities and the unequivocal trajectory of supply and demand for housing points to long-term vacancy. One of the main reasons for vacancy is a market gap between the costs of restoration and the post-restoration market value of the property, which discourage the private sector to invest in housing redevelopment (Mallach, 2011). Similarly, the private sector is not interested in building new apartment buildings. The outcome is a largely low quality of residential premises and the shortage of quality apartments. The quality of basic amenities is one of the important factors in deciding whether the building is in use or abandoned (Prada-Trigo, 2015). When the quality of basic amenities in an apartment building drops, those who can afford to move out relocate. Apartment owners with the lowest income remain in the building, but they cannot afford to pay for maintenance and the building becomes uninhabitable (Prada-Trigo, 2015).

   In addition to the lack of modern amenities inside apartment buildings, housing vacancies and abandonment create a negative image of the community. Residents lack any sense of place attachment and become ambivalent to improving their quality of life. The psychological link between citizens and their place of residence has a significant effect on their activity in their communities (Reckien and Martinez-Fernandez, 2011; Miota, 2015; Wiechmann and Bontje, 2016).

   The consequences of shrinkage on the residential sector depend on specific institutional settings and market conditions in the community. Bernt, Colini and Foerste (2017) describe different outcomes of depopulation on housing sector in the US and UK on one hand, and Germany on the other. In the US and UK owner-occupation, high mortgage debt and liberalized markets are a norm. In the context of Germany, the rental sector is predominantly high within the housing market (GroBmann et al., 2015). German scholars often tend to focus largely on vacant housing, the US on poverty, segregation and crime (Bernt, 2014). Due to the large-scale privatization of apartments after the collapse of the Soviet Union, owner occupied housing is prevalent in Estonia similarly to the most of the post-soviet and post-communist countries in Eastern Europe. Current research on housing, within the context of shrinkage, focus dominantly on US or Western Europe countries (Wiechmann and Pallagst, 2012; GroBmann et al., 2015; Miota, 2015), where the legal and economic framework differs from conditions in Eastern Europe. This paper aims to present a set of innovative housing policy tools that can be used spatially by local governments in Eastern Europe.

3. Housing revitalization as a tool to deal with shrinkage

   Shrinking regions need a positive narrative for a future perspective. The aim of urban policy is to create a future perspective for inhabitants (Elzerman and Bontje, 2015). Urban development should be a matter of achieving maximum quality of life for the maximum number of people (Sousa and Pinho, 2015). Housing policy plays an important role in achieving this goal and is acknowledged among the scholars. Sanchez-Moral, Mendez and Prada-Trigo (2015) see housing together with social cohesion as the noteworthy elements of recovery from shrinkage. Sousa and Pinho (2015) set housing policy consisting of demolition and reconstruction as one of the five most important approaches to deal with the consequences of shrinkage. For Elzerman and Bontje (2015) a suitable policy response to shrinkage consists of the acceptance of shrinkage, developing a long-term vision, engaging the inhabitants in the process and fostering intensive regional collaboration and restructuring the housing market. Miota (2015) sees the reactivation of housing market through massive housing demolition and housing diversification, renovation of public space as a tool for improvement of residential attractiveness.

   In a dysfunctional housing market where private investments in residential buildings are absent, the local government needs to play an active role in retrofitting the housing stock. The leadership capacity of local government in dealing with the consequences of shrinkage is crucial (Leetmaa et al., 2015; Sanchez-Moral, Mendez and Prada-Trigo, 2015). The goal of urban policy should be a smaller, but nonetheless viable city (Kotilainen, Eisto and Vatanen, 2015). These rightsizing strategies require demolitions as a way to stabilize the value of properties by the reduction of housing oversupply. If there is no effective market demand and no realistic prospect of reuse, buildings need to be demolished (Mallach, 2011). Hackworth (2016), however, points out that demolition itself, if not accompanied by some other form of...