3. Setting up a revolving fund scheme to channel investment into affordable housing in Latvia

An effective institutional set-up for revolving fund schemes helps to ensure that the scope of the Fund’s activities is aligned with, and is designed to respond to, broader strategic housing policy objectives; that enabling legislation and structures are in place to facilitate the operation and evolution of the fund’s activities; and that relevant actors are involved in the activities of the funding scheme and have the capacity to carry out their responsibilities.

In line with these objectives, this chapter assesses three dimensions of the institutional set-up in Latvia and four peer countries:

  • the framework conditions to establish and operate the funding mechanism;

  • the scope of activities of the Fund (e.g. new construction, renovations, demolitions, maintenance, land acquisition, as well as the geographic scope of the interventions);

  • the actors and expertise involved in the affordable housing finance system.

For each of these dimensions, the chapter first provides a comparative snapshot, highlighting where Latvia stands in comparison with peer countries, and then builds on the international practices to point at policy recommendations of relevance for Latvia.

Table 3.2 provides a comparative snapshot of the framework conditions to establish and operate a revolving funding scheme for affordable and social housing:

  • All five countries rely on enabling legislation at the national level to regulate the operation of the housing finance system. This legislation sets the terms of the benefits, limits and responsibilities of the different actors therein.

  • The four peer countries have linked the housing funding scheme to a broader national housing policy. This link can be set up through a strategy document based on a prioritisation analysis (Slovenia) or national targets and directions translated into subnational planning decisions (Austria and Denmark). In the Netherlands, the Ministry of the Interior and Kingdom Relations defines the overall housing agenda and framework within which the housing associations operate. Latvia is developing national housing guidelines to make the case for developing the fund and guide its operation.

  • The structure of the funding and financing mechanism varies widely across countries. Latvia’s Housing Affordability Fund is a dedicated fund designed to channel investment into affordable housing – similar to Denmark’s National Building Fund and the HFRS in Slovenia. Contrary to Latvia, the Danish and Slovenian funds are stand-alone institutions with a dedicated staff. Latvia, however, will embed the fund in existing funding institutions (the state-owned development finance institution, Altum, and the Public Asset Manager, the Possessor). By contrast, Austria and the Netherlands do not have dedicated revolving funds per se; rather, the system of actors and financing tools (e.g. in the case of the Netherlands, loan guarantees) operate as a sort of revolving fund, with staff and resources to manage the funds located across housing associations and different government bodies.

The Latvian Housing Affordability Fund is envisaged as a long-term instrument which, building on initial EU Recovery and Resilience Facility (RRF) funding, aims to address a range of housing affordability challenges in the country. To meet these objectives, it will be critical to align the Fund’s activities with the Housing Affordability Guidelines under development by the Ministry of Economics (Box 3.1), and to ensure co-ordination with other housing-related investments and funding streams relating to, inter alia, social housing and housing renovation. The Guidelines are intended to serve as the country’s comprehensive strategic agenda for housing, establishing a core set of priorities related to housing quality and affordability. The Guidelines propose a wide, integrated vision for housing, with a scope that goes beyond that of the Fund (for example, with specific attention to housing for vulnerable groups and housing quality). The Fund focuses on one key priority outlined in the Guidelines: to increase housing affordability for the “missing middle.” It will be important to monitor the contributions of the Fund to the performance indicators at the national level that are set out in the Guidelines.

Equally, the activities of the Fund should be linked to specific targets at the local level, which should be developed in collaboration with municipalities. The experience from Slovenia in ensuring the alignment of the Fund with broader national and local housing targets can serve as a useful reference in this regard (Box 3.2).

Embedding the Fund within existing funding and asset management institutions (Altum and the State Asset Possessor) is an efficient choice in the initial phase. This institutional set-up allows the Latvian authorities to move quickly within the framework of the European Union’s Recovery and Resilience Fund, avoids the costs of establishing a new institution, and can facilitate alignment with existing housing support measures (for example, funding schemes to support housing renovation, which are already provided by Altum). As the Housing Affordability Fund evolves, the Latvian authorities could consider creating a Supervisory Board to guide the Fund’s activities, while maintaining a lean institutional structure. The Board could include representatives of the central government and municipalities from the outset. The experience from Slovenia, for instance, could serve as inspiration (Box 3.3).

Table 3.4 provides a comparative snapshot of the scope of activities financed by the revolving fund schemes, focusing on the type of activities financed and their geographical reach:

  • In most peer countries, the scope of activities eligible for funding support is generally broad, including housing construction, renovation and maintenance. For example, in the Netherlands, there is a broad remit of housing associations’ activities and neighbourhood responsibilities. In Denmark, in addition to new housing construction and renovations, the Fund can also contribute to social and infrastructure investments. The scope of activities of Latvia’s Fund is narrower than that of peer countries, in that it is restricted to the development of new affordable rental housing. Currently developed as a pilot project, Latvia’s fund is established with initial financing of EUR 42.9 million through the RRF, and will only operate only in areas where the biggest market failures have been identified (outside the Riga and Pierīga regions).

  • In all peer countries, the geographic scope of projects funded through revolving fund schemes covers the entire national territory, with projects throughout the country generally eligible to receive funding support. Different approaches exist to geographically target affordable housing within the national territories. In the Netherlands, housing associations generally work in pre-defined housing market regions, specific areas are not excluded from construction. Austria leaves decisions around new affordable housing construction to the LPHA, and the location of affordable units must be co-ordinated with government planning permissions. Denmark provides dynamic criteria at the municipal level to avoid the concentration of affordable housing in social hotspots. Slovenia does not require specific geographic targets, but a majority of housing investments must align with the specific housing needs outlined in the PROSO. The geographic scope of Latvia’s Fund differs, however: at least in the initial phase, funding through the scheme is limited to projects developed in municipalities and rural areas outside the Capital region, in order to address housing investment gaps in regions.

Current plans to limit the activities of the Fund to the construction and maintenance of new affordable rental housing are sensible in the initial phase. Altum is already providing loans for renovation and improvements of existing dwellings. It would be important to ensure in the short- to medium-term that the support schemes complement each other. The distinct scope of each support scheme should help to avoid overlapping activities.

Over time, as the Fund builds up its funding capabilities (cf. see the recommendations under Policy Actions 9 and 11), it may also be relevant to broaden the scope of the Fund’s activities to include, for instance, housing improvements and/or neighbourhood revitalisation, as done in some peer countries (Box 3.4). This would be especially appropriate given the wide range of economic and demographic profiles and housing challenges that are faced by different Latvian regions. Indeed, while some regions, experience high industrialisation and economic development, others lag behind, as also evidenced by significant differences in average income levels across regions. Housing challenges are also diverse across Latvian regions: for example, some regions have an acute need for comprehensive repairs of dwellings constructed in industrialised areas during the Soviet era; others, particularly those in rural areas, require more upfront investments to make new housing development more attractive.

Initially, the Fund aims to incentive investment in the housing stock outside the capital region, where fewer investment opportunities exist. This decision may be justified in the short term. Over time, depending on the resource capacity of the Fund and a clear mapping of housing needs, the Fund could expand the geographic scope to support investment in affordable housing in Riga and the surrounding region, following the approach taken by the four peer countries reviewed in this project. Currently, no systematic process exists in Latvia to monitor the diverse and changing housing needs across regions. The Latvian authorities could develop a clear process to assess regional needs to identify housing quality and investment gaps and address high levels of regional disparities. The decision-making on where, and for whom, the Fund’s action is most needed should crucially hinge on the collection of data and evidence on housing needs.

Assessing regional needs will allow for a better targeting of the Fund’s activities and might justify expansions to the Fund’s radius of action (see also Policy Action 3). For example, the extension of the Fund’s activities to the Capital region might call for greater diversification in the types of housing activities eligible to receive support through the Fund (e.g. beyond new construction), as Riga presents specific housing needs. In particular, as raised in the stakeholders´ activities organised as part of the project, the Fund’s actions in the Capital region (as well as in other regions, where relevant) could also include the acquisition and renovation of existing property, which could then be leased to eligible tenants at an affordable rent. This is the case in Slovenia, for instance, where the Housing Fund of the Republic of Slovenia (HFRS), takes on multiple roles, including as an investor and co-investor of public rental units, a buyer of available housing units on the market, and a purchaser of land for housing construction. Together with its subsidiaries, the HFRS rents out 6 965 housing units across Slovenia as of end 2022. Following the Slovenian example, the Latvian Fund could play a more active role in the acquisition and management of already developed dwellings in the Capital region. Slovenia is also a relevant example for its system for mapping priority areas for development (Box 3.5).

Table 3.7 provides a comparative snapshot of the actors and expertise involved in affordable housing finance and describes their respective competencies. The comparison encompasses both public and private actors, including ministries, implementing agencies, municipalities, housing developers and tenants:

  • National ministries take on a lead policy making role for housing. Across countries (and including in Latvia), national-level ministries are responsible for overall housing policy making and for establishing the legal frameworks for housing policy. Differences in the housing-related tasks performed by each responsible Ministry depend on the particular set-up of the funding mechanism, as well as the overall mandate of the competent Ministry. None of the countries examined in this report has a dedicated Housing Ministry; for instance, the competence for housing policy is the responsibility of the Ministry of Economics (Austria, Latvia); the Ministry of Interior (Denmark, The Netherlands); or the Ministry of Solidarity-based Future (Slovenia)1 (Table 3.7). The scope of activities of the ministry can shape the scope of action relating to housing. For example, the Ministry of the Interior and Housing in Denmark also is also tasked with ensuring a balance between urban and rural areas.

  • Not all countries have a dedicated housing fund. Denmark and Slovenia operate a stand-alone revolving fund with dedicated staff; such a fund does not exist in Austria or the Netherlands. In addition, Slovenia also operates additional funds that operate in co-ordination with the HFRS as part of the broader housing eco-system: eight municipal housing funds complement the national fund, alongside an Eco-Fund that facilitates investment in environmental projects (including environmentally-oriented residential renovations). HFRS and the Eco-fund collaborate on a project basis and exchange information on EU projects and housing financing opportunities. As mentioned, Latvia’s Housing Affordability Fund is not structured as a stand-alone fund with a dedicated staff.

  • Subnational governments also play a key role in housing development. Municipalities are important actors in housing development in Latvia, given their responsibilities for, inter alia, developing territorial plans and setting land use objectives. In peer countries, subnational actors also play an important strategic role in housing policy. In Austria, for instance, regional governments define housing policy through subsidy laws and land use planning. In Denmark, local governments determine whether, where and what types of social housing can be built in their municipality, and allocate up to one-quarter of vacant social dwellings to households in urgent need.

  • Housing associations are important in some countries, while less so in others. In most peer countries, non- and low-profit developers play a central role in developing and renovating affordable housing. These actors are not widespread in Latvia or Slovenia, where the housing market is dominated by commercial for-profit developers.

Policy Action 5: Facilitate the emergence of new housing actors, such as housing associations and/or limited-profit developers. While housing associations currently play a very limited role in affordable housing development in Latvia, there is merit in considering how to foster their development over time. The experience in Austria, Denmark and the Netherlands can serve as inspiration (Box 3.6). This could take the form of targeted outreach to existing associations and capacity development for these types of providers, as well as the creation of tax incentives. For example, Austria and Denmark grant corporate tax exemption for housing associations that engage in the construction of affordable rental housing. In Denmark, housing associations are also exempted from VAT.

Based on peer country experiences, the residential units produced by not-for-profit and limited-profit developers generally offer lower rents than those of market-rate rental housing, and such providers are usually obliged to reinvest revenue surpluses back into new affordable housing development and maintenance. Moreover, such developers can channel funds from both public and private sources to support affordable housing development, in compliance with EU State Aid regulation (Box 3.7).

The experience of other countries, and in particular Austria, suggests that non-profit housing associations typically target a distinct segment of the housing market that is otherwise not covered by commercial for-profit developers. As such, there could be a role for limited-profit developers, smaller local contractors and/or municipal housing companies to support the Fund’s housing development across Latvia.

Increased engagement of municipalities can help to ensure that the scope of the Fund’s activities more closely reflects and responds to local needs. Such involvement would also be in line with international practices (e.g. Denmark, Slovenia Box 3.8) that facilitate an important role for municipalities in the housing sector, for example in terms of contributing to the development of a housing vision or guiding the decision-making on the location of new affordable housing construction.

The Regulation establishing the Fund stipulates that a share of the rental revenue will eventually be channelled into the Fund to contribute to the funding of new affordable housing construction (Cabinet of Ministers (Latvia), 2022[9]). This “revolving” dimension of the funding scheme relies implicitly on an important role for tenants; however, their role in developing affordable housing in Latvia could be more explicit in the Fund’s activities, and recognised from the start. Once the dwellings are put into operation and occupied, tenants could be represented in the Supervisory Board of the Fund, as is the case in other peer countries (e.g. Denmark and the Netherlands, Box 3.9). As the ultimate beneficiaries/users of the Fund, tenants can serve as a sounding board to new investments and help provide advice and feedback on the management of the existing stock. In addition, a Tenant Committee should be established to handle disputes and complaints related to the management and operation of the affordable rental units.


[9] Cabinet of Ministers (Latvia) (2022), Regulations of the Cabinet of Ministers No. 459, Regulations on support for the construction of residential rental houses in the European Union Recovery and Resilience Mechanism Plan 3.1, https://likumi.lv/ta/id/334085-noteikumi-par-atbalstu-dzivojamo-ires-maju-buvniecibai-eiropas-savienibas-atveselosanas-un-noturibas-mehanisma-plana-3-1 (accessed on 23 May 2023).

[11] Crites, J. (2018), “Woonbond: Representing the Tenants of the Netherlands”, Housing Futures, https://housing-futures.org/2018/01/11/woonbond-representing-the-tenants-of-the-netherlands-2/.

[1] ECSO (2019), “Policy Fact sheet, Slovenia, National Housing Programme, Thematic objectives 1&3”, European Construction Sector Observatory (ECSO).

[7] European Commission (2022), Competition Policy: State Aid Overview, https://competition-policy.ec.europa.eu/state-aid/state-aid-overview_en.

[3] European Commission (2019), European Construction Sector Observatory: Policy fact sheet - Slovenia, National Housing Programme.

[8] European Commission (2011), State aid: Commission adopts new package on State aid rules for services of general economic interest (SGEI) – frequently asked questions.

[2] Housing Fund of the Republic of Slovenia (HFRS) (2022), Annual Report of the Housing Fund of the Republic of Slovenia for 2021, https://ssrs.si/wp-content/uploads/2022/05/P_LPSSSRS21.pdf (accessed on 23 May 2023).

[5] Housing Fund of the Republic of Slovenia (HFRS) (2018), The Housing Fund of the Republic of Slovenia - Short presentation, https://ssrs.si/wp-content/uploads/2018/07/Short-presentation-of-HFRS.pdf (accessed on 23 May 2023).

[6] Klien, M. et al. (2023), The Price-Dampening Effect of Non-profit Housing, WIFO Research Briefs, (6), 10 Seiten. Auftraggeber: Magistrat der Stadt Wien, https://wifo.at/pubma-datensaetze?detail-view=yes&publikation_id=70772 (accessed on 24 May 2023).

[4] Mežnar, Š. et al. (2013), “The Paradox of Slovenian Housing Stock: Lacking a Proper Management?”, pp. 1425-1433, https://EconPapers.repec.org/RePEc:tkp:mklp13:1425-1433 (accessed on 23 May 2023).

[10] Vestergaard, H. and K. Scanlon (2014), “Social Housing in Denmark”, Social housing in Europe, https://doi.org/10.1002/9781118412367.ch5.


← 1. Up to February 2023, Slovenian housing policy was under the responsibility of the Ministry of Environment. This has changes with the Act on State Administration which transferred this responsibility to the Ministry of Solidarity-based Future.

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