13 pięter - book review

A yet another book, which has come into my hands belatedly, oddly enough the read nearly ideally coincided with the tenth anniversary of the work being first published. Basically, I once had a chance to meet him in person and since then am fond of Filip Springer’s essays, despite not being truly convinced by his leftist tilt. Recently he provoked an uproar by claiming for climate-related reasons, building detached houses should be gradually prohibited. Extreme views and ideas activate defiance and help the pendulum swing into the other extreme.

From today’s perspective, the book, dealing with housing pathologies in Poland, is a sort of outdated. It begins with a bleak picture of pre-WW2 Warsaw where growing number of residents was not matched by a rising number of flats caused a huge overcrowding in dwellings occupied by a working class. For 90% of families living in the capital of Poland having a housing unit (unit as a separate room, nor a separate flat) for the entire family (i.e. with no roommates) only was a luxury.

The author for some reason omits 45 years of communism, when the number of new dwelling relatively well caught up with rising population of Poland and standards of living improved (in spite of all the drawbacks of the bygone system). The author arranged his book as a series of stories and interviews, in which he attempts to paint an accurate picture of reality, without evaluating it or pointing what is right and what is wrong. But if you read carefully between the lines, you get several messages, e.g. that home ownership is overrated or mortgages are evil and will enslave you.

The book was written when the memory of property boom of 2006-2008, accompanied by reckless mortgage lending in CHF was relatively fresh. Also bankruptcies of developers were much more frequent a decade ago than they are now. But on the other hand, the book was written soon past the only property market serious correction, when prices between 2008 and 2012 fell by 25% in nominal terms.

For no apparent reason Mr Springer fails to crack down on pathologies of modern housing estates, such as non-functional layouts, tiny distances between buildings, rows of terraced houses built in the middle of nowhere and many other.

The accursed ownership, as his interlocutors point out, gives a sense of security. To make a house and home you need to own it. Such approach has been driven by decades of private ownership being eradicated by communists and then by years of landlords’ primacy over tenants. The properly rental market has also evolved over the last decade. With rising supply of dwellings for rent (flat purchased for investment purposes when bank deposits fetched a mediocre return), bargaining power of landlords waned and many of them began treat tenants as equal counterparties. A stride has been made, yet a flat rented from a private landlord still does not offer stability and its affordability remains as poor as it was a decade ago.

Unlike the author, I believe properties should be subject to free-market rules, but I would expect the government to help supply and demand meet where prices are affordable. Sadly, recent governments mostly boosted demand by subsidising mortgage loans, instead of taking steps towards increasing supply of available dwellings. I refer here not only to building council flats or encouraging property developers to pursue new projects. It is also about levying taxes on uninhabited properties, to discourage those with surpluses of money from speculative purchases.

A residential property - what makes it a good dwelling?

In the previous post I attempted to unravel factors which impact attractiveness of a property's location. As a follow-up to those musings, I complement them with thoughts on features of a specific dwelling, which make it a comfortable place to inhabit.

Layout is the key, I would respond, if somebody asked me about only one characteristic to be taken into consideration. The term, nevertheless is broad is could be broken down into a few sub-features I pay attention to.

Shape of rooms determines their functionality. A possible square-like rectangles are preferable. I am not fond of hexagons, triangles, half-circles and the likes. Tram-like rectangles also do not add to practicality of an interior.

Most people appreciate natural daylight at home, hence reasonably large windows, orientation of rooms against cardinal poinst and lack of nearby buildings which obscure the sun play a vital role in choosing a flat. I am of the opinion too much sunlight in summer might be cracked down on with blind rollers, while insufficient sunlight cannot be made up for. My own preference would be to have a living room with windows facing south and/or west, kitchen to the east and/or north, while for bedrooms I have no clear preference, albeit I lean towards getting up with the sun, so I tilt towards eastern exposure.

With respect to the layout, one of major questions is whether to have kitchen as a separate room or to make it a part of a dining or living room, often with limited access to daylight (no dedicated window). I see drawbacks of both solutions, but lean towards a separate room with a table for daily dining. Nevertheless in crampy dwelling a kitchen combined with a living space appears to be the most reasonable choice.

Before COVID-19 the optimum number of rooms (in Poland we count rooms, unlike in the UK, where bedrooms are counted) was equal to the number of inhabitants, e.g. a dwelling suitable for a 2+2 family would consist of a living room and 3 bedrooms. These days, when people work from home, one could argue more space is needed to fit a dedicated desk, yet not necessarily in a separate room, such needs could be met by larger bedrooms too.

A storey on which a dwelling is located does matter too. The higher you live, the more sunlight and the less noise you get. I am not fond of ground floors and last floors. I actually do not mind neighbours above me, but the prospects of heating up or leaking roof would not encourage me to live on the top storey. Also the lack of lift on higher storeys is a nuisance. It is healthy to take the staircase, however I prefer it to be a choice, not a must.

The last, yet quite important to me element are amenities outside a dwelling:
- a balcony or a terrace (to hang out in warmer half of the year),
- a basement (to store tyres, bikes and other stuff not most desirable at home) and
- a garage (no need to mention the comfort of having a vehicle protected from the elements of weather).

Again, the good features a property has, the more expensive it is. Needless to say, comfort of living has its price.

A residential property - what makes it well-located

After a note on the prospects of the property market for Poland, some random musings over features a comfortable dwelling should have. I split my considerations into two posts, with the next one about the very property characteristics and today's post focusing on location only.

Experts in unison claim location is the core driver and property intrinsic value, since it cannot be subject to makeovers or refurbrishments. Valuation of a location might be triggered by changes in surrounding areas, which are beyond a property holder's control.

A good location for most people means access to transport links, including reliable public transport, paved roads in the countryside, lack of traffic jams or dual carriageway in the (not too close) vicinity. Commute times to workplaces and schools are usually the best benchmark for one's individual preference, however they might change over time (one day children finish school, you may change a job or your office might be relocated).

For me a decent location is the one where I am not car-dependent. Trips to work and getting about town should be convenient with public transport (cheap, reliable, frequently running), by bike or on foot. I am not giving up on motoring, yet the car should wait its turn for longer trips outside Warsaw and for situations when it is indispensable.

While living next to one of busier streets in Ursynów, with 4 lanes in both directions and drivers tending to speed through a section just outside my window, I got sensitive to noise. When buying a next property (most probably a bigger flat), I will strive to avoid dwelling where the level of traffic noise increases drastically after opening a window. Same goes about the air quality. In Warsaw, despite traffic-generated air pollution it is still far better than on the outskirts or in provincial Poland, where folks still incinerate whatever cheap they can to heat their houses.

Although online shopping is getting more popular, avoiding visits in grocery shops and supermarkets is impossible. A well-equipped shop in which most or all everyday needs can be met, located within walking distance from home is a vital determinant of a proper location.

Green areas - parks, forests, meadows in the vicinity are definitive upsides, but trees and grass instead of paved areas in the immediate neighbourhood appear equally important, especially when they give shelter from more and more frequent summer heat.

Needless to say each of us has amenities appreciated within walking distance from home. These include nursery and primary schools, bakeries, restaurants, hairdressers, health centres, community centres, playgrounds, swimming pools, gyms, libraries, craftsmen. The infrastructure for comfortable daily life also defines what the note is about.

Last, but not least (note the phase has been overused in essays written during high-school English classes), the housing density matters. It is not a pleasure to see your neighbour's dwelling from your window, not to mention other buildings take away sunlight, especially in autumnal and wintry months, when it is most yearned for.

Property prices generally tend to incorporate the factors above, but they are subject to fads. Some districts are considered prestigious, others unattractive, despite having all makings of a decent location. Some does of cool head and not following the crowd might help find a superior price-to-quality trade-off when searching for a place of residence.

Property market in Poland – going bonkers indeed?

As prices of residential properties soared in a double-digit pace in Poland in recent months, pricing several first-time buyers out of the market, many wonder, whether the market is already red-hot, how big the imbalance of it is and where the property prices are heading. I will try to come up with a cool-headed analysis, with my judgements underpinned by 3Q2023 NBP and Amron-Sarfin reports (charts come thereof).

Looking at the past two decades, one sees property prices skyrocketed between 2005 and 2007, then levelled off on unsustainably high level, to decline by 20% - 25% in nominal terms by late 2012. For the next five years dwelling prices where in a slight uptrend, which began to accelerate in 2018. In nominal terms, peak levels from 2008 were hit over a decade later. The pandemic did not cool the market down, but the increasing interest rates did it in 2022. In nominal terms prices levelled off, but upon the inflationary adjustment, they fell by 15% - 20% within one year. Then in the second half of 2023 prices increased again, driven by a generous mortgage subsidy programme…

Looking at the graph which shows how many square metres an average salary in major Polish cities would buy, one could infer the market has not gone crazy. The underlying analysis by NBP has some critical drawbacks:
1) salaries are gross-of-tax, which fails to take into account changes in taxation (Polski Ład), which benefitted those who earn less, but hit the middle class,
2) it does not take into account costs of living, especially:
- a portion of net-of-tax wages need spent on payments to landlord by those who reside in rented flats,
- rising costs of basic expenses, such as dwelling upkeep costs and nutrition.

As I coincide with the conclusion dwellings were most affordable in 2016 and 2017, the uptick in affordability in 1H2023 is doubtful given that salary growth did not catch up with rising costs of living around that time.

Analysts from Amron-Sarfin have come up with an enhanced housing availability index, which takes into account more factors, including purchasing power of disposable income and access to mortgage lending. According to their measures, the dream of an own residential property was harder to come true already in 2021 and by the second half of 2022 it declined to levels unseen since a decade. Currently an ordinary man finds it as difficult to buy a flat, as they did in 2011.

Arguably, the property market in Poland is not in a most buyer-friendly shape, but let’s look where it might be heading.

The factors which are likely to drive property prices up are:
1) ongoing first-time buyers schemes extended recently by the government – in Warsaw given the tight criteria they will not spoil the market badly,
2) overall conviction of market participants that prices will go up, turning into self-fulfilling prophecy (this means bubble-like conditions),
3) stringent technical requirements residential buildings from the primary market must meet – they elevate construction costs and jack up property prices on secondary market too,
4) supply constraints – as property developers still have it uphill to get the planning permission.

On the other hand, the market is facing some headwinds, which makes good news for buyers:
1) interest rates remain on a high level and prospects for a material monetary loosening are weak,
2) rental yields are already low – current net income from dwelling subletting is these days lower than on a bank deposit or from government bonds, while risk and liquidity of property investments is incomparably higher,
3) the long cycle is drawing to a close, as examples of countries where prices began to rise earlier than in Poland (Germany, Scandinavia) show,
4) more and more buyers are priced out of the market, which dents the demand.

I have no bloody idea which group of factors will have a bigger impact on the market in real terms (note property price growth below in the inflation rate is an actual decline), but there are several solutions, which might let ordinary people have their housing needs met.

Firstly, let’s build more dwellings, yet without allowing for pathological solutions (which should be theatrically verified by the free market, but under conditions of constrained housing availability, such mechanism does not work).

Secondly, levy taxes on multiple residential property owners (those in possession of more than two properties), which would be progressive (higher tax rates for each next dwelling) and  which would hit harder uninhabited (including not sublet) dwellings. This would curb speculative purchases, which have done a lot of harm to the market (a flat bought for speculative purposes is empty, i.e. not rented and a speculator bets they will gain only from value growth, which is typical for a bubble-like market).

Thirdly, increase protection of landlords – sadly tenants are overly protected by the law in Poland and hence many property owners are afraid of subletting their flats. With a higher supply of flats, rents would go down, which would mean demand from investors would decrease and properties would become more affordable to those who seek their own roof over their heads.

Wrzeciono – I won’t be missing it

Moved out of the rented flat on Thursday (could not wait under the last day of my tenure since I had to take a business to trip to Szczecin, reluctantly). To be fair with the landlord, I had informed her I would move out shortly after buying the flat and despite the delay with the remont (though recent impressive progress of works is beyond my expectations, to which I shall dedicate a post next Sunday) I have kept the promise (had no choice since I had found another tenant to make up for the inconvenience I had caused) and moved to my parents’ house for some two months.

If I were to draw up a list advantages my place of residence over the past four months, it would contain three: good transport link with the city centre (35 minutes door-do-door journey to the office was the shortest daily commute in my life), functionality of the very dwelling and price-to-quality trade-off.

Besides, as the landlord came to take over the flat and return the cash bail to me, she confessed she had detested the place and could not have waited to move out of there. The place is certainly depressing. Ursynów on a grey late-November afternoon would sooner lift my spirit than Wrzeciono on a late-spring sunny morning. After residing there for a while I am glad I finally have not purchased a flat in Bielany and opted for Ursynów. At least the dwelling I have bought gives off loads of positive energy and I feel is a place I can call home. In the rented flat in Wrzeciono I felt like in a hotel (probably circumstances which had thrown me there were to blame as well); something was amiss about the place, some barrier I was unable to overcome.

After settling down (the phrasal verb acutally misused) in Wrzeciono I was quite curious to learn more about the history of the district. Back in the 1960 the former fields of Młociny airport were adapted to build a huge estate of tower blocks to workers of the nearby ironworks, Huta Warszawa. The new inhabitants hailed from provincial Poland and resettlement to a dwelling with electricity, running water, gas oven and central heating was an enormous leap forward in terms of standard of living, outshining all drawbacks of flats in Wrzeciono, especially their size (studios of 18 or 24 sqm, one-bedrooms of 37 sqm or two-bedrooms of 49 sqm), lack of balconies, crampy kitchens located in excesses next to front doors.

In 1990s after Huta Warszawa went bust, the place became a hotbed of pathologies and criminality where a decent man would not turn up except for broad daylight. In 2000 the neighbourhood began to get civilised. Representatives of the vilest pathology have either ended up behind bars, boozed themselves to death or died down, several new blocks of flats were built, new residents mixed up with older ones. The city and district authorities have also made a tremendous effort to improve safety in the area and revitalise the grey, old blocks. Still Wrzeciono has the notorious zone of ul. Dorycka (though the area looks out better and better year by year) where venturing even in broad daylight is not a pleasure, but I generally felt safe, even when returning to the dwelling late in the evening or at night.

Maybe living under one roof with my parents to which I have grown disaccustomed is not a dreamt-up scenario, but somewhat preferable to living in the depressing Wrzeciono. Oddly enough, property prices do not reflect general ugliness of the area. Proximity to the underground stations (my walk to Metro Wawrzyszew each morning took me six minutes) and popularity of the relatively cheap flats among tenants have driven flat prices up. Six years ago, when property market hit its 10-year trough, one could easily find a bargain by buying a (run-down) flat for less than PLN 6,000 per sqm. Today a flat in need of comprehensive refurbishment would trade for PLN 2,000 more per sqm, while thoroughly renovated flats have asking prices nearing five digits per sqm. Decently fit-out studios (offering monthly after tax income of ca. PLN 1,000 – 1,200) are priced between PLN 200,000 and 250,000 which translate into net-of-tax (but pre-CAPEX) yield of more than 5%, which somewhat justifies the absurdly high prices.

And to conclude, I believe interest rates should have been jacked up long ago while the benchmark rate ought to run two percentage points above inflation, i.e. at around 4.00% currently.

A flat purchased, finally

I actually signalled two weeks ago the long search might be soon over (the flat I had visited in mid-May), but then I didn’t want to put a jinx on it. Actually the last weeks before signing the notarial deed were frenetic and full of situations when I had to tackles obstacles, especially since the seller was anything but sensible and reliable and by the last moment I could not feel sure the deal would pull off.

I became the owner of a one-bedroom (51 sqm) flat with a cellar and a parking lot in an underground garage on Thursday, 23 August. The flat is located in one the most desired buildings in Ursynów (won’t disclose the exact address, but those familiar with the district might recognise the courtyard), the price was more than moderate, less than steep, but even if I have paid over the odds, so far I am sure this has been a good purchase.

The blocks of flat was completed in 1999, so a thorough renovation is due. The previous owner has recently refurbished the living room (17 sqm) and the bedroom (13 sqm), however walls and the ceiling need one more layer of the new paint. Besides, wooden windows call for replacement (new ordered on Friday), same about sills. Kitchen, bathroom, toilet and hall are in need of comprehensive renovation.

So far I have handled most of formalities, my car (WN plates on) and I are registered in Ursynów which means on 4 November 2018 Mr Jaki will find it by one vote harder to win the mayoral stool in Warsaw. My father and I have demolished most of the kitchen and part of the bathroom. The demolition (easy thing, why wait for builders and pay them) will be continued after a plumber visits the dwelling to replace old valves (currently immobilised in “open” position). I find it hard to estimate the date of moving in, but I suppose this will ensue in November (crew of builders to do the major part of renovation not found yet). Currently I am focusing of emptying the flat (OLX comes in useful), but by the next weekend I should develop a concept of furnishing the flat.

Location-wise and layout-wise the flat is nearly perfect. While spending time there on Friday and yesterday I have felt this is a place I belong, at last.

Note now, as a property owner I will not change my mind and begin to assert property prices are bound to rise. My view on imbalances on the property market stays unchanged. In the long