The European Commission’s proposal for revision of state aid rules on services of general economic interest (SGEI) for 2012 introduces less binding provisions for social housing and reconsiders the restrictive scope of earlier measures.

On the other hand, DG Competition’s decision making practices call into question the boundaries of the public service mission carried out by social housing bodies, although the definition of social housing remains the exclusive competence of member states. This interference poses a fundamental problem: how far does the Commission’s control go?

DIVERSITY OF AID

It is a given at EU level that social housing is a general interest objective since it addresses a fundamental right - access to housing - recognised in the Charter of Fundamental Rights. It thus belongs to the category of SGEI.

Social housing associations address this need by making up for the market’s inability to cover the right to housing of the neediest citizens. Within the framework of their public service mission they are bound by the rules applicable to state aid for SGEIs. These bodies have obligations in terms of social prices (rent ceiling) and the grant of housing units (according to arrangements determined in each member state), which bring about costs (lower revenues and management costs related to unpaid bills, for example). Public aid compensates for these public service obligations and specific costs and can consist of reductions on the price of public land, fiscal exemptions, guarantees, subsidies, etc.

The following table gives an overview of the types of financing for social housing in 2005 (based on EU data for 15 member states). It reveals the diversity of public interventions, which represent a sizeable share of the financing of social housing bodies.

These various forms of aid obviously procure an economic advantage for the beneficiary and thus prove contrary to the principle of ‘undistorted competition’ in the single market. But if these arrangements are necessary and proportionate to proper accomplishment of the general interest mission of social housing, under certain conditions they can be judged compatible with EU law pursuant to Articles 14 and 106.2 of the Treaty on the Functioning of the European Union (TFEU).

These public service compensations come within the realm of co-financing practices between national, regional and local levels and their amounts vary in terms of the target public and the nature of specific needs. Some are “directly defined on the basis of calculating an equilibrium rent or a loss of income linked to a social pricing scale, whereas some aid is granted to cover all or part of the additional costs incurred by the social constraints in terms of tenure of households with specific needs,” explains CECODHAS Housing Europe, which represents 43 national federations in 19 member states.

The rules on state aid to SGEIs, spelled out in 2005 in the wake of the Court of Justice Altmark ruling (Case C-280/00), are made up of three texts that form what is known as the ‘Altmark’ or ‘Monti-Kroes’ package. They establish the conditions in which compensation granted to an association or undertaking charged with providing a public service is considered compatible, without the obligation of prior notification to the Commission, but also the cases where compensation not coming within this scope may nevertheless be authorised.

Given the limited risk of distortions of competition due to the territorial nature of the activities of these social housing bodies and the reinvestment of profits from rents and sales in the provision of new housing, the Monti-Kroes package dispenses them from the notification obligation provided they meet the following restrictive definition: undertakings in charge of social housing “providing housing for disadvantaged citizens or socially less advantaged groups, which due to solvability constraints are unable to obtain housing at market conditions”.

DEFINITION

This restrictive definition of the scope, seen as the heritage of a liberal approach, nevertheless has the consequence of excluding social housing having an objective of social diversity or a ‘universalist’ aim, as described by Laurent Ghékiere, representative of Union sociale pour l’habitat, which groups nearly 800 French social housing undertakings.

Competition Commissioner Joaquin Almunia reversed this trend with the revision of these rules he began upon his arrival at DG Competition, in February 2010. The new version of the rules is set to be unveiled on 20 December 2011. Almunia abandons the 2005 restrictive definition of social housing in the draft decision on notification of SGEI. and integrates it in a broader category of services that satisfy “essential social needs”. Moreover, he maintains the exemption of notification without threshold conditions for social housing by extending it to these other social services. As for certain social services that do not correspond to this definition but are managed by social housing bodies, such as city planning in the Netherlands, they would be part of the so-called de minimis draft regulation, which lays out specific criteria for turnover, sum of aid [...] below which the aid could be exempt from notification given the low impact they have on exchanges in the EU.

On the other hand, the decision making practices of the Commission’s DG Competition, which through its monitoring of the absence of “obvious error” in the classification of an SGEI called into question the Swedish model of social housing following complaints received in 2002, led Sweden to decide, in 2007, to liberalise social housing. The Swedish authorities removed social housing from the category of SGEI by revoking authorisation for municipal bodies previously responsible for this service. Since 1 January 2010, housing aid must be notified systematically and is therefore limited in time and capped with reference to a maximum aid intensity determined by regional maps drawn up by the Commission (see separate articles).

In 2002, the Netherlands, whose rules are also based on a broad concept of social housing, received a similar response from DG Competition. A controversy followed over the income thresholds introduced following negotiations between the Dutch authorities and the Commission, which mobilised both social and non-social (or private) housing stakeholders and the EU institutions. Housing foundations backed by other European ‘colleagues’ and private developers brought two actions for annulment of the Commission’s decision before the Court of Justice. The court was also asked about a similar case by a Belgian court. The ECJ is expected to rule in 2012 (see separate articles).

Commissioner Almunia has stated with respect to these Swedish and Dutch cases that the Commission did not take the initiative to undermine the definition of social housing public service in these countries, but that it was asked to intervene through voluntary notification and complaints, which required its analysis by virtue of its duty to control the absence of obvious error of classification of an SGEI (see interview below).

MORE FLEXIBILITY

The European Parliament adopted, on 15 November, by a large majority (488 to 134 with 17 abstentions) a resolution drafted by Peter Simon (S&D, Germany) that “asserts emphatically that public services must be of high quality and accessible to all sections of the population”. It highlights MEPs’ concerns over “the restrictive stance taken by the Commission, which in relation to state aid for social housing associations classifies the services provided by such associations as social services of general interest (SSGI) only if they are reserved for socially disadvantaged persons or groups, this restrictive interpretation being at odds with the higher goal of fostering an appropriate social mix and universal access”. Françoise Castex (S&D, France) welcomes this position, noting that it “demonstrates the progress of the EP’s debates on this subject, thanks to two years of work by the Public Services Intergroup” that she chairs.

For the Committee of the Regions, the definition proposed in the Almunia package is a source of confusion. In its opinion on this reform, adopted on 12 October on the basis of the report by Karl-Heinz Lambertz (PES, Belgium), the CoR recommends a return to the definition of social services contained in the Services Directive. Taking a bolder stance than the EP, the CoR also endorses another demand of social housing associations, namely that the reinvestment of profits in social housing in the financing of new SGEI must be taken into account, with a view to easing the Commission’s control.

This question added to tension in the debate over the Almunia package. Certain member states rejected what they see as an attempt by the EU executive to interfere in their prerogatives in terms of defining public services. During the final weeks of consultation, November 2011, they obtained the postponement, until spring 2012, of measures on the regulation introducing de minimis rules.