Collaborations for Urban Challenges: Lisbon’s Approach to Affordable Housing through Public-Private Partnerships

Researchers Patricia Canelas and Sonia Alves from the University of Oxford, UK, and Aalborg University, Copenhagen, Denmark explore how public and private sectors work together to provide affordable housing through public-private partnerships, or PPPs. While some people believe PPPs are efficient, others see them as problematic because the goals of the public and private sectors often conflict. This study focuses on a PPP program in Lisbon, Portugal, to see if these partnerships can successfully provide affordable housing.

Lisbon's Affordable Rent Program

In many cities around the world, housing is becoming too expensive for many people. In Lisbon, this problem has been growing, making it difficult for middle-income families to find affordable places to live. To address this issue, the Lisbon Municipality started the Affordable Rent Program (PRA) in 2017. The goal of the PRA is to provide rent-controlled apartments to middle-income households. The program works by having the public sector provide land and buildings, while private companies finance and manage the construction and maintenance of these apartments.

Challenges and Institutional Capacity

However, managing PPPs can be complicated. There are many challenges, including designing contracts, allocating risks, borrowing costs, the tender process, and ensuring accountability. Despite these challenges, PPPs can help the government deliver more housing by using the expertise and efficiency of the private sector and sharing the risks between the public and private partners. For PPPs to work well, the public sector needs to have strong institutional capacity, meaning they need to be well-organized and capable of managing these partnerships effectively.

In Lisbon's case, the PRA faced several significant challenges. The National Court of Auditors stopped the program at one point because they were concerned that it did not protect the public's financial interests. This shows how difficult it can be to balance public interests with the involvement of private companies. Additionally, there were disagreements within the coalition government about how the program should be run, especially concerning the permanent transfer of public assets to private companies. Some political parties were strongly against transferring public property to private hands, even if it was part of a long-term lease.

Balancing Public Interest and Private Benefits

One critical aspect of PPP success is understanding and balancing public interest with private benefits. Public interest is often a contested concept, and its definition can vary significantly among stakeholders. In the Lisbon case, the differing interpretations of public interest among the municipality, court, and coalition parties led to delays and program modifications.

Attracting institutional investors to affordable housing PPPs is another significant challenge. These are large investors like pension funds and insurance companies that usually prefer long-term, low-risk investments. Despite the Municipality's efforts to make the program attractive to these investors, they were hesitant to join because they wanted to avoid the early-stage risks of the projects. Instead, they preferred to invest later, once the buildings were already constructed and occupied. This preference made it difficult for the Municipality to secure the necessary funding and support from private partners early in the process.

Understanding Private Investment Needs

From the early days of the program, the Municipality channeled significant resources into understanding the needs of private investment. Their reasoning for targeting institutional investors was well-founded on the notion of institutional investors' long-term investment outlooks and low-yield requirements. Their view indeed echoes the grey and academic literature that characterizes institutional investors by their long-term, risk-adjusted investment outlooks. The PRA's mission team interviewed private sector stakeholders and regularly attended international real estate events, including MIPIM, EXPO Real, and industry breakfasts in England facilitated by the Portuguese Embassy. Our interviewees confirmed that institutional investors see affordable housing as a growing investment market and one that matches their investment profiles, particularly when involving some form of state support, in this case, municipal land and buildings.

Navigating the Path to Successful Partnerships

The study provides oversimplified views of public and private sector goals and timelines that hinder the effectiveness of PPPs. A relational perspective that acknowledges the intertwined objectives of various stakeholders is essential for successful urban governance and affordable housing delivery. The study concludes that a better understanding of these complexities can enhance government capacity to attract private investment for social infrastructure projects, ultimately improving affordable housing outcomes. This complexity highlights the need for a nuanced approach to urban governance that considers the multiple, sometimes conflicting, objectives of all stakeholders involved.

Overall, the study emphasizes that working together in partnerships can be very complicated, but with careful planning and understanding of everyone's goals, these partnerships can help solve big problems like providing affordable housing. By improving our understanding of these complexities, we can create better policies and programs that benefit everyone involved. For students, the key takeaway is that while public and private sectors may have different goals, finding common ground and working together can lead to successful projects that address critical issues like affordable housing.