"Housing crisis in Sofia, which everyone is silent about, Part I"

Who can afford to buy a home in Bulgaria's capital city? Affordable housing has been an ongoing problem in the European Union over the past decade, and many capital cities have become known for their exorbitant rental and purchase prices.

At the same time, Sofia is often overlooked in this regard, and the conversation about housing affordability is almost non-existent, both locally and internationally. So what is the issue? Has the Bulgarian capital been able to avoid this problem? This is what I will try to find out in the first part of the series on affordable housing in Sofia.

Emil Hristov, an urban planner working for Sofiaplan and developing an urban master plan

Emil Hristov, an urban planner working for Sofiaplan and developing an urban master plan, explains that housing is one of the main resources a city has at its disposal. But it is also a commodity subject to free market principles and a human right, at least according to the European Union Charter of Fundamental Rights. The housing sector in the Bulgarian capital is predominantly controlled by realtors, developers and investors.

As in many other countries in the region, local authorities adopted a non-regulatory approach to housing policy, due in part to the high level of home ownership, a lasting legacy of the country's communist era. However, 30 years have passed since the fall of that regime, and the passage of time has deteriorated the condition of buildings along with people's housing conditions.

According to a 2017 World Bank report titled "Bulgaria. Housing Sector Assessment", the housing stock in Sofia is in poor condition due to the annual negligence of the owners. In addition, Sofia has many vacant dwellings and the overcrowding rate is one of the highest in the European Union.

Definition of affordable housing

Housing affordability is measured by comparing household income with housing costs. According to Eurostat, housing costs include mortgage payments, housing loans, interest payments, rent, as well as utilities, maintenance costs and insurance payments. There are many ways to calculate affordability, but the most common rule of thumb is that housing costs should be below 30-40% of family income (30% of gross income; 40% of net income). If a family spends more than a third of their income on housing, it is considered overburdened and they have to cut back on basic needs such as food.

Ashna Mathema is a housing expert and founder of Total Housing Inc.

Ashna Matema is a housing expert and founder of Total Housing Inc. She is also the principal author of the World Bank's 2017 publicly available report, Bulgaria: Housing Sector Assessment.

This problem is exacerbated by the relatively high overcrowding rates recorded in the World Bank report. Another major problem is the number of vacant dwellings in Sofia - 23% according to the last census in 2011. However, this does not necessarily mean an oversupply on the market, as many are simply vacant. This includes those owned by investors for the purpose of speculation.

Bulgaria lacks reliable income data. The NSI appears to be a poor source for determining the extent and impact of the housing affordability problem. Emil Hristov emphasizes this point, noting the need for further research on the part of the government before it starts implementing parts of the Sofia Urban Master Plan.

In an attempt to measure the availability or lack of affordable housing, I will try to determine the cost of purchasing an average home with a mortgage and take the cheapest possible housing to see who can afford it.

Let's imagine a typical apartment in Sofia. According to data from the National Statistical Institute, the most common apartments have two to three bedrooms and are about 90 square meters in size. According to Imoteka, a real estate company in Sofia, the average cost per square meter in the city was 1,384 euros in 2021. This imagined apartment is priced at 124,560 euros and is looking for buyers from a family of two, who are likely planning to have a child (considering the average family size of 2.2 people).

According to a report by the World Bank, the loan-to-value ratio (LTV) for older homes ranges from 70% to 75% of the total value. For this calculation, let's use a mortgage that covers 75% of the value. This means that the down payment will be 31,140 euros, and the mortgage should cover 93,420 euros. The monthly mortgage payment for 20 years at an interest rate of 2.5% will be approximately 450 euros.

Given these circumstances, it can be concluded that many people cannot afford to rent or buy housing.