be studied by the Bank in upcoming economic and sector work.<sup>16</sup> With similar arguments, the absence of a rental sector of a minimum size may impair housing sector and urban development. This is not well researched, but it seems plausible that cities in jurisdictions with constraints imposed on rental supply - such as rent controls - by the complexities of condominium creation and management, are likely to give preference to homeownership in detached housing and produce lower urban densities and larger sprawl. Cities with insufficient densities could become inefficient production locations. However, the reverse problem may also arise: abundant rental supply, especially if caused by policy interventions discouraging homeownership or reducing land supply for detached housing, may lead to excess densities in suburban locations and distorted land-use patterns.<sup>17</sup>

# **Rationale for Tenure Choice Policy**

It is beyond the scope of this study to make further conceptual elaborations of supply and demand in the rental sector in transition countries. In the sector policy debate, the formalinformal dichotomies and differentiations of landlord types play an important role. Essential questions arise, such as whether informal renting is good / efficient or bad / inefficient, what the optimum scale of social rental housing supply should be, and whether hybrid ownership forms (cooperatives, public-private partnerships) should be preferred to leverage public resources. Given the history of the Soviet-type public rental sector in these countries, further analysis is focused on describing the current role of public and private formal landlords.

Looking beyond this study, the fundamental conceptual difficulty is to develop a normative perspective of public goods that should be delivered through housing policy interventions, and then discuss a set of policy instruments to stimulate either the supply or demand sides that are sufficiently efficient to support the housing consumption or tenure security of specific target groups. The public good definition in this context is difficult: should the policy support the housing consumption of low-income households, or raise the global housing consumption standard through regulatory means, or both? Before the age of public housing interventions, in the XIX<sup>th</sup> Century, the answer was the filtering down of units from higher to lower quality levels, thus matching household means with housing consumption levels. The very _raison d’être_ of the emerging instrument of housing policy in the early XX<sup>th</sup> Century was to change this market outcome by enshrining minimum housing consumption standards in building codes.

Setting high minimum standards for the stock is a double-edged sword, however, because it forces modernizations that break the filtering chain at a certain quality level, and leaves households that fall between the cracks if insufficient subsidies are available to support purchase or renting of modern units. Homelessness or over-crowding may result. Typically in ECA, the overlooked groups tend to be the young and mobile who support the economic dynamism of the region’s transforming economies. Moreover, enforcing such minimum standards to favor urban households—that is, those who live in areas yielding high labor productivity (with subsidies generated through tax payments of all households) – leads to mistargeting. A body of literature

> 16    Ongoing EU8 cross-country study on the geographical mobility of labor.

> 17  Bertaud and Renaud (1993) discuss the land use patterns of socialist cities, which led to severe pricing distortions and hence misallocation of investments because of their planning constraints.

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