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State Aid Law: ECJ Ruling In Dutch Social Housing Case

State Aid Law: ECJ Ruling In Dutch Social Housing Case

Earlier this year, the European Court of Justice handed down judgments on appeals by Dutch housing corporations seeking to challenge a European Commission state aid decision on the funding of social housing and urban regeneration in the Netherlands. The ECJ overturned the decision of the General Court and held that the corporations' appeals were admissible.

The case will now be heard by the General Court in relation to the merits.

Background

The Dutch housing corporations are challenging European Commission approved state aid measures relating to the financing of Dutch social landlords and a separate scheme for the re-generation of declining urban areas, which benefits the corporations in selected areas.
The original case arose out of complaints by private sector landlords to the European Commission alleging that Dutch social landlords were becoming increasingly commercial in their approach and were being publicly funded to compete with them in a part of the housing market where there was no market failure.

The European Commission entered into discussions with the Dutch authorities and put in place the state aid decisions (which are the subject of the appeal). In relation to the provision of funding for the construction of social housing, the decisions stipulated that the Dutch authorities had to:

  • take steps to prevent the situation where publicly-supported housing is allocated to persons that are not in need of social housing – in 2009, the target group of socially disadvantaged households was defined as individuals with an income not exceeding €33,000 which covered approximately 43% of the Dutch population.  The ceiling will be indexed every year.  
  • set the maximum rent at €647.53 – again subject to annual indexation.
  • ensure that 90% of the dwellings were allocated to individuals who fell within the target group (at the point of allocation); the remaining 10% to be allocated on the basis of social prioritisation – recognising that social cohesion was an appropriate objective.
  • enhance transparency and avoid abuse through introduction of a procedure to ensure that allocation of the dwellings was conducted on a transparent and objective basis. This procedure would involve local authorities and an effective complaint/judicial review system.

It is important to remember that state aid law ignores the question of whether an entity receiving public funding for the construction of housing is a private entity, a charity or a local authority. If it is acting in competition with the market by providing houses which the private sector would be able and willing to provide, then it is carrying on an economic activity funded by state aid.

The purpose of the Commission's decision was to set the boundary between what is social housing – where it is permissible to provide public subsidy - and commercial house building and supply.  Given the risks of non-compliance with state aid rules – claw back of any state aid together with interest - this was a controversial decision in the Netherlands and for a number of other jurisdictions where there is friction between the social housing organisations and the private sector.

Until the merits of the appeal are heard and the judgement issued, funders of social housing must be mindful of the conditions of the decision to ensure that any support given will not be state aid.  We will update this note once the outcome of the appeal is known.

Graeme Palmer
Director

LChalmers