Carrot-and-Stick Game in Multi-Apartment Building Modernization
About this good practice
Carrot part - Initial Multi-Apartment Building Renovation (MABR) process was slow and insignificant without state support, due to following reasons: (1) long deep renovation payback period; (2) unwillingness of owners to change status quo; (3) commercial banks reluctance to provide financing.
Lithuanian State decided then to provide support to foster building modernization process by: (1) providing interest rate subsidies (result based); (2) providing additional grants to final beneficiaries (result based); (3) covering monthly installments for low income households; (4) providing technical support financing; (5) providing long term financing.
Stick part - Initial MABR process was slow because: (1) large share of owners on fixed (low) income; (2) many low income people were eligible for heating bill compensations, and had no incentive to join the program; (3) chronic distrust of population in Government.
Lithuanian state decided then to discipline those who were not willing to join building modernization process by: (1) refusing to heating bill compensations to those who voted against their building modernization; (2) requiring to gradually accumulate funds for building renovation.
Lessons learned: (1) only “carrot” related stimulations are not working; (2) "stick related” requirements usually could follow by “carrot” related support; (3) sensitivity analysis assessment is needed; (4) support should be higher in the beginning to encourage faster process.
Resources needed
Buildings affected:
o buildings renovated (as of 9 September 2016) – 848
o estimated surface (m2) affected - ~ 1.5 million
Indicators above are related to other practices as well, specific allocation to this GP is not possible.
Evidence of success
Introduced measures resulted in major increase in project pipeline. The GP helped to shape financial instruments in a way so they become attractive to final beneficiaries.
Buildings affected:
o buildings under renovation – 649
o Investment projects evaluated (waiting list) – 1411.
circa €400 million investment materialized in multi-apartment buildings in Lithuania (ESI, commercial banks, state budget)
Potential for learning or transfer
Major challenges:
- limited possibility to distribute “carrots”, especially when project pipeline is starting to build up.
- dissatisfaction with “stick” approach among final beneficiaries.
- moving away to far from usual market practice could result in problems to attract private investors.
Good practice owner
You can contact the good practice owner below for more detailed information.
Public Investment Development Agency