Housing finance, problem debts and financial literacy in metropolitan Slovakia
Slovakia has a unique experience with the postsocialist expansion of market-based household finance that is yet to be studied by anthropologists or other social scientists. As other Eastern European countries, Slovakia saw the first household debt boom and a concomittant housing bubble in the 2000s up until the Global Financial Crisis (GFC) of 2007–2008, although these processes appear to have been less intense than in most of the region. The growth of household debt resumed after a brief interlude and this time continued throughout the entire 2010s at the fastest pace of all EU member states. As a result, Slovakia’s household debt has doubled since 2010 and became the very largest in Eastern Europe relative to the size of the economy, standing at 48.5% of GDP in 2020. It was in particular housing lending that drove the second debt boom, and as such it went hand in hand with a new housing boom since the mid-2010s. The growth of both housing lending and prices further escalated during the COVID-19 pandemic, prompting the central bank to warn about a risk of a “price correction” in the housing market. In Bratislava specifically, asking prices for newly built apartments soared from about €2,200 per square metre in 2015 to €4,000 in mid-2021. As the average gross wage in the Bratislava region in 2021 was less than €1,500, one would need more than 2.5 average gross wages to buy a single square metre. Financial vulnerability indicators of indebted households have been worsening despite positive economic developments before the pandemic, and average financial assets of Slovakian households rank near the bottom within both the EU and the OECD.
During planned 8-9 months of ethnographic fieldwork in Bratislava, Slovakia’s capital and economic centre, and its metropolitan area in 2021–2022, I will seek to understand why households in Slovakia have been taking on more debt in the 2010s than households anywhere else in the EU, going beyond the economistic supply-side explanations pointing to historically low interest rates and legal cuts in refinancing fees. I will also aim to document the experiences and outcomes of a variety of engagements with debts, especially at the highly understudied (in the Slovakian case) micro and everyday scale. I will do so by focusing on three selected aspects of household indebtedness that appear to be particularly significant and interesting in Slovakia.
The first thematic focus of the project is on housing finance and the closely related issues of mortgaged homeownership and housing provision more broadly. Statistical data shows that the share of households with housing debt has increased rapidly from 9% in 2010 to 21% in 2017. The average size of housing debt per household as well as the share of housing debt in total household debt have been also growing. In other words, ever more households take on ever-larger mortgages while other kinds of credit lose ground, relatively speaking. All these trends are amplified in Bratislava, which has the largest housing market in the country, materializing in central “luxury” developments as well as intense suburbanization, the highest housing prices, and households with largest liabilities and assets. Interestingly, however, defaults on mortgages have remained rare. I will seek to develop a comprehensive understanding of the experiences and practices of mortgagor households in the Bratislava metropolitan area – their decision-making at various stages of the mortgage process, their practices of accessing, repaying and refinancing loans, the economic and social values of their debts and real estate properties, the roles of kinship and social norms concerning gender and reproduction, and the interrelationships between mortgage debt and individual life courses, subjectivities and intra- and inter-household relationships. Of particular interest will be the question of how most mortgagors seem to succeed in navigating a setting of very high house prices and comparatively low incomes such as to avoid overindebtedness and default. I will also ask who, which social groups and what kinds of households are excluded from mortgage borrowing or alternatively do not require it at all and what implications this has for their social reproduction and social inequality at large. Finally, I will explore the respective roles of financial and real estate industries, financial regulators and policy-makers in shaping the ongoing mortgage boom in distinct ways.
The remaining two foci of the project are mainly concerned with the involvement of social institutions beyond the household itself in the management of household debt, and the issues of public policy and politics are therefore central. The second aspect looks at institutions and procedures tackling problem debts, variously understood as debts in default, debts not being repaid in an orderly manner, or simply excessive debts. This aspect encompasses the institutions and practices of debt enforcement and debt collection, personal bankruptcy and debt advice as well as politics around debt. Debt enforcement by private bailiffs is a long-standing public issue. Slovakia has a chronically high number of ongoing, often historical enforcement proceedings – in early 2019, almost a million natural persons faced such proceedings in a country of 5.5 million. Enforcement generally leads to a multiplication of the original liability and bailiffs are often accused of unscrupulous or even illegal practices. It is believed to have pushed a significant number of debtors into the informal economy in an effort to prevent their earnings from enforcement. The right-wing populist party Sme rodina (We Are a Family) has been campaigning with promises of an “enforcement amnesty” for years – an opportunity for debtors to only repay the original liability while the accumulated interest and fees would be written off. In fall 2021, the party pushed through legal changes shielding a larger share of debtors’ incomes from enforcement. In addition, debt collection companies that do not conduct enforcement themselves and rely primarily on “soft” collection techniques also operate in Slovakia. Another issue of interest is personal bankruptcy, a procedure that enables debtors subject to enforcement and meeting certain conditions to have their unpayable debts written off and stop the enforcement proceedings. After a major liberalization of the conditions for debtors in 2017, heavily criticized by the enforcement and collection industry, the number of personal bankruptcies shot up to record levels in 2018–2019, but it has since declined. As for debt advice, this is a new publicly funded institution introduced only in spring 2021. So far, there are two pilot debt advice centres, one of which is in Bratislava. Through interviews with practitioners, debtors and policy-makers and, if possible due to legal reasons and the current pandemic conditions, observation of the procedures, I will explore the workings, rationales and effects of these institutions and their overall impact on the management of problem debts.
The final aspect of household indebtedness in Slovakia that I aim to explore is financial literacy and education. In recent years, public discourse on financial literacy has become increasingly prominent. The financial industry, experts and policy-makers appear to be in consensus that the financial literacy of Slovakia’s citizens is low, citing international surveys as evidence, and that a greater financial literacy is needed as a prevention for financial issues and a means of instilling rational, prudent and entrepreneurial attitudes to finance more broadly, including savings and investments as the basis of individual welfare. The National Standard of Financial Literacy was adopted in 2014, laying foundations for the implementation of financial literacy as a mandatory component of primary and secondary education. State institutions such as the Ministry of Finance and the central bank, various NGOs, and initiatives of the financial industry are also involved in this field. Through a combination of interviews, analysis of policy and educational materials and, if possible, observation, I will seek to understand the rationality of financial literacy in Slovakia, its practical implementation, and its intended and unintended outcomes.