THE GREAT RUSSIAN EXPERIMENT

THE HOUSING SECTOR IN THE RUSSIAN FEDERATION
- Opportunities and constraints in monoindustrial regions and cities
Gert Gundersen

The Russian Federation has a large population. It includes areas with very different geographic and cultural conditions. The question therefore is how effective national housing policies can be and if an overall strategy for the housing sector for the entire country is feasible at all.

There are certainly for some regions, of which the Murmansk oblast is a good example, extreme challenges which do not exist for other areas of the country. In particular the massive depopulation combined with population aging and monoindustrial economic base in the far northern settlements is unique. Although the main study findings of the Country Profile also apply to these regions, they will in addition need specially tailored policies and policy tools to effectively address their very special circumstances.

1. Housing as a political priority.
Housing is widely acknowledged as a human right. At the same time, it is a major driving force of the economy and often an individual’s biggest asset. The situation within the housing sector is of high significance for a society’s social and economic development and there is a need to openly recognize problems within the sector in order to develop and implement feasible policy options. In developed economies the housing sector accounts for between 10 to 20 percent of total economic activity, and housing investment normally constitutes 2 to 8% of GDP. The housing sector, in view of its implications for land use, energy consumption, waste generation and water pollution, has a significant impact on the sustainability of development not only in a given country but also in a regional context.

Similarly the cohesion of any society cannot be seen independent from its housing situation. The economic and social transition of the Russian Federation during the past decades has affected some population groups more adversely than others. To protect the most vulnerable from despair and social isolation, a social safety net is needed and it has to include provisions for those households that are unable to solve their housing problems unaided. A clear social element must therefore be included in any meaningful overall housing policy, on the oblast and municipal levels as well.

The structure of the Russian housing sector has undergone major changes during the past decade. Probably the most significant development was the privatization policy, which led to a change in ownership structure by allowing individual tenants to claim ownership of their housing units, and by transferring the State housing stock, including the housing stock of former State enterprises, to municipalities. Privatization became the Government’s key instrument in establishing market relations throughout the sector. All households, including those living in publicly owned multi-apartment blocks, were affected by this policy, as they were granted the right to privatize, free of charge, the flat that they were occupying. Crucially, it was assumed that together with this transfer of ownership title, the new owners would take over the management and maintenance of the housing stock.
Today private housing makes up more than 60% of the total housing stock compared to 33% in 1990. It should be stressed that such rapid transformation of housing ownership has not taken place in any developed country. Practical experience is therefore nonexistent.

Privatization has been accompanied by a number of reforms to regulate the new situation in the housing sector. The passage of the Law on the Fundamentals of Federal Housing Policy in December 1992 was the first important step in this context, for the owner-occupied as well as the rental sector. It introduced the possibility of establishing homeowners’ associations, clarified property rights, strengthened the possibilities for mortgage lending, introduced housing allowances, established the foundations for a programme to increase rents, provided for improved maintenance of State housing by introducing competitive procurement procedures and reduced tenant rights by permitting eviction from municipal flats for the non-payment of rent.

This basic legislation was supplemented in the following years by a number of legislative acts and reforms which served to strengthen and redefine some of the principles laid down in the Law on the Fundamentals of Federal Housing Policy. In particular, they aimed at further advancing the privatization of the remaining public housing stock, refining the legal basis for the establishment of homeowners’ associations, boosting the housing market, reforming the housing and municipal services sector and initiating reforms in the social allowance system.

This legislative activity demonstrates that, throughout the transition, the Government became increasingly aware that the mere establishment of market relations was not sufficient to address the problems within the housing sector and that legislation was needed to address all issues connected with the privatization policy, including the concerns of socially weak households, in particular poor owners, as well as the division of responsibilities between public and private sector entities and the different public sector institutions.
Furthermore, the Government recognized that there was a need for an encompassing framework, which would integrate the different legal acts and clarify their interrelations.
The establishment of the federal targeted programme “Dwelling for 2002-2010”, including its two subprogrammes on reforming and upgrading housing and utilities and on relocating residents from slums and derelict dwellings, was an important development in this regard. It constituted an attempt to provide an overall policy framework which went beyond the establishment of single legal acts with regards to specific issues.

2. Privatisation of the housing stock in the Russian federation.
The implicit aim of housing privatization was to shift responsibility for the maintenance of the housing sector to consumers who, through the provision of legal title, would be given the incentive to invest in their own housing. The presumption was that tenants would form effective management structures on the level of individual, or groups of buildings. In accordance with the federal Law on the Fundamentals of Housing Policy, occupants were given the right to participate in the management of the housing stock, a right which was later further developed in the Law on Homeowners’ Associations.

In reality, however, privatization has not yet led to a widespread change in the management structure of, in particular, the multi-unit apartment buildings. It has not given the owners of units in these buildings real management authority over the building and adjacent grounds. The important conclusion here is that this failure to implement real private ownership has left the majority of the Russian housing stock without a functioning ownership and management system. This has serious consequences for all elements of housing policy. The public sectors withdrawal from responsibility in the housing sector has not been replaced by functioning, clear areas of private sector responsibility.

However, some improvements are visible, such as the slow but steady increase in the number of private companies within the sector. In addition, households’ payments towards the costs of
housing and utility services increased substantially along with decreases in budget subsidies for these services and the implementation of targeted social support to low income households.

3. The existing housing stock: The bottlenecks of Organization, Operation and Maintenance
Ownership, management and maintenance

Tackling the problems within the existing stock is clearly therefore the most obvious and most pressing challenge of the Russian housing sector, as the condition is worsening daily due to the near absence of maintenance, renovation and reconstruction. Given the age structure of the housing stock, it is expected that within the coming 10-15 years the need for repair and reconstruction will reach an alarming level.

Even if it is possible in a reasonably short time to bring the rate of new construction of housing to its 1990 level, this would still only mean a 2% increase in the housing stock per year. The existing housing stock will therefore constitute the bulk of Russian housing for many years to come and it will be vital to future housing standard and to the quality of life of the Russian people how the maintenance, repair, renovation and upgrading needs of the existing housing stock are dealt with.

At the heart of the problem of the continuous decay of the stock are the current uncertainties with regard to its ownership and the lack of functioning management and maintenance systems. The management and maintenance of the multi-unit stock – the publicly owned as well as the privatized and partly privatized buildings - are still carried out largely by the municipally owned management and maintenance companies (zheks), but without adequate funding. The zheks operate in a largely monopolistic environment, where fees and services provision do not correspond to the actual needs. With State subsidies slashed, current fees levied from the inhabitants for municipal maintenance services are too low to cover even day-to-day maintenance. The quality of services suffers and this makes the residents even less willing to pay the bills.

The rapid, free-of-charge privatization of apartments therefore in many ways lies at the heart of the fundamental problems and challenge in the Russian Federation’s housing sector, as privatization was not accompanied by the creation of adequate framework conditions for the new situation, nor by a systematic analysis of the variety of organizational forms for the management and maintenance of the housing stock.

During the privatization process little or no attention was paid to how the new private owners would manage and maintain their property. The underlying assumption was that they would be willing and able to take on the full organizational, economic and financial responsibilities without any external assistance. It is now increasingly recognized that this is not realistic. Households that privatized their apartments were often not even aware of the rights and obligations involved. Their choices were usually not made on the basis of comprehensive information on the financial implications of ownership and on their ability to meet these without unacceptable personal hardship. As a result, many households in the privatized multi- apartment buildings are today not in a position to cover even recurrent management and maintenance costs, let alone investments in repair. This applies in particular to the large number of low-income households. Additionally, even today there is a lack of knowledge and understanding of the rights and responsibilities that private ownership in multi-apartment housing entails.

The problem is compounded by the fact that the ownership structure of the privatized or partly privatized multi-unit buildings is far from clear. Effective privatization has been completed only as far as the individual flats are concerned. However, no clear responsibilities have been assigned for the common parts of the building, which, consequently are “ownerless”. This impedes effective management and maintenance of the multi-unit housing stock. No effective management structures have been set up for the bulk of the newly privatized stock.

4. The housing sector / Opportunities and constraints in monoindustrial regions and cities.
As indicated above, the housing sector in market economies have significant impact on economic activity and employment opportunities at national, regional and local levels.

The Russian Federation is facing particular challenges in its northern monoindustrial regions and cities. These challenges span the whole specter from quality of life, to social conditions to diversified economic activity and employment opportunities. For all of these challenges the housing sector represents a range of opportunities.

There is no doubt that the quality of housing offered to inhabitants directly influences their quality of life. Particularly in the northern regions with their extreme climatic conditions, housing quality is of importance. This concerns both the existing stock and new construction. The ability to attract and keep a highly qualified labor force will be influenced by the standard of housing being offered. In these regions there is therefore a strong argument for providing even better housing conditions than in the rest of the Federation.

The strongest arguments for quickly transforming the housing sector in the northern regions are, however, economic. A transformed sector will rapidly contribute to economic growth and a diversified service and industrial base with employment opportunities in the regions and communities concerned. Such growth and diversification will strengthen the relative attractiveness of these communities with regard to places to settle and to locate businesses.
There is one fundamental precondition for these positive benefits to happen. The public sector must trigger change by taking bold and rapid action. This means that the government, the oblast and the local authorities must work together to develop a housing strategy with the main objective to encourage and develop real private sector engagement in housing. Such engagement must cover the whole range of services and products needed in a vibrant housing sector. Without such public initiative and ongoing support, housing as a growth sector will still take many years to develop. Particularly in the northern regions such delay will mean lost opportunities and an unnecessary slow down of social and economic development.

Footnote.
In 2003/2004 a team of international experts carried out a “Country Profile on the Housing Sector in the Russian federation”. Such country profiles are a major part of products offered by the UNECE Committee on Housing and Land Management to its member countries. The project was carried out in cooperation with the Russian Government, represented by GOSSTROY, and the UNECE.

Gert A. Gundersen has a Master Degree in Science, Planning and Public Administration. He is member of a number of UN/ECE (United Nations Economic Commission for Europe) expert teams responsible for UN/ECE reports “Country Profile on housing for Countries in Transition”. He was recently expert coordinator for UN/ECE’s study on the Russian Federation. Gundersen is also currently member of HUMAN (Housing and Urban Management Advisory Network), and is an expert advisor on “Housing and Health” (Europe) for WHO (World Health Organization). Gundersen lives and works in Bergen.