Rehousing and Refinancing Russia: Creating Access to Affordable Mortgaging

Abstract

THE HOUSING SECTOR PLAYS AN IMPORTANT ROLE in every country's economy, acting as a potential tool for sustaining and promoting overall welfare and development. In Russia, however, housing investment constitutes only 3-4% of GDP. As a result the housing sector, and its financing, require urgent restructuring in order to cope with the depreciation of stock and infrastructure networks that has resulted from a dependence on public subsidisation. Indeed, the large-scale and pervasive under-pricing of inputs in what is collectively referred to as the 'housing and communal sector' generates problems with maintaining financial viability in both the provision of housing and utility services, further encouraging flows of subsidy transfers.1 The impact of high subsidies is reflected in the fact that Russian households on average spend only about 6% of their income on housing and utility services, a figure much lower than in the transition countries of Eastern Europe.2 Local governments continue to assume prime responsibility for the housing and communal sector, managing and maintaining virtually all of the housing stock.3 Numerous housing reform initiatives have been introduced during the past decade, all with the intention of moving this sector to a more market-oriented system. All households located in state and municipally owned multi-apartment blocks became the subjects of this reform, as residents were granted the right to privatise free of charge the flat they were occupying.4 Most 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." However, no real incentives have existed for households to privatise, as rents and utilities are highly subsidised, and housing management and maintenance are still provided by municipal enterprises.6 When considering how to construct mechanisms for the resolution of this problem the development of a system of mortgage financing is integral. It embodies the utilisation of property rights by owners to reorganise their property and to exercise this right to benefit from any appreciation in the value of the property whilst taking on responsibility for the property itself. In the present housing structure the majority of the new middle class still live in mixed-tenure housing. If they privatise their flats they enjoy capital appreciation, while public finance takes responsibility for the fabric of the building. The provision of appropriate incentives, such as subsidised and accessible