Housing Russia becomes a state priority
Despite rising incomes and the expansion of the middle class, the provision of adequate and affordable housing is still an important issue in Russia. Renewed state investment in housing has been made a national priority alongside efforts to encourage growth in the private housing sector.
The government is planning to invest on a large scale in upgrading Russia’s run-down stock of municipal housing, while also promoting the growth of the private housing. An adequate housing stock is essential to economic growth prospects by raising living standards and increasing labour supply. An active housing sector also has important multiplier effects throughout the economy.
Russia’s housing stock does not meet its housing needs:
- In 2006, there were 53 million households in Russia of a total population of 141.1 million;
- The total housing stock was 49.8 million units in 2006, up from 38.7 million in 1990;
- The vast majority (78.7%) of households are urban-based and most dwellings consist of apartments (76.3%).
Following extensive privatisation of the former state run housing sector in the early 1990s (which effectively amounted to the state ‘giving’ dwellers their apartments), homeownership has increased:
- According to the UN Economic Commission for Europe, home ownership was approximately 70% in 2004;
- Of the owner-occupied households, 94% had no mortgage, having received their households “free of charge” from the state;
Much of the population still lives in ageing Soviet era housing stock, particularly outside the main cities. More than half of homes need repair and many have not been repaired in 40-50 years.
The new 2006 Housing Code makes owners fully responsible for the maintenance of their property, but this is often a burden for owners of Soviet era housing. In the case of rented accommodation, local municipalities do not have sufficient funds either.
According to the government:
- In 2006, there were 93 million square metres of dilapidated housing in Russia (3.1% of the total), of which 11.2 million square metres were below safety standards.
Amid rising consumer incomes, an expanding middle class and the growing provision of mortgage lending facilities by Russian banks, there has been firm growth in private housing demand, particularly in the larger urban areas:
- Annual gross incomes rose 14.1% in real terms in the period 2001-2006;
- GDP per capita was US$6,858 in 2006, up from US$2,096 in 2001.
However, there is still a shortage of affordable housing:
- The volume of new housing completions fell sharply in the late 1990s and has not recovered;
- House prices increased by a third overall in 2006 (and by 60%-100% in Moscow) and are rising much faster than average incomes.
An adequate supply of housing stock is vital to economic growth prospects:
- Poor housing lowers living standards and leads to declining health and higher poverty. This has a direct impact on the labour force and reduces economic activity.
Under President Putin, affordable housing has been made one of Russia’s four priority National Projects (along with healthcare, education and agriculture). In the period to 2010, housing will receive significant public investment, funded by a large coffer of state energy revenues:
- In 2007, approximately US$38.9 million (Rb1.0 billion) will be allocated for resettling those living in dilapidated housing. A similar amount was allocated in 2006;
- Under the 2008-2010 budget plan, a further US$9.7 billion (Rb250 billion) will be directed towards a special housing and utilities reform fund.
The government is also keen to promote the development of the private housing sector. Key to this are efforts to reduce inflation and interest rates, and to facilitate wider consumer access to banking and to mortgage debt:
- The residential mortgage market was worth an estimated US$1.8 billion in 2006. This is still less than 1.0% of GDP.
Growth in private housing demand has strong multiplier effects in areas like construction, real estate, financial services and retailing.
Under the government’s ambitious medium-term targets for the housing sector:
- An estimated 100-130 million square metres of new housing would be brought onto the market every year.
Such a strong focus on housing will provide a significant boost to the labour-intensive construction industry, employment and overall economic activity:
- The construction industry rose 19.5% in real annual terms in 2006, accounting for 5.8% of GDP.
The outlook for the mortgage market, still in its infancy, is strong. Mortgage lending is one of the fastest growing retail banking sectors:
- The government objective is that one in three homeowners have a mortgage by the end of the decade;
- In 2004, 200 banks were offering mortgages rising to around 400 by 2006. The market is still dominated by two major players, Sberbank and Vneshtorgbank, which jointly control an estimated 70% of the total market;
As the demand for new private housing grows, related retail sectors like household goods and appliances providers will also see increased activity:
- The percentage of households with an annual disposable income of over US$10,000 was 11.4% in 2006, up from 1.4% in 2001.
This will attract additional FDI inflows into Russia as more foreign players seek to enter the market.