The Housing Market in the Russian Federation: Privatization and its Implications for Market Development

44 Pages Posted: 20 Apr 2016

Date Written: December 1997

Abstract

Although the financial standing of most Russian households has deteriorated recently, a small but growing number of Russians would take long-term loans to purchase or build housing - if they could. Household housing strategies demonstrate a clear trend to change. Guzanova reviews sociological data on privatization and the development of a housing market in Russia through 1996. Using data from urban surveys largely unknown outside Russia, she also considers demand for housing and household mobility in Russia.

Since early 1997 the Russian government has increasingly focused on housing reform. Current policy calls for a reduction (in stages) of housing subsidies (for which both owners and tenants of privatized apartments are eligible), with the goal of 100 percent cost recovery by 2003. But household incomes are not expected to rise commensurately, so housing's share of the household budget is likely to grow for most Russians.

By the end of 1996 about 55 percent of Russian housing was privately owned. The rate of privatization peaked in Moscow in 1993 and has since abated considerably, essentially coming to a halt in 1996. The pattern was the same in smaller cities, but with a later starting date. Not surprisingly, high-quality apartments in city centers have much higher rates of privatization than lower-quality housing some distance from the center. Also affecting the decision to privatize are demographic characteristics of the occupants and household incomes, values, and education levels.

Privatization has produced a far-from-uniform class of owners. The two groups most likely to have privatized their apartments - pensioners and the relatively well-off - have quite different effects on the housing market. Pensioners - the larger group - are generally not inclined to move and thus exert a negative effect on housing mobility. The well-off - a much smaller group - can be expected to participate actively in the housing market.

There has been some movement toward a more efficient allocation of housing. Because of economic forces, part of the mover households moved from their original apartments to apartments that were somehow inferior. Moreover, the housing market allows poorer households to find housing more in keeping with their ability and willingness to pay for it. Many renters in Russia have chosen not to privatize their apartments, influenced largely by the sense of occupation rights inherited from the former Soviet Union. Many Russians have little incentive to privatize their housing, but data from Moscow and two smaller cities indicate that market ideas about searching for housing are beginning to penetrate the Russian public's mentality.

This paper - a product of the Poverty Reduction and Economic Management Sector Unit, Europe and Central Asia - is part of a larger effort in the region to study housing reforms in Russia.

Suggested Citation

Guzanova, Alla K., The Housing Market in the Russian Federation: Privatization and its Implications for Market Development (December 1997). Available at SSRN: https://ssrn.com/abstract=620566

Alla K. Guzanova (Contact Author)

World Bank

1818 H Street, N.W.
Washington, DC 20433
United States

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