Background
This
Conference is devoted to budgetary issues of regions and local authorities in
It looks,
that the Russian society has not enough funds to finance the operational,
repair and modernisation costs of the existing housing stock. Peoples health,
working capacity and quality of life is linked with housing. Marriages of young
couples suffer in lack of own apartments and babies are born less. Economic
development suffers due to problems of finding apartments there where work is
available. Money, energy and water is wasted. Some 60 % of the technical
infrastructure is old and in poor condition. Numbers of accidents and collapses
in the networks are increasing.
I had a
pleasure of working in
Ownership of apartments
Most of the
previously state owned apartments in multi storey buildings have been transferred
to municipalities and from them to private ownership. Over 60 % of the
apartments are now private and most of the rest owned by the municipalities. In
the privatisation the inhabitants have got their apartments free of charge. The
interest for further privatisation has in many cases slowed down, because the
inhabitants would like to get a better apartment to be privatised. Some
inhabitants are also afraid of property taxation of private apartments. The
privatisation has left the roofs, external walls, corridors and lifts to
problems of the municipality. In “normal market economies” the owners of
apartments also own jointly these common parts of the buildings through the
association of housing owners/condominium and local authorities have no
responsibilities in the totally private buildings. In spite of existence of
condominium legislation in
Should all of the apartments be privatised? Should creation of
condominiums in the existing housing stock be promoted?
Private
ownership of apartments and private rental sector in housing are the normal and
approved solutions in market economies. However there are always people, which
due to various social problems (poverty, disability, alcoholism, divorces etc.)
can not find a private solution in their housing needs. For that reason the
approach in all Nordic countries is, that municipality has a duty to provide
some social apartments to the people in need. For this reason the municipality
shall also own some apartments, for example 10 % of the housing stock. At the
moment the Russian municipalities seem to lack legal tools to stop
privatisation, when they are close to loose their social housing stock.
One of the
real main reasons against condominiums in Russia in addition to certain
attitude constraints seems to be the complexity of housing subsidies and
privileges to wide groups of inhabitants. If the private condominium is
expected to be financially responsible on housing costs of its inhabitants how
are the privileges and subsidies arranged for the inhabitants ? That needs cash
money from the municipality to the condominium and until now such money has not
been visible. The condominium can not take the financial responsibility of privileges
and subsidies.
Too little
is discussed in the housing reform on the role of private villas and cottages.
They were widely private already during the Soviet period and are now as well.
However the social support given to inhabitants of multi-storey apartment
buildings through privileges and subsidies on cleaning, maintenance, repairs
and heating is mainly lacking from the cottage owners. They have to repair and
heat their houses themselves even if they are in a population category allowed
for benefits. They have also paid the building costs of the building, when
people in multi-storey buildings have got their privatised apartments free of
charge. People are not treated equally.
Construction of new apartment buildings
The acute
housing crisis is mainly linked with the existing housing stock. However also
new apartments are needed. The existing buildings will sooner or later become
too old for use. How to finance the construction of new homes and who should
finance it ? In the market economy people buy their homes and finance their
construction. Even in rich societies people have rather little cash for that
and this happens mainly by bank loans, which including the interest rate are
paid back slowly for example within 20-30 years. It also includes a mortgage
system, where the apartment is a guarantee for the bank if the client fails in
paying the loan or interest rates. The bank may take the apartment from a non
paying client. At the moment the Russian bank system is unable to provide
suitable housing loans for the financing of new construction of houses. The
mortgage system is not yet properly in operation because the valid annual
interest rates around 18 % are too high for normal people. Law on mortgage
securities is in finalisation in the State Douma. Most of the municipalities
can neither afford construction of new apartments. The new rich business men of
Russia seem to be at the moment the only population group, which can finance
new apartments. An operational mortgage credit system has to be created to
finance the construction of new apartments for normal population. The ones to
pay this system will be the people themselves, but hopefully with public
support to decrease the interest rates of the loans.
Renting of apartments
In spite of
clear existence of private rental markets of apartments in Russia most of the
Russian citizens are not yet fully familiar with market economy of rental
apartments. The possibility for municipalities to collect rent is still very
new and the marginal rents of municipal apartments are still far from real
rents in the market economy. Some people may still think that the rent means
only payment on heating, water and maintenance of the house. The rent however
is income to owner of the apartment to cover his investment in the apartment
and a profit for this capital. If you are a private investor, who can either
own and rent an apartment or keep the money in a bank and get an interest for
this saving or perhaps buy profitable shares to a company you shall get such
incomes from renting that it is worth of doing. For example a 5 % annual
interest on the money invested in the apartment is not yet much in the rental
market. In order to be able to invest on housing also the municipality shall
get a rent which covers the interest costs of the money invested in housing.
Increase to municipal rents on top of costs of heating, water etc. is a
necessary way to increase municipal investments in housing.
Municipal housing enterprises
Heating,
water supply, waste management, maintenance and cleaning of buildings are in
general in Russia provided by municipal enterprises. Often they also take care
on urban roads and parks. Electricity, gas and telecommunications are often
provided by regional state owned enterprises or in some cases by private
enterprises.
The
municipal enterprises on housing sector are in huge difficulties. In general
their incomes do not cover the costs and the difference is financed by growing
debts. In many of the enterprises the debts are much higher, than annual costs
of the enterprise. No way seems to be out from these old and growing debts.
With Russian financial results most of the housing enterprises would be in
bankrupt in Western Europe.
The
enterprises in general are managed by a director appointed by the head of administration
of the municipality. No board advises nor controls the enterprise. Citizens are
not involved in the discussions nor control of their housing services. In spite
of certain state supervision no annual financial audit is obligatory in these enterprises.
Poor auditing promotes corruption and financial miss management in these
enterprises. Their management, planning, reporting, financial administration
and invoicing needs modernisation. The Russian housing sector enterprises have
in general 5-10 times bigger staff than relevant western enterprises serving
same amount of population. Cost savings and increased effectiveness are
urgently needed in these enterprises.
The
technical know how in municipal enterprises varies. In general an external and
independent technical audit of the service systems now and then for example
every three year might increase the effectiveness of these enterprises. Waste
of water through leakage, waste of heating energy through leakage of hot water
pipes, poor heating isolation of buildings, lack of thermostats in heating
batteries, lack of measuring of production of water and heat, lack of measuring
of energy- and water consumption of clients, poor automatisation etc. are among
the technical details, which may need profitable improvements. Leakage of water
in the network is typically 20 % of the water consumption, sometimes more.
Water consumption in Russian water supply is 20-40 % more, than for example in
the Finnish water supply networks. Energy consumption in Russian buildings is
due to poor isolation 2-4 times higher, than in Finland. Many of the Russian
service providers do not even measure their water or energy production nor
consumption and they are unable to calculate real leakage nor to identify their
waste of resources.
Privatisation
of housing services and increasing competition in service production is a way
to increase efficiency in the housing sector. Cleaning and maintenance of
buildings is the easiest sector to privatise. Water supply and central heating
services are due to necessary networks always monopolistic. If you privatise
water supply and central heating, the enterprise naturally has to cover its
costs and to collect a profit. In Britain this has resulted to high increases
to tariffs and poor services. In Russia privatisation is extremely difficult
due to complicated Russian tariff, privilege and subsidy system and lack of
payment to cover them. Privatisation of cleaning and maintenance suffers on the
same problem. In Finland cleaning and maintenance is totally private so that
the condominiums as clients ask tenders for it. Urban water supply is provided
by municipality or municipal enterprise. Central heating in Finland is provided
by municipal or private heating enterprises, which often produce electricity
simultaneously.
Who pays the housing
The public
discussion on housing reform in Russia at the moment seems to concentrate on
the ways and timetable of getting population to pay their housing costs. At the
moment the housing costs like heating, water supply, waste management and
maintenance of buildings are shared between population, enterprises, state and
municipal budget organisations like schools hospitals etc., state and municipal
budgets and the municipal housing sector enterprises. Too much of the costs are
not covered at all, which means increasing debts to housing enterprises and
poor services.
The
enterprises may have some 3-6 times higher water tariff per m3, than the
population. The enterprises however normally are the most reliable payers of
the bills, because water and heating can be cut from them in lack of payment.
The worst clients, who in several cases paid not at all their bills on water or
heating, seem to be the municipal budget organisations like schools, hospitals
etc. They lack funds for these payments in their own budgets. Population is
often blamed on poor payments, but in the municipalities, which I know, they
pay rather well. Perhaps 70 % of the population pay properly the bills sent to
them. However the tariff, privilege and subsidy system is constructed so, that
bills sent to them do not cover their real costs. The difference between cost
of population and the bills sent to them was supposed to be paid by the
municipality, but they have not been able to cover fully their expected share
of costs. This has left the housing enterprises to growing debts. These debts
are not debts to banks. Instead they are unpaid energy bills, unpaid taxes etc.
What in
fact are the real housing costs, how they are shared and are there ways to save
these costs is not easily answered. The ways of calculating them is not
transparent for population nor for politicians.
In the
ongoing discussion on transferring the housing costs to population, the people
should be provided with reliable information on what these costs consist and is
everything done to reduce these costs. Consumers representatives should be
involved in the management of housing services.
World Bank
has in its several projects tried to promote housing reform in Russia. It has
offered loans for repairs of buildings, for municipal water supply and for
municipal heating. These projects have not proceeded according to plans due to
financial difficulties of selected pilot municipalities and lack of central
state interest to guarantee the repayment of these loans. The poor progress of
these loans is a negative symptom for other local and international financial
sources as well. Who will finance the repairs and modernisation of utilities
networks in Russia in the future ?
Tariffs, privileges and subsidies
In Finland
the tariff system on housing services is in principle very simple. Clients pay
all costs of the services. Unit prices are the same for all clients inside a
municipality. Consumption is measured and services are cut if the bill is not
paid. The European Community is trying to promote competition is housing
services and this means, that municipal enterprises shall not be financed with
municipal money if the same benefits can not be given to private enterprises.
World Trade Organisation requests the same. Our new Finnish water supply law
clearly commands, that the tariffs have to cover all costs. In our system the
poor people, which exist in all societies, are helped with targeted social
support, not through the tariff, subsidy nor privilege system. Some 10-15 % of
our population receive some way of social support for their housing.
The Russian
system of housing tariffs, privileges and subsidies is extremely complicated. A
lot of social support to population is already included in the tariff system.
If enterprises pay 3-6 times higher price on m3 of water than population this
means, that water supply tariff is an additional tax on enterprises and this
money is distributed to all of the population equally, not targeted according
to their social needs nor poverty. If the tariff is not even supposed to cover
the costs of the service, like the tariff may be designed to cover only 60 % of
the costs, the rest of costs 40 % is also a social benefit to all consumers
without any kind of targeting to people in the real need.
In general
the Russian housing tariffs do not properly include the costs of investments to
the equipment and networks. Those are expected to be financed by the
municipality from its own budget outside the budgets of the municipal housing
enterprises. However municipalities have too little money for investments and
as a result necessary repairs, modernisation of equipment and enlargements to
network do not proceed. Instead the networks are getting old, they break down
and in the cold Karelian winter the heating may stop. In Finland the tariffs
include the investment and repair costs of networks. We have an additional
tariff for new clients, when they join the network, so called connection
tariff, which covers much of the enlargement of the network.
The Russian
government has expressed its commitment on reform, where tariffs of housing
services are based on full coverage of costs. It has also expressed its
willingness to target the social benefits to the people in need. The practical
implementation of this reform is both politically and technically not easy. Its
key legal solutions are still under discussion in State Douma. This year before
Douma elections is not ideal for decisions, which increase the peoples housing costs.
More than
20 federal laws provide to various groups of population privileges to housing
payments. Normally this means, that they can pay only 50 % of the costs
according to housing tariffs. War veterans, disabled people, victims of
Tsernobyl and heros of the state are examples of these population groups. Some
40 % of the population, too much, get privileges. These privileges are valid
independent of the social need or poverty of the recipient. In several cases
the whole family gets the privilege, even if only one family member belongs to
the special group. If the changes to law on principles of housing policy are
finally approved in State Douma the Russian privilege system will be abolished
after year 2005.
The Russian
social support system to housing costs of the poor is in principle included in
the subsidy system. People do not need to pay more than 18 % of family incomes
to housing. The bills are reduced if incomes are small or housing costs are
high. Some 4-8 % of the population gets these subsidies, and the municipalities
are expected to finance these to the municipal enterprises. Unfortunately many
of the municipalities are unable to cover these costs. This means debts to
enterprises.
The system
of tariffs, privileges and subsidies has been created by federal legislation
and federal bodies. Simultaneously the municipalities have not received incomes
to implement these laws. Thanks to better situation in the Russian economy the
federation seems to be now more ready than earlier to provide better funds for
local authorities to support peoples housing costs.
In the
reform a clear direction for future is towards targeted social subsidies. In
principal it sounds good, but there are a number of technical problems in the
targeting. After the laws are cleared at federal level a lot of technical
challenges will appear. In order to direct subsidies to poor households, you
need to know who are the members of the household and what are their incomes
and what is their property. The Russian system of population registration,
apartment registration, tax recording of incomes and property of the people,
computer systems, software, transfer of data between authorities etc. need to
be developed to manage the data needed for targeted social support. In order to
manage the invoices and payments, also the bank system and financial systems of
the housing enterprises need modernisation. It is a big task.
Towards the future
The Russian
government approved in November 17, 2001 a subprogram “ Reform and Upgrading of
the Housing and Utilities Sector in the Russian Federation”. In this program
some key elements are restructuring of old debts of municipal housing
enterprises, full responsibility to population on their housing costs and
targeted social support to poor in their housing problems. The programme costs
for period 2002-2010 were estimated to be 510 470 million roubles. The federal
budget is expected to provide only 1% of these funds. Costs of the reform are
left to people and to local and regional authorities. During spring 2003
amendments to law on guidelines of housing policy are in State Douma under
finalisation.
The
responsibility on arranging debts of the housing enterprises is given to
municipalities, which until now have been too poor to cover their expected
share of the costs and which in fact are locally in charge of creation of these
debts. We all know, that the municipalities are not able to cover the old
debts, good if they can stop the increase of new debts. The old bad debts
should perhaps just be cancelled and forgotten.
Increased
role to population on their housing costs and better targeting of social
support shall proceed simultaneously. Technically it needs a lot of work but I
can not see any alternative to this. After operational costs in the existing
housing stock are in an order solutions to the even bigger challenge of
financing new housing construction have to follow.
If incomes
and costs in housing are not in balance I see, that also everything possible is
needed to decrease the unnecessary costs. The municipal housing sector
enterprises will need increased efficiency, modern management, independent
financial and technical auditing, costs savings and transparency towards
inhabitants.
We all need
a home. Housing reform also concerns all of us. Many of us may actively
participate in the reform. Gosstroi alone can not implement this reform. It is
implemented by central, regional and municipal administrations, by their
politicians, experts and enterprises and by the inhabitants all together. I
hope the best success for every participant of this reform.