By Pyotr Netreba
Affordable housing through military means
Regional Development Minister Viktor Basargin admitted yesterday that the Affordable Housing National Programme had failed to achieve its main goal. Despite the growing state financing, the increased annual construction volume between 2006 and 2008 has not resulted in more affordable housing. The population segment able to afford real estate has only increased by 1%. No improvement of the trend is expected in 2009.
At a meeting convened by Prime Minister Vladimir Putin yesterday evening, it was decided to maintain the present levels of construction. The Government will achieve the national programme targets by providing housing for the military.
Since the Affordable Housing Programme was launched in 2006, the "affordability of housing has not improved," said Regional Development Minister Basargin, addressing the Duma yesterday. He said the "share of families who could afford quality housing has increased from 17% to 18%," which is only 1%. Neither the developing mortgage market, nor the increased construction volume, or the additional state funding helped improve the rate. In 2006, 33.8 billion roubles were allocated from the federal budget to finance the national programme; in 2007, 50.9 billion roubles. Furthermore, in mid-2007, the Government allocated 240 billion roubles for the period between 2008 and 2011 for the newly established state corporation Fund for the Reform of Housing and Public Utilities. However, instead of increased affordability, these Government policies resulted in raising real estate prices and increased construction volumes.
In 2009, the Government will continue increasing the programme funding, and has already allocated 294 billion roubles for the programme's needs. The funds include 68.9 billion roubles for social programmes' beneficiaries; 20.8 billion for the veterans' housing needs; 4.7 billion to support young families; and 200 billion to increase the authorised capital of the Agency for Housing Mortgage Lending. The Minister also said that the Government would earmark additional 10 billion roubles to support the young families' housing needs. Still, Mr Basargin is not very optimistic. He said that housing prices will only decline by 10%. This will hardly make real estate more affordable, considering that people's income level will be stagnant or will even decrease due to the crisis, he said.
The issues raised by Mr Basargin became a topic of discussions at the Government meeting on the housing programme yesterday. Prime Minister Putin decided against revising the programme's targets and instructed the Cabinet to maintain the achieved construction levels (61 million sq m) in 2009. He wants to support demand through a government purchase order for 40,000 flats for the military personnel and unfit housing occupants.
So far, according to the Regional Development Ministry, real estate prices in Russia have only decreased by 5% (see Kommersant of January 16). Therefore, the national housing programme's targets for 2009 cannot even be accomplished through "the Government's military order." Based on the current forecasts of high unemployment, negative income dynamics, and increased mortgage rates, the affordability of real estate (as defined by the Government) may decrease by 1% to 2%. This will undermine all achievements of the programme. At the same time, housing prices may decline more than predicted by Mr Basargin.
According to the international ratings agency Fitch, the creditworthiness of Russian construction and real estate companies will remain negative in 2009. Fitch expert Artyom Frolov said that "housing prices would decline by as much as 20% to 40%, and construction volumes will significantly decrease as well."