We start publication of Yegor Vlasenko’s paper «The Retreat of the State: Liberalisation of the Housing Market in Ukraine». This publication has been prepared during the Master’s program in Urban Studies at the University of Malmö through the Swedish Institute (SI) scholarships.
Post-war reconstruction, state housing construction programs, gradual privatisation and transition to market terms of housing maintenance — these are the main pillars in housing policy of the majority of states in the second half of XX century. However, it was Ukraine that ended up in the situation where the new housing policy did not change the housing allocation system and preserved inequalities of Soviet housing rather than reformed them. How and why this happened are the questions that we are going to review in the first part of the article about the retreat of state from the housing market in Ukraine.
Urban density makes housing one of them most heated issues for discussion, since availability of this resource is often scarce and regulated by various actors or market mechanisms. Urban lifestyles also imply co-housing practices, since buildings are mostly designed for multiple occupation. The essence of housing is threefold, as it can be perceived as a basic human need (shelter), commodity (traded on real estate market) and investment good (haven for free financial capital and instrument for speculation). In the same time, a variety of occupation and ownership forms bind housing issues closely with co-existence of people in a limited space, rooted in human behaviour and psychology. State interventions have always been part of housing market, however their significance and scale varied greatly over time and from country to country. Transforming economies of Eastern Europe in 1980s-90s represent a radical paradigm shift in housing policy that resulted into emergence of one of the most vivid forms of neoliberal urban transformation. This paper critically explores the emergence of a market-led real estate market in Ukraine through housing privatization in 1990s to showcase the impact of state interventionism, as well as its absence, on housing conditions and real estate market.
Shelter has always been perceived as one of basic human needs that protects human beings from an unpredictable and even dangerous environment and empowers creation, safe interaction and leisure. The right to shelter, or more deliberately the right to an adequate housing has recently gained a central place within the international legal system. In particular, adequate housing was recognized as part of the right to an adequate standard of living in the Universal Declaration of Human Rights of 1948, and is currently protected by international law along with protection of one’s home and privacy. According to UN Habitat, the right to housing is relevant to all states since they all have ratified at least one international treaty referring to adequate housing and provided respective commitments, in some cases backed by their national constitutions. However, UN Habitat reports over billion people deprived from adequate housing globally. Likewise, local mechanisms of state protection of the right to housing often remain absent or unclear.
Regarding the right to housing, its contemporary meaning borrows a lot from works of European scholars of the XIX century who tried to assess aftershocks of the Industrial Revolution, which transformed and displaced traditional agrarian communities and formed a new kind of city, so called metropolis, that distorted traditional planning borders of fortified medieval cities. Overpopulation, diseases and severe shortage of needed sewage and sanitation systems marginalized the urban working class, making them an easy target for manipulation and repression. Improving of living conditions of new urban populations became a key objective for a number of industrial era thinkers from Engels to Howard and Le Corbusier. The suggested solutions ranging from peripheral garden cities to functionalist cities of high-rise towers in most cases called for a direct state intervention in terms of new regulations introduction and, in some cases, new state-backed construction projects.
Most of these ideas found their implementation (mostly indirectly) in a post WWII period when a post-war reconstruction of cities was followed by a number of massive housing projects implemented globally. This period is also associated with adoption of universal social welfare model, including pension system, in most countries, including those that previously opposed state paternalism, such as the US. The examples of new social housing construction initiated by the state include Miljonprogrammet in Sweden and massive housing projects started by Khrushchov in the Soviet Union. Although these programmes were mostly perceived as timely and necessary ones, the flaws of quick construction out of prefabricated materials made the housing projects known as less liveable and attractive, leading to quick depreciation of housing stock and social marginalization of their residents. Demolition of housing blocks that were once erected as part of public policy had become an evidence of state’s planning failure, from US-based Pruitt Igoe in 1970s to Red Road flats in Glasgow in 2015.
Additionally, state-led housing policies often represented a part of a wider ideological platform such as Folkhemmet (People’s home) idea in social-democratic Sweden. In socialist states, most particularly in the Soviet Union, state control over housing stock had been heavily politicized and served as a tool for surveillance, ideological control and even displacement. Similar practices in regards to population mobility can be also observed in today’s China.
All mentioned can lead to growing concern regarding state’s ability to effectively plan and manage housing projects. However, the state’s role in today’s housing and real estate markets should not be overestimated. Since economic liberalization of 1980s and collapse of the Soviet Union, national governments are gradually handing over responsibility over housing stock to private actors, in accordance with neoliberal paradigm that takes a clear stance against public intervention in the markets (Sager, 2011). As argued by Glaeser (2011), such traditional urban planning instruments as zoning codes might undermine city’s development and lead to inefficient sprawling, as had been the case with Mumbai. In the same time, global chase for creative class results into tremendous pressure on housing prices in such cities as New York and Boston (Florida, 2005), forcing out people from their communities and creating gentrification. As pointed out by Harvey (2012), cities utilize the collective symbolic capital attached to names and places to better ground their claims to uniqueness that yields monopoly rent.
Undoubtedly, emerging city marketing creates additional distortions on local housing markets, but the strongest impact is produced by another aspect of globalizing economy — a growing need for reliable and long-term haven for capital investment. The role of US government-backed Fannie Mae and Freddie Mac in triggering a housing prices bubble and, subsequently, global financial crisis of 2008-09 has received extensive coverage which however failed to prevent similar externalities of global security trading and change the underlying structure of the society in general (Marcuse, 2009). The exposed potential of housing as an investment good showcases its heavy dependence on banking system and interest rates, as well as actions of professional market intermediaries e.g. real estate agents and valuators.
Within such system, urban policies implemented by local and national authorities often appear to be in no control of increasing spatial segregation, gentrification and residualisation.
A tectonic change in housing policies of post-socialist countries of Europe and former USSR in 1990s had a direct impact on at least 450 million people (Tsenkova & Turner, 2004) who used to live in centrally planned economic conditions. Moreover, the housing sector was aimed to play a key role in stabilizing fragile economic ecosystems and absorbing shocks of rapid economic and social change. According to Hungarian economist Janos Kornai, socialist economies were characterized by large proportions of state ownership, state financing, somehow atrophied financial system and numerous state monopolies. Given a public monopoly on land and housing, privatization of the housing sector was viewed as a precondition for further market transformations, in particular emergence of market-based housing finance.
In the same time, a need for change in housing policy was supported by some firm data that showed inability of centrally planned system to fully supply the needed housing, with average rate of housing stock never reaching the Western European ratio of about 440 units per 1000 people (Renaud, 1996). Quantitative shortage coexisted with complains about quality problems of mass-produced industrial housing estate that were energy inefficient, costly to maintain and frequently loathed by their occupants (Renaud, 1996). Another problem was related to housing allocation based on general waiting list system, which resulted in housing shortage for young families in 1980s and general mismatch between unit size and actual household needs. Moreover, the housing shortage became very visible after gradually collapsing output of completed dwellings since 1988.
Nevertheless, universal access to housing in socialist countries and its provision by the state at trivial prices was frequently used as an important point in favour of superiority of socialism over capitalism (Renaud, 1996). It is necessary to mention that massive housing construction in 1960-80s somehow justified this point, in a very contrasting manner to severe housing shortage in the first half of the XX century. Housing policy had been an important tool for building the desired egalitarian society and resulted in forming a very compact and homogeneous urban environment in contrast to the sprawling cities of North America and also the spreading cities of Western Europe (Kährik & Tammaru, 2010). However, such quite widespread image of socialist housing as fully egalitarian and uniform contains certain misconception that are to be further revealed.
In particular, perceived low-income inequalities, which could be indeed observed in socialist states, do not automatically implied absence of socio-spatial segregation and discrimination. Urban housing inequalities in socialist countries should be viewed through the political monopoly of the Communist party and inherited housing policies of historical cities such as Prague and Łódź. As pointed out by Gentile (2015), the collusion of these factors created two major consequences: the priority of investment in heavy industry and overconsumption by industrial output by militarizing state, and the widespread implementation of town planning ideals consonant with party ideology, mostly depicted in high modernism. In order to fully grasp the actual inequalities encoded in the housing stock, it is important to outline a classification of housing in accordance to Soviet-period prioritization system.
Firstly, the abovementioned housing stock of historical cities that remained from pre-socialist times was often neglected by the state and significantly deteriorated, due to focus on new construction. Additionally, a non-socialist housing was transformed into communal apartments in the early decades of the Soviet rule through forced nationalization, eviction and uplotneniye concept that implied introduction of fixed living space per person and demanded forceful moving in of additional tenants in case of ‘excessive unoccupied living space’ (1920 Decree on Allocation of Housing for Labour Population). It also should be mentioned that the stock of so-called pre-revolution housing was limited in industrial regions, such as cities of Eastern Ukraine, and was completely absent in smaller industrial towns that were founded to support newly constructed industrial facilities. In its turn, the new Soviet prefabricated panel housing introduced the ethnic dimension in residential differentiation, housing minority population, as had been the case with Russian-speaking minority in the Tallinn urban region (Kährik & Tammaru, 2010).
Secondly, under central planning construction ministries were merely line agencies with limited responsibility for policy (Renaud, 1996), while the real construction planning was initiated by the industrial sector, with many factory directors assuming the responsibility for housing their workers (Gentile, 2015). As a result, quality, quantity and even speed of housing construction directly depended on industrial growth, reproducing priorities set on a state level. For instance, housing construction linked to heavy industry and military-industrial complex often appeared to be built faster and without strict budget limits, unlikely to enforced budget constraints experienced by less prioritized industries. Additionally, such planning often ignored city’s commercial and leisure functions, leaving centres of industrial towns empty and created housing inequalities based on socio-occupational status (Gentile, 2015).
Thirdly, housing policies of the socialist age mostly avoided massive construction of single-family housing, in contrast to the housing ideal of suburban North America. Single-family houses still make less than 1.8% of the overall housing stock, which is a direct consequence of former planning policies. Moreover, vast majority of single-family housing construction took place in rural regions and somehow marginalized parts of cities or used as summerhouses. Due to state monopoly on land and top-down planning practices, industrial enterprises were able to lay claim to large portions of urban land for future expansion, so investment in single-family housing was almost frozen because of demolition risks in the future (Gentile, 2015). Additionally, the quality of construction of single-family housing used to be overly amateur, and some houses lacked connection to urban sanitation and central heating facilities.
Hence, while the social geography of urban regions under Soviet system used to be more even that under capitalism, it was based on a number of contradictory factors, quite far from the ideals of equality. In addition, the state responsibility for construction and maintenance of housing became too heavy to carry on, partially due to heavily subsidized and extremely low rent. It is also worth mentioning that housing allocation, politically biased and often forceful in Stalinist times, more or less stabilized since 1970s, forming a perceived sense of private property over publicly rented housing. However, the first legislative initiative concerning housing privatization appeared only in 1980s, with such decrees as 1988 Cabinet of Ministers of USSR Decree on selling apartments in publicly owned housing blocks. Despite announced low prices, privatization never became popular because of lack of incentives and absence of market-based real estate market. Without market capitalization of housing privatization concept mostly benefited only real estate agents who earned commission for arranging barter exchange of housing units. Still, a truly radical housing privatization eventually took place, however taking a very different route from the one suggested by such thinkers as Kornai.
As mentioned above, housing privatization was one of the four privatizations in transition economies, together with privatization and restructuring of large state-owned enterprises, medium and small scale urban enterprises, and that of agriculture (Renaud, 1996). The initial idea of privatization was targeted at eliminating existing housing deficit and lifting rents to a more market-based level. However, the actual housing privatization that followed in early 1990s in all countries of post-socialist block took quite opposite direction, rather legalizing the existing housing order and handing over housing ownership to current dwellers, while the concept of subsidized rent was mostly preserved. In Ukraine, over 5.4 million apartments had been privatized since 1993, which accounts for 85.4% of publicly owned housing stock as of the launch of privatization. It is important to mention that while housing privatization in Ukraine peaked in 1993-94 and was nearly completed before 2000, the legal basis for it is still at place, so it can be said that privatization is on-going (Berezhna, 2009). Despite the efforts to provide a market-based valuation of apartments in early 1990s, the privatization was eventually carried out basing on governmentally established standards of living space per person. As a result, 85.9% of apartments were privatized free of charge, with 78% of their dwellers receiving a compensation for insufficient living space and another 14.1% charged for ‘extra space’ (Berezhna, 2009).
In order to understand a contradictory nature of housing privatization, it is important to outline the challenges that decision makers had in front of them back then. For instance, a macroeconomist’s view of privatization was focused on its ability to overcome obstacles and shortcomings of centralized planning and to share responsibility for deteriorating housing stock with population through establishing market-based prices and rents. However, a dweller’s perspective was of course focused on preserving their family shelter in the turbulent time of transition, which explains resistance to introduction of differentiated rent prices and market-based privatization. Rather, early privatization managed to legalize an already existing property rights, creating a basis for standard operations with property, such as housing inheritance. In such countries as Estonia early privatization also became an opportunity to settle property conflicts caused by housing nationalization and to return real estate to pre-socialist owners through so called restitution. Such practice helped to restore the social justice in regards to old property owners, however created new injustices for Soviet-era tenants who had to either start to pay the market rent to the new owners or leave their home (Kährik & Tammaru, 2010). Restitution was quite widespread in the post-socialist Baltic states, however was never implemented in Ukraine.
Privatization was also a complicated and unclear bureaucratic process, in particular related to registration and cadastre systems that had substantial flaws. Much of housing privatization was overfocused on apartment units, in the same time ignoring ownership and maintenance of public spaces that required a new delineation and registration of land boundaries (Renaud, 1996). Housing privatization also failed economically in terms of achieving full cost recovery for housing maintenance. As for the capital construction costs, those were typically ignored and treated as sunk costs (Renaud, 1996).
On top of everything mentioned, the most intense period of housing privatization coincided with a significant decline in output, particularly in heavy industry, and a sharp increase of inflation that followed price liberalization. Unlikely to a similar apartment privatisation campaign in China that was launched back in 1979 in a few pilot cities and provinces (Chen, 2008), post-Soviet privatisation was much less planned and followed by some last-minute decisions of the government. Moreover, several waves of hyperinflation, along with replacing Soviet rubles with new national currencies, almost eliminated personal savings of citizens and disrupted their trust in financial system in general. As mentioned in the World Bank report 1996, housing privatization was meant to become one of key preconditions to market-based housing finance. However, the same report suggests few more indicators for ‘developing a modern system of housing finance’ that were never fully met: low inflation, radical banking reforms and seriously reformed laws and institutions in the real estate sector. Lengthy, bureaucratic though uncontrolled and poorly planned privatization has formed a very specific market, where a clearly neoliberal ideology somehow contributed to preserving housing conditions and inequalities of the previous socialist era rather than to reforming it.
In his research of housing inequalities in Stakhanov, a midsized industrial city in the Donbas, a region Eastern Ukraine, Michael Gentile (2015) found that declining economy of this urban region never provided enough liquidity and excessive capital to initiate new housing construction — only 0.5% of the dwellings were built between 1994 and 2009 (Gentile, 2015). After losing vast majority of jobs in coal mining in 1990s, its population became impoverished, yet preserving quite typical for Ukraine average monthly income of 2,778 hryvnya, equal to 260 EUR in 2012 and only 98 EUR in February 2015 following the recent dramatic fall of the national currency (Gentile 2015). Yet, as is the case elsewhere in Ukraine, the city’s housing stock is currently almost completely in private hands, with less than 6.5% belonging to the municipal rental sector. Partially as a result of discrepancy between average income and new market valuation of privatized apartments, nearly 70% of the population in 2009 lived in the same apartments as 20 years ago. It is also highly likely that the remaining 30% have moved in with a partner, who also had a stable place of residence in the long term (Gentile, 2015). While privatization has, though quite arguably, helped the population to preserve their dwellings, it had been apparently unsuccessful in improving their housing conditions. According to research carried out by Gentile (2015), staying in slowly deteriorating socialist housing has had a significant impact on residents’ feeling of depression and even their self-rated health.
As we see from this brief overview of the housing privatization in Ukraine and other post-socialist states of Eastern Europe, massive and free privatization helped to preserve the status quo on the emerging housing market and protect the basic right to shelter. In the same time, the privatization left the newly formed market without liquidity, almost freezing the reproduction of housing as a commodity though new construction in 1990s. On the national level, the housing privatization in Ukraine is almost complete, having reached a very advanced stage — almost 96% of the overall housing stock is currently in private hands. Privatization is however still on-going, and today’s housing market is still dealing with its externalities. Firstly, hyperinflation in the first years of independence and severe economic crises in 1998, 2009 and 2014 provoked a shift to calculating real estate prices in US dollars, which still has significant impact on behaviour of housing market actors. Secondly, despite government’s early initiatives to organize cooperative forms of ownership and private housing owners associations, free privatization of apartments with no commitment regarding common areas and public spaces created a gap in housing maintenance system. Finally, a liberalized housing market with a very limited presence of public ownership forms left the system vulnerable to externalities of global financial capital circulation, resulting in housing prices bubble in 2008-09. All these consequences of early housing privatization require a more detailed overview that is to follow in the next parts of this paper.
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