RUSSIAN EXPERT EXPRESSES "RESERVED OPTIMISM" ON

UNCLAS SECTION 01 OF 02 MOSCOW 001669

SENSITIVE
SIPDIS

STATE FOR EUR/RUS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV RS SOCI
SUBJECT: RUSSIAN EXPERT EXPRESSES "RESERVED OPTIMISM" ON
HOUSING


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Summary
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1. (SBU) Continuing our series of cables on Russia's housing
sector, Econoffs met with Alexander Puzanov, General Director
of the Institute for Urban Economics. Puzanov told us that
the obvious solution was to increase the supply of housing.
He was optimistic that this would occur eventually through
market forces but argued that the government should take
action to speed the process. In that regard, Puzanov said
that while the GOR appeared to have good intentions, its poor
track record on housing did not inspire confidence that it
would do what was needed. End Summary.

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Housing: A Complicated Crisis
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2. (SBU) Puzanov said that the lack of housing has pushed
prices so high that less than 20 percent of families can
realistically afford a new home even though mortgages are
increasingly available. He said the lack of land for
residential construction is a key factor driving up housing
prices. Puzanov explained that 90 percent of land in Russia
is owned by state and municipal governments who do not have
an efficient (read: corruption-free) method of re-zoning
large tracts of agriculture and forestry land for housing.


3. (SBU) Puzanov said the GOR has re-zoned some land for
residential use and auctioned off plots. However, more often
than not, he said the land is purchased by a wealthy
developer. The developer in turn builds expensive homes for
Russia's elite, which have higher profit margins than middle
class housing. Puzanov said that until the high-priced
housing market is saturated, developers and construction
companies will not even consider building mid-range housing.


4. (SBU) Puzanov said he was optimistic that rising incomes
and falling interest rates would eventually lead to improved
housing affordability. In an optimistic scenario - "if all
goes according to plan" - Puzanov estimated that by 2020 the
number of homes purchased by Russians would increase from
today's 2.5 million to 4 million per year.

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Government Intervention Needed and Underway
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5. (SBU) However, Puzanov told us that the key to speeding up
this process was government action. In that regard, he said
he was encouraged by President Medvedev's May promise to
continue previous GOR efforts on housing and by the GOR's
decision to include housing market reform in its long term
"2020" development plan. Puzanov said the GOR has pledged to
increase housing stock by 2020 using a combination of
incentives and public-private partnerships to more than
triple housing construction. He said that among some of the
more promising measures the government was considering or had
begun to implement were the following:

-- A Fund to Assist Housing Maintenance: Established in
January, its goals are to repair existing housing stock and
to resettle people from uninhabitable housing. Puzanov said
the GOR hopes this Fund will also encourage market mechanisms
for housing construction and repair, such as home ownership
associations and cooperatives; and

-- A Fund to Promote Housing Construction: This Fund was
announced by Medvedev in April. Puzanov said its purpose is
to address the lack of land for residential construction.
The Fund plans to redistribute up to one million hectares of
unused government land for residential building projects and
for factories to produce scarce construction mater