Housing sector reform project II : final report

The program led the reform of a major sector of the Russian economy, the housing sector, a notable accomplishment given that, on the eve of the transition, housing was the least efficient sector in the Soviet Union. By the conclusion of the contract, the majority of housing units were privately owned. Most enterprises have divested their housing to municipalities and have greater concentration for their principal work; household mobility rates have soared and the majority of families are finding their housing through market means rather than by waiting on the municipal waiting list; broad rent controls have been replaced with a program that is gradually raising rents to full cost-recovery levels and targeting the remaining subsidies to low-income people; and most construction is organized by private developers and carried out by private contractors. While Phase II continued to focus on sectoral reform, there were significant shifts in emphasis and some additions. Most importantly, reform of municipally-provided communal services -- particularly water and wastewater services and district heating systems -- were awarded a prominence consistent with their large share of tenants" total housing expenses. Attention was given to working with banks to initiate lending for construction period finance for the first time. A small grants program for local NGOs was added to encourage the development of citizens and local groups to press for further housing reforms, including formation of condominium associations. Phase II also concentrated on target cities to serve models for other cities. This strategy proved less compelling in practice than expected, and after the first year a more flexible approach was pursued. Although the change put great stress on project services being demanded by client cities and banks, this approach worked extremely well. Key accomplishments of Phase II included: (1) dramatically extending the range of municipalities assisted with reforms in the second year by operating four "Regional Centers" covering the four corners of Russia and in the third year by working with 14 widely scattered pilot cities selected by the Ministry (the project"s aggressive seminar and presentation program reached more than 14,000 people at events in 54 cities); (2) pioneering practical work on an improved regulatory system and tariff-setting practices; (3) creating the first practical vehicles for middle term finance of municipal infrastructure using bank loans and bond financing; (4) providing critical assistance to the Ministries of Construction Finance and Economy in developing a large number of new laws, government resolutions, and presidential decrees; and (5) being a very strong partner to the Russian government in the creation of the Agency for Mortgage Lending -- a secondary mortgage facility -- whose operations should sharply extend the volume of mortgage lending by private commercial banks by addressing their liquidity concerns. Overall, 85% of the 130 goals specified in program workplans were achieved. Where they were not, it was nearly always due to the failure of local or national governments to take some necessary action. Perhaps the project"s most significant result was fostering the creation and development of the Institute for Urban Economics (IUE), a non-profit think tank founded by the senior Russian consultants of the UI in 11/95. In its short life, IUE has become the recognized leader in Russia on housing and communal reform issues. The program helped IUE put strong project management and financial diversification systems in place, most notably Russia"s first credit rating agency. The quality of its work is evidenced by its signing a strategic alliance agreement with Standard and Poor in 8/98. IUE has built a firm foundation and is ready to continue to advance reform in the sector.