Housing Aid Is Welfare for The Wealthy

The leaders of Moscow, St. Petersburg and Nizhny Novgorod have recently signed an agreement on housing reform in Russia. The agreement could have an immediate effect on this year's budget and on whether Russia will have a sound budget in general.

Two thirds of housing costs in Russia are still assumed by the state. Russians spend only a small percentage of their family income on electricity, heating and building maintenance. Most people are not aware or interested in the fact that families in developed market economies spend a far greater share of their income -- between 25 and 40 percent -- on housing and maintenance.

There is a widespread misconception that the low cost of housing is one of the many "gains of socialism" that has been preserved during these difficult times. Like many other socialist achievements, this one in reality covers up great social injustice.

The enormous housing subsidies depend on the size of the apartment, not the income of the owner or renter. And since wealthy people have far more living space than poor people, more money must be spent on them than on the poor. In practice, this means that the needy receive about 20 percent of budget subsidies for housing, and very rich people get the remaining 80 percent. These subsidies amount to a lot of money.

Boris Nemtsov, the governor of Nizhny Novgorod, recently told me that in an average city, such as Bor in the Nizhny Novgorod Oblast, 45 percent of the municipal expenditures go to housing maintenance. Education and health account for only 20 percent each.

If you add up all the budget expenditures on housing, says Nemtsov, you get the astronomical figure of 103 trillion rubles ($18.2 billion). This is more expensive than maintaining a large army, purchasing arms and funding military science together.

If housing reform is not immediately carried out, Nemtsov argues, building maintenance and utilities subsidies will simply eat up the Russian economy.

The government understands this. The problem is that strong political will is needed to carry out such reform. Only a president who will not be running for the next election can carry out the needed housing reforms. Whether President Boris Yeltsin will decide to do so, however, is another matter.

The Kremlin and White House's reluctance to carry out housing reform is what led Nemtsov, Moscow Mayor Yury Luzhkov and St. Petersburg Mayor Alexander Yakovlev to coordinate their efforts in housing policy.

Nemtsov has already begun such reforms in his region by conducting competitive bids on the right to maintain public housing. He has ordered the creation of cooperatives to negotiate directly with the utilities companies. Nemtsov is personally creating such a cooperative in his place of residence to better understand how expenditures on housing work.

Today, the average cost of maintaining one square meter of housing in Russia is $1 per month. These maintenance costs are comparable to those of the Scandinavian countries. Nemtsov considers this to be unnatural because Russia still enjoys cheap fuel and labor. Housing reform should be carried out in more than just one or three separate regions. The federal authorities, however, have not yet shown any resolve in addressing this problem.

Mikhail Berger is economics editor for Izvestia.