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. Last Updated: 07/27/2016

Apartment Subsidies Face Legal Challenge

The Federal Anti-Monopoly Service has ruled against City Hall's program to subsidize apartments for Muscovites, urging that the program be scrapped for violating federal law.

At issue is a clause in the city's low-cost housing project that obliges participating investors to sell 80 percent of newly built apartments to people who have lived in Moscow for 10 years, said Maxim Kononenko, deputy head of utilities and municipal building maintenance services, a division of the Federal Anti-Monopoly Service.

Kononenko said this provision contradicted Article 15 of the anti-monopoly law, which forbids regional governments from passing measures that might prevent free competition.

City Hall has defended the program, saying up to 60 percent of apartments were being bought up by non-Muscovites who later resell them, thereby raising prices and putting decent housing beyond the reach of Muscovites.

Mayor Yury Luzhkov signed a decree titled "On the short-term residential program -- cheap apartments for Muscovites" in January, and he promised at the time that it would make affordable apartments accessible to Muscovites -- people who have lived in the capital for at least 10 years -- by 2010.

Kononenko said, however, that anti-monopoly authorities had reviewed a draft of the degree and made their objections clear long before it was signed.

"If the city authorities implement the program under the current law, we will have no choice but to take them to court," Kononenko said.

A spokeswoman for City Hall's department of housing policy, Yulia Gennadyevna, declined to comment on the anti-monopoly authorities' decision, but she said the low-cost program would go ahead.

Luzhkov's decree allows city authorities to allocate land for the construction of economy-class residential buildings only to developers that agree to give City Hall 40 percent of the apartments. This option, one of three in the decree, allows investors to keep 60 percent of the apartments but requires that at least 80 percent of them be sold to Muscovites.

The second option requires investors to sell 18 percent of the 60 percent share to Muscovites at low prices, while the third option simply gives a lion's share of 80 percent of the apartments to City Hall.

Some real estate analysts are criticizing the city measure as both discriminatory and unconstitutional.

"The idea of limiting the sale of flats to Muscovites contravenes the Russian Constitution, which calls for equal access to housing and does not discriminate against the rights of consumers on the basis of their permanent registration," said Alexei Krivoshapko, a real estate analyst with Deutsche UFG.

Krivoshapko said the city needed to bring the decree into compliance with federal law, suggesting that it instead use tax revenues to pay for its low-cost residential program. "They already have such a system in place," he said.

"They allocate part of the city to investors for development and recoup money from the investment to build apartments where Muscovites can be relocated for free."

But Kim Iskyan, a senior analyst for UralSib, said some government intervention was needed to bring down apartment prices in Moscow. "A lot of people would like to improve or upgrade their living conditions but cannot do so because prices have skyrocketed and construction work never goes fast or far enough," Iskyan said.

He said Russia was lagging behind developed countries, which offer tax breaks and mortgages to support low-income people wanting to buy apartments so they are not at the mercy of market forces.

Various estimates put Moscow's current housing resources at around 203 million square meters, with an annual growth of 4 million square meters. Last year, the city registered 10.5 million residents, compared with 8.6 million in 2004, but the actual number of residents is believed to be closer to 12 million.