In addition to deteriorating service quality, multi-story apartment buildings have been largely unmaintained during the past 10 years (see Struyk 2000). This under maintenance results from the failure to complete housing reforms. As shown in the Armenia example described in Box 4.4, households who privatize apartments receive the benefits of ownership without assuming the responsibilities for maintenance.<sup>37</sup> In part, this is due to the legal framework, which often does not clarify ownership of common areas in apartment buildings. But this also results from the incentive framework set by local governments, which are concerned about the ability of households to absorb additional costs and consequently set tariffs below cost recovery levels and do not support efforts to improve payment discipline. Leaking roofs and internal piping and energy losses from poorly insulated buildings are the most prevalent problems. Buildings in East Europe and Central Asia generally use two to three times as much heat as buildings in comparable climates in Western Europe (World Bank 2003). Commuting and energy costs account for an estimated 10 percent of the region’s GDP (World Bank 2001). All of which suggests that a considerable part of the housing stock in transition countries functions inefficiently in meeting the population’s housing needs, which is especially problematic for the poor.<sup>38</sup> In summary: although in some countries the housing stock may have contracted, transition countries are better provided with housing than would be expected given their income levels. However, continued under maintenance of the housing stock, which is especially problematic in the multi-story apartment buildings where responsibility for maintenance of the common areas has not yet been clarified, means the stock depreciates from year to year. The problem, then, is not the amount of housing, but the quality of that housing, including access to services, location and maintenance. Lack of services is especially problematic for apartment dwellers who have fewer coping options. As is true with services generally, apartment residents in secondary cities are more likely to lack services than those in the capitals.

# **4.2.6. Housing affordability**

Although urban housing markets have begun to operate and private sector developers supply much of the housing, housing prices remain unaffordable to most people.<sup>39</sup> This results from a variety of factors including continued public ownership of most urban land, which limits land supply, the high cost of construction needed to meet local design standards, and the limited access to finance by either households or developers. In Moscow, housing prices increased by more than 40 percent from 1999 ($700/sq. m.) to 2002 ($1000/sq.m.). In nine other Russian cities, prices increased from 40 – 50 percent over the same period (Klepikova 2002). Real incomes have not increased at the same rate.

The problem of affordability can be seen in the high price of housing relative to income in capital and secondary cities. International experience suggests that a house price to income ratio of 4 or 5 should be considered reasonable, although it would mean that the housing market is tight and affordability levels are moderately low. Figure 4.28 provides the price to income ratio for capital cities. In cities such as Budapest, Moscow, Riga and Yerevan the ratio is around 5. However, in Belgrade, Sofia, Tbilisi, Vilnius and Zagreb the ratios are significantly high, indicating low levels of affordability. As Figure 4.29 shows, markets in the secondary cities do not work better than those do in the capitals.

> 37 And households that don’t privatize receive the benefits of ownership (security of tenure) also since

> 38 Tenure change and security of tenure do not overcome the problems of dead capital (de Soto 2000), although it may be a necessary condition to enable this to be mobilized (Jakobson 2000).

> 39 Although little evidence of the affordability of privately rented apartments is available, there is some reason to believe that privately renting households must use a greater share off their income for housing expenses than is true for households in privatized or social housing.

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