# **_Rental Housing Demand and Income Distribution_**

# _Private Rental Sector_

Data on the distribution of households living in urban apartments by a suitable measure of income<sup>52</sup> show that the private rental sector caters to all income groups (Table 6). However, differences can be identified when analyzing individual income groups as follows:

- in Armenia, Russia, and Romania, where private rental supply is scarce, the sector is strongly over-represented - even in relation to owners - in the highest income quintile. Independent evidence from the Lithuania household survey, which does not control for location and type of dwelling, suggests likewise an over-representation of private rental in the highest income quintile. It is somewhat under-represented in the highest income groups in Poland (which, however, has a deep overall private rental sector);

- in Poland, Serbia, and to some degree in Russia, urban private rental sector is strongly over-represented in the lowest income quintile, relative to owners, and even relative to public rental. In Russia, as (see Table 2), private rental sector is also quite large in rural areas, where household incomes are lower. This suggests not only high access costs to ownership, but also an important absorption function of the private rental sector for poor households, which is closer to the pattern in mature market economies.

The interpretation of the data is complicated by the fact that incomes and age are generally correlated over the life cycle, so their effects cannot be separately identified using the current methodology.<sup>53</sup> Urban starters and young families, who are over-represented in the private rental sector, are typically richer rather than poorer in the region, since they generally constitute economic winners of the transition. There are few exceptions: in Armenia, the income distribution is bifurcated - young households are either poor or rich (Table 7). Also, in Poland, outside the largest cities, young urban households are not generally richer than older households.

# _Public Rental Sector_

Table 7 reveals that, from a housing policy perspective, the public rental sector’s income-tenure share relationship has the right negative sign in only two of the five countries (Armenia and Romania). In Poland (see also Figure 6) and Serbia, middle-income groups are over-represented. In Russia the income profile of public rental tenants is almost identical to that of owners (see also Figure 7). The results for Poland and particularly for Russia are dictated by the residual effect of tenants allocated under socialist rule to dwellings that did not privatize during the transition. In Russia, in the current legal situation, sitting public rental tenants can be considered _de facto_ owners waiting to execute their privatization option.<sup>54</sup> In Poland the non-profit rental

> 52  In the transition countries, it is useful to replace the concept of household income through proxies such as household expenditure and consumption. This is mainly due to frequent underreporting of income and the significant size of the shadow economy.

> 53  A probit-logit regression or other econometric techniques that allow for separation of these effects could be undertaken in the future.

> 54  See Ellis (2003).

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