supply from portfolios accumulated on the secondary market by 2004 became large enough to put downward pressure on rents. Similarly, in Poland the professional landlord industry continued to grow. The relevance of access to pertinent financing is demonstrated by a result reported in Lowe (2003): in the Budapest-Sofia survey, 36 percent of landlords in Budapest— benefiting from the better developed and subsidized housing finance system of Hungary— bought units with the intent to let them, compared with only 22 percent in Sofia.

# _Public Rental Supply from the Secondary Market_

The secondary market has become an interesting source for new public rental housing supply, which traditionally was limited to new construction and (usually slow) tenant turnover. In Bucharest, owing to limited funding for new construction efforts, the local government has been actively buying inexpensive apartments on the secondary market as a low-cost way to replenish the social housing stock. In a similar effort, Moscow has tried to preserve public stock by halting privatization through inducing new tenants to sign “dwelling use contracts,” which do not legally qualify as tenancy and thus do not confer the option of almost free privatization. Some Polish cities have been buying cheaper cooperative and privately owned restituted dwellings, and are considering the repurchase of privatized units. Anecdotal evidence brings also some cases where privatized dwellings are being offered back to municipalities by privatized tenants to settle arrears and to skip payments due for upgrading and capital repairs. In Lithuania the secondary market mechanism has been enhanced by central government funds earmarked for municipalities to acquire housing for social rental purposes.

# **_New Rental Construction_**

_New Private Rental Construction_ Capital cities in transition countries typically feature a very small upscale private rental market served by corporate investors that caters to other corporations, foreigners, embassies, and other high-income clients. Stock conversions often do not produce sufficient quality levels for these clients, in dwelling type, standard, and location. New construction has been active in the largest and capital cities in the region (Moscow, Saint Petersburg, Warsaw, Vilnius, Bucharest, Belgrade). Other cities have very little or no corporate investment in rental housing so far.<sup>45</sup> Evidence for new construction activity catering to average domestic households is limited to Poland.

# _New Public and PPP Rental Construction_

All the studied countries except Armenia and Serbia have started new public rental programs in response to the sluggish recovery of housing construction during the transition and to the expanding waiting lists for public housing allocation. Particularly active are Poland and Russia, which both have specific PPP models for rental construction. In Poland, municipal and mixed public-private non-profit rental housing (TBS) construction in 2002 amounted to 8 percent of

> 45  Lowe (2003) reports that 2.1 percent of rental investors in Sofia were corporate investors, and there was no evidence of corporate investors in Budapest.

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