Socialist countries made the goal of universal access to housing and its provision by the state at trivial prices an important claim of the superiority of socialism over capitalism. Yet, by the end of the 1 980s there was no other sector of their economy where the system of state production and allocation met with such universal dissatisfaction as housing. The economic and institutional reasons why the _direct_ provision of housing by the state is usually a failure and cannot be expected to meet Vopular expectations -- especially as incomes rise -- are well understood and known. Housing is not a very complex _technical_ good to produce in industrial societies. On the other hand, housing is perhaps the most complex _economic_ good to analyze and manage properly because of its durability, heterogeneity, spatial fixity and sensitivity to the specific financial and regulatory environment in which it is provided.<sup>8</sup> After decades of provision by the state, housing is now one of the "four privatizations" in transition economies together with the privatization and restructuring of large state enterprises, the privatization of medium and small scale urban enterprises, and that of agriculture. Because Central and Eastern Europe as well as Russia are fully urbanized economies the value of the housing stock in national wealth is quite important and of the order of 20 to 25 percent of reproducible assets. The potential transfer of wealth to households is therefore massive. In the very early months of the transition there was some confusion about the extent of an absolute housing shortage in these countries. It is generally understood that these highly urbanized countries have more of a quality than a quantity problems and, as Figure 1 vividly shows, pressures on the sector have intensified. As Figure 7 shows, the nearer geographically a country is to Western Europe, the closer is its housing stock to the Western European ratio of about 440 units per 1000 people. Figure 7 also shows that Poland and Russia have a more significant quantitative shortage. The quality problem however is serious everywhere. A very large proportion of the socialist housing stock consists of very large, mass-produced industrial housing estates, with small uniform units of about 55m2. These units are energy inefficient, costly to maintain, and frequently loathed by their occupants. A significant contributor to the long waiting lists everywhere was that the demand for housing was artificially stimulated by absurdly low rents. In most socialist countries, total housing expenditures (i.e. rents plus utilities) were much less than 3 percent of total household expenditures. In market economies of comparable per capita GDP, this ratio is well above 15 percent and often above 20 percent. It is well known that in Russia total monthly rent for a standard apartment was equal to the price of a pack of cigarettes at the start of the reforms.

> 7 See B. Renaud, _Housing Reforms in Socialist Economies,_ World Bank, Discussion Paper 125, June 1990, and _Russia: Housing Reform and Privatization,_ World Bank Report No. 14929-RU, 1995.

**8** Contractual and regulatory arrangements are at the core of housing reforms, not technology which is easily transferable from Western to Eastern Europe, when it is not already available locally. This crucial policy perspective is missed by construction engineers or bureaucrat holdovers of construction ministries with no professional knowledge of the real estate sector.

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