surrounding grounds. This can be described as a sort of shadow public rental sector despite the legal privatization of individual apartments. It indicates that the mass privatization policy produced high, unintended inefficiencies, by failing to produce homeowners willing and able to undertake necessary maintenance and capital repairs of common property in the M-F buildings that still dominate the post-Soviet urban areas.

Considering the conceptual and practical difficulties of implementing efficient common-property management systems in M-F building - difficulties not limited to the transition countries - the question arises whether the close correlations in mature market economies are not in fact a market rather than a policy outcome. The subsequent question is whether the observed deviations in transition countries can be called policy failures.

# **_Rental Housing Demand and Rent Levels_**

The analysis of the household survey dataset suggests that tenure patterns in the region follow broadly those observed in mature economies for age structure and incomes. However, the markets seem far too small to accommodate young and mobile households in quantitative terms. Conditions for young migrants in Romania and Russia seem most severe.<sup>101</sup> This allows for the conclusion that low availability of urban rental housing reduces labor market adjustment at least in some transition countries.

As far as income is concerned, demand patterns in transition countries are skewed by the fact that young and mobile households, which show particularly high demand for rental tenure, are among the economic winners of transition. Hence the finding of both low- and high-income households in the private rental sector in some studied countries.

Standard predictions of filtering theories, which suggest low willingness of social stock tenants to move as incomes rise, are partly confirmed by the empirical findings. This result holds for both Poland and Russia; in the marginalized public rental systems of the remaining countries, higher-income households have privatized their units. Filtering in the remaining public sector stock in the region is often promoted by the particular incentive structure imposed by “slumification,” which leads to an adjustment of building quality downward to rent levels.

There is evidence that the current swift expansion of the mortgage market reduces the natural growth prospects of the rental markets, as high-income tenants are pulled toward greenfield investment or higher-quality stock purchases. The effect varies with local financial and land and housing market conditions. It will likely put pressure on current rent levels and lead to faster filtering down of rental housing units. Given that the households with high ability-to-pay are leaving, minimum quality standards are moving to the fore of policy issues.

In the residual social rental sector, where prices do not adequately signal scarcity, typical target groups are no longer served. In all studied countries this affects the young and mobile, who have to rely overwhelmingly on the private rental sector or forms of homeownership to satisfy their

> 101  Although difficult to prove, anecdotal evidence suggests that the current considerable outmigration of young talent to the West is partly caused by the inability of these households to secure “decent” starter housing.

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