An apartment or house is the central core of any person's life, his 'castle', as the proverb goes. But it is a well know fact, that in Ukraine this sector has serious problems. The major part of all residential buildings was built in soviet times and has not been reconstructed since. According to the Ministry of regional construction, as of today 70-75% of the dwelling stock requires complete overhaul, but communal enterprises confine themselves only to maintenance - replacement of utility lines, repainting, replacement of external and internal structural units, etc.

As a result, as of the beginning of 2012, 58.9 thousand of houses with total area of 5.1 million sq m and with more than 200 thousand residents required urgent reconstruction. In particular, the complete overhaul is needed for the dwelling stock of the first soviet mass construction (1960-70ies), which is about 72 million sq m or 23% of the total number of functioning apartment blocks in the country - the so-called "khrushchyovkas".

The question of renovation and further maintenance is the question of money. Complete overhaul of one 9-storeyed house, for example, costs about 3-5 million hryvnias. However, the government has not been allocating sufficient financing to carry out repairs all over the country: in 2011 the state budget provided for 500 million hryvnias only. At the same time, following the results of 2011-14, the government plans to allocate 10.5 billion hryvnias for reconstruction of the dwelling stock - it's quite a number, taking into account that mains works on renovation of outworn housing require relatively small sum - 15-17 billion hryvnais, according to experts.

Indeed, on a national scale the sum is not that big - modernization of one department (blast-furnace or steelmaking) in one of large Ukrainian smelters costs approximately the same, and some projects have already been carried out for the past years. On the other hand, metallurgy is always profitable, even during the economic crisis, while profitable sectors of the housing services are construction and marketing - maintenance not included. Having finished the construction, a constructor, in fact, lays the maintenance on the communal service and residents.

Housing cooperative is the key

The logical question is where to take the money for reconstruction and preventive maintenance. The state cannot finance it all by itself, thus either to chip in together or to look for a private investor.

Housing cooperative can be a key, economist Ruslan Pavlenko notes. Legally, this form of management appeared in 1994, and the corresponding law was adopted in 2002. However, real development of housing cooperatives started over the last years. Head of the Ministry of regional construction Anatoly Blyzniuk told ForUm that as of the beginning of 2012 the housing cooperatives covered 17% of multi-storeyed residential buildings. Such cooperatives have annual financial plans for necessary works and financial sources. "Housing cooperatives actively look for alternative sources of financing and try to grade investment resources," Pavlenko says. "There is number of residential houses in large cities of Ukraine, being repaired at the cost of housing cooperatives. In exchange, the investor may get certain premises or territory (ownership or rent) or the rights to manage the house. Such relations are the easiest level of possible financial and investment activity of housing cooperatives and similar unions. With the development they can become a platform for whole communal companies and funds, which will accumulate investments resources for communal sector. In the future, such companies may become professional work contractors on reconstruction and maintenance, as well as the source of crediting for housing development."

Project manager of the International Finance Corporation (IFC ) Grzegorz Gajda shares the belief that the future of Ukrainian housing services lies with housing cooperatives, which already successfully function in Europe. The state also can participate in financing of modernization of residential buildings with 10-20% of costs' share - the rest of the money will be attracted by housing cooperatives.

Tasks and solutions

Director of the civil society problems research Center Vitaly Kulik believes that at the development stage the housing cooperatives can receive certain privileges, including tax relief. However, there are a number of obstacles for housing cooperatives to function normally, including insufficient level of self-managing culture among residents (people will not pay gladly for something they are used to get for free), poverty and "quick money" policy. "Ukrainian business still prefers projects with 2-3 years of pay-off period and 20-30% of profitability. Long term investments with 'far' profits are not popular," Kulik complains.

Apart from privileges, housing cooperatives need proper methods of investment protection, guaranteed by state, and a possibility to have an income share from tariffs. There is an idea to introduce so-called investment components - a company-investor brings money for reconstruction and gets the right to regulate tariffs and rent non-residential premises and nearby territories, and the state, in turn, gets payments by tariff rates, fixed for several years. The difference between fixed tariffs and real tariffs will make an official income of the investor. 

Indeed, analysts agree that the state must control investment projects on renovation of housing, as it is the strategic issue of life and well-being of the population. Tender policy is also important: investors must be engaged through tenders, announced by the state. The state cannot finance such projects in full, but the organizational initiative must come from the state. According to Kulik, the most appropriate scheme is the following: local governments provide initial capital in the amount of 0.8-1 million hryvnias and then organize a tender to attract means from other sources (investors, residents). "Tenders must be held not only among potential investors, but among the very houses as well, so that the houses with the most interesting project conditions can win," the expert concluded.

So, there is a certain organizational and financial base for complete overhaul of the housing sector, but the principal steps must be taken by the state and central power. There are grounds to believe that the introduction of the above mentioned investment schemes of state-private partnership can restore the health for the dwelling stock of Ukraine, which in its turn will give work to metallurgical and construction materials industries. As a result, the entire national economy may stand up.   

Andriy Boyarunets


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