June 2, 2017    4 minute read

The Moscow Renovation Trap: Politics and Housebuilding

End of an Era    June 2, 2017    4 minute read

The Moscow Renovation Trap: Politics and Housebuilding

On May 14, over 20,000 people gathered in Moscow to protest an extraordinary renovation plan aiming to demolish over 4,500 Soviet-era prefabricated apartment blocks, known affectionately as khrushchyovkas after the former leader, Nikita Khrushchev.

Hidden Intentions?

Local authorities argue that the vast majority of these ageing buildings (constructed in 1960s) are slowly becoming inhabitable and plan to resettle the approximately 1.6m Moscovites who occupy them.

While 74% of the renovation zone-dwellers support the initiative, the “bill on renovation” that forms the legal basis for the project is highly unpopular because it is believed it does not guarantee that the rights of residents will be respected.

With the local municipality and presidential elections upcoming next year, unpopularity is not something the authorities are rushing to create.

One of the most worrisome aspects of the renovation plan is that the Moscow municipality is going to mark chosen territories as renovation zones, which means that not only khrushchyovkas but entire neighbourhoods may be levelled to the ground. In fact, the Housing Code and other laws will not apply to such renovation zones, and the Renovation Assistance Fund will be vested with the power to demolish any building inside them.

Needless to say, this nurtures a well-grounded suspicion that the Moscow City Hall intends to free up vast areas for developers, using the poor condition of khrushchyovkas as a pretext.

Government Connections

The government, which is closely connected to the construction industry (which itself accounts for 8% of Russia’s GDP) is viewed as trying to help it to recuperate after a tough few years. Following a sharp drop in income levels in Russia in 2014, supply in the real estate market has consistently exceeded demand, resulting in a plummeting of property prices.

Moscow Mayor Sergey Sobyanin has already started negotiations with large developers over purchasing already-finished apartments and constructing new ones for the people who are to be resettled. The whopping 3trn rubles that are expected to be needed to make the ambitious renovation plan a reality means that the government will have no choice but to work closely with the private sector, if only if to secure funding.

Since Russia’s state usually favours large construction companies, the fear that the whole undertaking will adversely affect competition in the real estate market and put small and medium companies in a disadvantage is, in our mind, not misplaced.

Legal Troubles

The situation is further aggravated by the fact that residents of khrushchyovkas do not possess effective legal instruments to protect their rights. Property rights in Russia are notoriously fickle, especially in this case: not only do tenants not own the land underneath the blocks, but the final decision about the demolition of the buildings will be made based on a majority vote. Those who refuse to leave their apartments and move to substitute apartments (of similar size but not necessarily similar value) can face court proceedings.

Feeling vulnerable and disregarded by the authorities, people who had never dreamed of protesting before started self-organizing themselves in a bid to stop the demolitions. City authorities, again perhaps with an eye on upcoming elections, have taken notice.

The city promised buildings in which the majority of residents vote against the demolition shall be spared and the State Duma deputies, backed by President Putin, submitted a package of amendments to the bill on May 18th. These amendments envisage additional guarantees of the rights of residents, including judicial protection and choice of compensation type.

What Does the Future Hold?

It remains to be seen if such measures are effective. If City Hall fairly compensates small businesses and residents are satisfied with the substitute apartments, it is anticipated that Sobyanin will maintain or even increase his share of the vote. According to one estimation, his electoral support could increase by 15% (and, as a bonus, Vladimir Putin’s electoral base in the upcoming presidential elections could be boosted by 7% as well).

However, given that 16% of Moscow’s residents opposes his plan, should consensus with reluctant Moscovites not be reached, it is likely that the ruling party will lose a significant number of votes (even if, due to lack of any serious competition, actually losing the elections is not very probable).

In the worst-case scenario, should the authorities forcefully evict people from their houses – even if the move is based on a court decision – it is not inconceivable that the protest will escalate and spread beyond khrushchyovka-dominated areas, or indeed Moscow.

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