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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Subsidizing a square meter

Method of reducing housing costs awaits government support
13 February, 2007 - 00:00
Photo by Mykhailo MARKIV

The Construction Chamber of Ukraine has unveiled the draft law “On the State’s Support of Providing Citizens with Housing and the Development of Residential Construction.” The draft was prepared and submitted to the Verkhovna Rada by a group of MPs headed by Volodymyr Poliachenko, chairman of the chamber’s presidium and co-chairman of its board (and Hero of Ukraine).

The authors call their bill revolutionary — and not from a lack of modesty. They believe that if this document is adopted, the less wealthy strata of the population will at last exercise their constitutional right to housing. Today it is practically impossible for middle-income Ukrainians, let alone those with low incomes, to buy a new apartment. The authors of the bill are convinced that unless the state provides real support, our country will gain nothing but more negative consequences.

The new scheme envisions several ways of reducing housing costs. According to the executive secretary of the Construction Chamber, Vasyl Kravchenko, it is time to use, free of charge, some sectors of state-owned and communal land for low-cost housing.

This idea deserves attention, but local authorities are unlikely to give their immediate support to this initiative because this will cut the main source of revenue, i.e., selling or leasing land plots, and have a major impact on land prices.

Another idea put forward by the authors of the bill is to set up an engineering infrastructure through loans issued to local communities and financing by enterprises that own these networks. They suggest that the construction of hospitals, kindergartens, etc., be financed by the state budget’s special subsidy fund. “These factors alone will reduce the housing cost by 2 to 2.5 times,” Kravchenko says.

To bring the mechanism of this housing scheme into play, there are plans to establish so-called “state standards for ensuring individual housing,” which call for governmental housing construction subsidies for all Ukrainian citizens. Under the draft law, one person can expect a subsidy for 10 square meters of living space. If state-subsidized funds and one’s own savings are insufficient, one can use a 30- year bank loan issuable to an individual under a state guarantee.

Poliachenko explained the circulation of money in the state subsidy fund. “All this starts at the local financial authority. It issues an individual a certificate to the effect that they were put on a single state register to receive a housing construction subsidy. They submit the paper to a relevant bank, which opens a current account. After this, the State Treasury issues a money-award certificate. The new element in the housing construction subsidy mechanism is that the funds do not come from the central or local budget. It is planned to acquire them by floating housing construction bonds to be bought by a state mortgage office and refunded by the National Bank of Ukraine, as well as by involving private investments.”

Poliachenko also noted that the introduction of housing subsidies will not restrict people’s freedom to choose their residence. If buyers want to acquire more than the subsidy calls for, they can place their own money in the relevant bank.

Who will be eligible for a state subsidy if the law is passed? According to Kravchenko, if a person’s income is at least half the average monthly wage in the region where the individual lives, s/he can count on a subsidy. Subsidies are not awarded to people with an income of about 29,000 hryvnias.

It is clear that the prospects for the draft law to take real shape depend on how quickly the current political obstacles will be overcome. So the authors are not pinning too much hope on its smooth passage and are drawing up another bill, “On Construction in Urban Agglomerates.” This phenomenon is becoming more widespread, but it is completely unregulated. The Construction Chamber believes it is time to draw up a plan for the development and zoning of certain areas and to lobby the interests of ordinary individuals.

Nevertheless, builders are pinning their greatest hope on the state support bill. In their opinion, it will eventually lead to the long-awaited low-cost housing scheme, which Ukraine does not have now. Whether these hopes are realized depends on the Verkhovna Rada. The authors promise to submit the bill for deliberation in the nearest future.