VZCZCXRO6443
RR RUEHLN RUEHVK RUEHYG
DE RUEHMO #1669/01 1631112
ZNR UUUUU ZZH
R 111112Z JUN 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 8561
INFO RUEHLN/AMCONSUL ST PETERSBURG 4980
RUEHVK/AMCONSUL VLADIVOSTOK 2866
RUEHYG/AMCONSUL YEKATERINBURG 3209
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 02 MOSCOW 001669 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/RUS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV RS SOCI
SUBJECT: RUSSIAN EXPERT EXPRESSES "RESERVED OPTIMISM" ON 
HOUSING 
 
 
------- 
Summary 
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¶1. (SBU) Continuing our series of cables on Russia's housing 
sector, Econoffs met with Alexander Puzanov, General Director 
of the Institute for Urban Economics.  Puzanov told us that 
the obvious solution was to increase the supply of housing. 
He was optimistic that this would occur eventually through 
market forces but argued that the government should take 
action to speed the process.  In that regard, Puzanov said 
that while the GOR appeared to have good intentions, its poor 
track record on housing did not inspire confidence that it 
would do what was needed. End Summary. 
 
----------------------------- 
Housing: A Complicated Crisis 
----------------------------- 
 
¶2. (SBU) Puzanov said that the lack of housing has pushed 
prices so high that less than 20 percent of families can 
realistically afford a new home even though mortgages are 
increasingly available.  He said the lack of land for 
residential construction is a key factor driving up housing 
prices.  Puzanov explained that 90 percent of land in Russia 
is owned by state and municipal governments who do not have 
an efficient (read: corruption-free) method of re-zoning 
large tracts of agriculture and forestry land for housing. 
 
¶3. (SBU) Puzanov said the GOR has re-zoned some land for 
residential use and auctioned off plots.  However, more often 
than not, he said the land is purchased by a wealthy 
developer.  The developer in turn builds expensive homes for 
Russia's elite, which have higher profit margins than middle 
class housing.  Puzanov said that until the high-priced 
housing market is saturated, developers and construction 
companies will not even consider building mid-range housing. 
 
¶4. (SBU) Puzanov said he was optimistic that rising incomes 
and falling interest rates would eventually lead to improved 
housing affordability.  In an optimistic scenario - "if all 
goes according to plan" - Puzanov estimated that by 2020 the 
number of homes purchased by Russians would increase from 
today's 2.5 million to 4 million per year. 
 
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Government Intervention Needed and Underway 
------------------------------------------- 
 
¶5. (SBU) However, Puzanov told us that the key to speeding up 
this process was government action.  In that regard, he said 
he was encouraged by President Medvedev's May promise to 
continue previous GOR efforts on housing and by the GOR's 
decision to include housing market reform in its long term 
"2020" development plan.  Puzanov said the GOR has pledged to 
increase housing stock by 2020 using a combination of 
incentives and public-private partnerships to more than 
triple housing construction.  He said that among some of the 
more promising measures the government was considering or had 
begun to implement were the following: 
 
-- A Fund to Assist Housing Maintenance:  Established in 
January, its goals are to repair existing housing stock and 
to resettle people from uninhabitable housing.  Puzanov said 
the GOR hopes this Fund will also encourage market mechanisms 
for housing construction and repair, such as home ownership 
associations and cooperatives; and 
 
-- A Fund to Promote Housing Construction:  This Fund was 
announced by Medvedev in April.  Puzanov said its purpose is 
to address the lack of land for residential construction. 
The Fund plans to redistribute up to one million hectares of 
unused government land for residential building projects and 
for factories to produce scarce construction mater