Development Strategy for the Municipality of Chisinau...City Development Strategy for the Municipality of Chisinau Housing Concept Paper Sasha Tsenkova & Svetlana Dogotaru 6 art. 42

City Development Strategy for the Municipality of Chisinau Housing Concept Paper

Sasha Tsenkova & Svetlana Dogotaru

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City Development Strategy for the Municipality of Chisinau

Housing Concept Paper

Prepared by Dr Tsenkova

with the assistance of Svetlana Dogotaru

UN-HABITAT & World Bank Project

October 22, 2006



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Contents

I OBJECTIVES AND APPROACH 3 II HOUSING POLICY REFORMS IN MOLDOVA 4

MAJOR HOUSING POLICY DEVELOPMENTS 4 REFORMS OF THE LEGAL FRAMEWORK FOR HOUSING 5 INSTITUTIONAL REFORMS 6

III HOUSING MARKET PERFORMANCE 12 HOUSING AVAILABILITY 12 HOUSING QUALITY CHALLENGES 13 TENURE STRUCTURE AND HOUSING CHOICE 16 HOUSING INVESTMENT AND NEW HOUSING CONSTRUCTION 18 AFFORDABILITY OF HOUSING 20

IV. CHALLENGES AND OPPORTUNITIES 26 MATRIX OF HOUSING SECTOR CHALLENGES AND OPPORTUNITIES 27 STRATEGIC PRIORITIES 28 WORK PLAN AND BUDGET 30

References 34

Annex 1: Legislation in the housing sector 35 Annex 2: International comparisons 41



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Challenges & Opportunities

Priorities

Housing Market Dynamics

Adequacy, investment affordability, choice,

Housing Policy Reforms

Legislation& Institutions

STRATEGY DEVELOPMENT

Financial Feasibility

Actions

Search for direction

Consultation & support

Strategic planning

I OBJECTIVES AND APPROACH

The purpose of the Housing Concept paper is to provide a framework for discussion of challenges and opportunities in the housing sector in Chisinau and to assist in defining strategic priorities for immediate policy intervention.

More specifically the paper has the following objectives:

� To highlight the most important changes in housing policy reforms affecting Chisinau Municipality

� To evaluate processes in the local housing market with a particular emphasis on housing quality, adequacy of investment, affordability and tenure choice

� To identify the most important challenges and opportunities for future strategy development in the sector

� To propose operational strategic priorities for discussion with key stakeholders.

The approach of the Housing Concept is schematically presented in Figure 1. As this is the first preliminary stage in Chisinau City Development Strategy, the paper focuses on the analysis and evaluation of housing policy reforms and their impact on the local housing market. The results of the evaluation are summarised in a matrix of challenges and opportunities, which inform the selection of strategic priorities. This is an important milestone in the preliminary process of strategy development.

Figure 1: Housing Concept Approach



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The methodology of the work includes desk review of available policy documents, government reports and statistical data with the assistance of a local consultant-Ms Dogotaru. Interviews were carried out in Chisinau with key stakeholders in September 2006 (10-14th). Feedback has been sought through two workshop consultations in October and November to validate the choice of priorities and ensure support from the senior administration. The first workshop was attended by more than 30 participants and their suggestions in response to the presentation by Dr Tsenkova were incorporated in the report. Follow up discussions with municipal and community stakeholders by the local consultant in October assisted the formulation of a specific action plan for housing sector improvement and change. These iterative processes of public input and consultation have defined strategic priorities that are operational and lead to the development of pilot projects to test the viability of new models. Interviews in Chisinau strongly indicated the need for practical, action-driven approach to housing problems, which is the overriding consideration in the Housing Concept.

II HOUSING POLICY REFORMS IN MOLDOVA

1 MAJOR HOUSING POLICY DEVELOPMENTS Following the political changes in 1989, various reform initiatives were carried out in Moldova to transform the housing sector. Housing reforms were motivated by pressures to reduce budget deficits and to move away from macro regulation and direct subsidization of housing supply to a market-oriented housing sector. In general terms housing reforms in the first stage of the transition focused on strengthening market forces and reducing state intervention in the housing system. Those policies promoted deregulation, increased the role of private sector institutions and reduced public expenditure. The reform also involved the privatization of public assets -- public rented stock and state construction enterprises. The second phase of housing reforms has proceeded through ‘trial and error’, focusing on problems to be remedied rather than strategic intervention. Moldova developed its National Housing Concept (1994) and Housing and Real Estate Market Strategy (1999) which provided guidance for further development of a legal and institutional framework of the housing sector. The City of Chisinau also adopted a Housing Strategy in 2004, but did not commit to its systematic implementation. Privatization of housing in Moldova is one of the most important outcomes of the reform process. It proceeded according to The Law on Privatization of Housing (1993) allowing transfer of housing to existing tenants free of charge or at a nominal fee. While the general view is that privatization has shifted wealth towards a great part of the private sector, it has increased social inequality. Among the losers are typically households in the waiting queue for housing, but also those with a low or even negative value of their dwelling as a result of inferior quality, requiring high repair and maintenance costs. On the other hand, uniform prices allowed privileged households to acquire considerable wealth at insignificant cost.

In the general restructuring of the housing system along market principles, the administrative distribution of housing has been replaced by market allocation and restrictions on housing consumption have been abolished. More importantly, reforms have expanded property rights of



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home owners, permitting free property transactions at market prices. Three main types of changes can be distinguished: i) elimination of production subsidies, ii) reduction of public investment in new housing construction, and iii) elimination of universal subsidies for homeowners (e.g. mortgage or maintenance subsidies).

2 REFORMS OF THE LEGAL FRAMEWORK FOR HOUSING

The development in the legal framework is the cornerstone of housing reforms. Moldova has made a significant progress in designing adequate legislation to ensure a more efficient market-based system of housing provision in several areas: i) property rights and registration; ii) privatization of public housing; iii) management of housing; and iv) planning and construction. The list of legal acts in Annex 1 points to the extensive work in that regard. Present problems in the housing sector are perhaps associated with the lack of effective implementation of the existing legislation. An example in that regard is the Condominium Law (2000) providing the legal framework for the organization of owners, as well as procedures for the enforcement of rules and obligations and cost sharing procedures. Several barriers to the implementation of the law exist. First, individual owners have been reluctant to establish new organizations and assume a wide range of responsibilities. Second, the administrative procedure of establishing a condominium as a legal entity has proven to be quite complicated and costly. Third, the law has provided largely inadequate guidelines regarding cost-sharing mechanisms and enforcement possibilities. While problems with multi-apartment ownership and management are common to other countries in transition and in South East Europe in particular, the system of property registration in Moldova is exemplary in many ways. The Law on Real Estate Cadastre (1998) stipulated mandatory registration of all real estate property and established a unified system bringing technical, legal and ownership characteristics together (including mortgage and lien). The National Agency for Geodesy and Cadastre maintains the system, which has over 90 percent coverage of all real estate on the territory of Moldova. Table 1 Chisinau Municipality housing list: legislation and categories of families

Legislative-normative documents Citizen categories Total families

Share %

Low nr. 1225-XII from 08.12.92 art. 12 and 18 Decisions of the Court

Victims of the political repressions 39

0,4

Governmental Regulation of RM nr. 34 from 11.02.97; nr. 8 from 06.01.98; no. 218 from 26.02.98; nr. 1206 from 14.12.98; etc.

Public servants and honored people of the Republic of Moldova

19 0,2

Governmental Regulation of RM nr. 405 from 25.11.87 art. 42 (3)

Suffering from tuberculosis citizens 174 2,0

Governmental Regulation of RM nr. 287 from 09.09.854 and nr. 405 from 25.11.87 art. 45 (1)

Families living in damaged houses 1331 15,3

Low nr. 909-XII from 30.01.92 Participants in the liquidation of Chernobyl accident

172 2,0


Children raised in orphanages 57 0,7

Governmental Regulation of RM nr. 405 from 25.11.87 Single mothers 790 9,1



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art. 42 (9) Governmental Regulation of RM nr. 405 from 25.11.87 art. 42 (8)

Families with many children 1633 18,8


All categories of disabled people 1005 11,6

Governmental Regulation of RM nr. 405 from 25.11.87 art. 42 (13) and nr. 685 from 21.10.93

Participants in the military actions from Afghanistan and Transnistria

586 6,8

Families who lost a member in the military service

3 0,0

Families with twins 231 2,7 People suffering from chronic ailment 531 6,1 Teachers 235 2,7 Inhabitants of damaged houses 1547 17,8 Young specialists 92 1,1 Refugees 130 1,5

Governmental Regulation of RM nr. 405 from 25.11.87 art. 425 (3), 42 (12), 45(3); Lows nt. 902-XII from 29.01.92, nr. 544-XIII from 20.07.95 and nr. 416 from 18.12.90

The employees of Judicial, Prosecutor, Internal Affairs Institution and Reserve officers.

100 1,2

Total 86751 100,0 Source: Municipal Housing Department, September 2006

In terms of social support for housing, a number of regulatory acts define priority categories that need to be registered with municipalities in housing need. The waiting list of Chisinau Municipality contains 8,675 families eligible for public rental housing (see Table 1). Due to the lack of funding and any other supply-related programs, close to 10 dwellings per year are allocated to people on the list. In addition to defined beneficiaries for supply-based housing assistance, Moldova has a centrally funded assistance with utility payment-heating subsidies administered by Ministry of Labor and Social Policy. The system has over 16 categories of eligible households ranging from people with disabilities, war veterans, functionaries of the State, teachers, police, etc. legally underpinned by 15 different laws. Although low income is not a criterion for eligibility, ministry officials state that increasingly assistance is provided to families in genuine hardship. Chisinau Municipality has a one-time emergency assistance to poor families which is not explicitly targeted to alleviate housing costs. Some form of implicit subsidy is provided through the system by the lack of enforcement in the case of arrears with utility payments. Overall poor households have resorted to reduction in consumption (heating) and a combination of stop-and-go strategies with respect to regular contributions to maintenance costs.

3 INSTITUTIONAL REFORMS

The institutional transformation in the housing sector is embedded in the overall economic, political and institutional restructuring in Moldova. In particular, fiscal austerity and economic uncertainty have affected the operation of central and local governments and their ability to formulate and effectively implement housing policies. The public sector overall is playing an enabling role in housing with major responsibilities centred on legislative reforms. Figure 2 presents a map of major institutions in the housing sector in Chisinau.

1 By the end of October 2006, another 184 persons and/or families have been added to the list.



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3.1 Public sector institutions

Central government

The responsibility for housing policy in Moldova is with the Building and Territorial Development Agency responsible for public works, construction, regional development and spatial planning. The need for coordination among the departments dealing with the different aspects of the housing sector as well as with other line ministries -- Social Welfare, Finance, and Economy -- presents a complicated task. The Ministry of Economy and Commerce has a decisive role in the determination of resources for the sector, either in the state budget process or through the transfers to local governments. The National Agency for Power Regulations approves the tariffs for the communal services—water, sewer, heating, and gas supply.

New panel housing built by the National Housing Agency in Chisinau

These projects abandoned in the early 1990s by state enterprises are at various stages of the construction process.2 Until recently, the National Housing Agency (NHA) received every year a certain amount of projects, approved by a government degree, and mobilized funding from prospective buyers for their completion. The prices of housing were usually 20-30 percent lower compared to other new housing due to the initial

transfer of land and partially completed construction involved. While this might be a reasonable way to deal with the problem of uncompleted multi-apartment housing by unleashing frozen assets into the market, the Agency needs to find a new way to fulfil a social housing mandate. Recent discussions with the Council of Europe Development Bank (CEB) indicate a renewed emphasis on social housing provision for target groups. Highlights of the project are presented in Box 1. BOX 1: New Projects for Socially Vulnerable Groups The project aims at provision of 380 rental housing units to refugees from Transnistria and families from vulnerable socio-economic segments. In accordance with national legislation, 140 units are earmarked for registered refugee families from Transnistria (two blocks of flats in Chisinau) and 240 for socially-vulnerable families (in Cahul, Balti, Glodeni and Donduseni). The project will endeavour to meet around 4% of the unsatisfied demand for housing. Upon completion, the NHS will transfer ownership of the dwellings to the local authorities in accordance with national statutes. CEB's contribution in the early stages of the project was essential in supporting the design of guiding principles on specific eligibility and priority criteria to the benefit of participating Municipalities. CEB will provide further support during implementation stage through the monitoring of a number of pre-requisites meant to ensure proper implementation of the project and optimal attainment of the project's social effects.

Source: Interview data, CEB October 2006

2 The stock consisted of 296 buildings with more than 20,000 apartments. Various options were applied – auctions of

buildings, long-term credits subsidized by the National Bank, VAT exemption, etc. So far the agency has received 50 buildings with 3,000 units to complete.



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Figure 2 Major housing institutions in Chisinau

Central government authorities

Building and Territorial Development Agency

National Housing Agency

Urbanproiect (preparing MP)

Ministry of Economy and Commerce Ministry of Finance

Local government authorities

Chisinau Municipal Council

Municipal Administration Housing Management Department

Municipal enterprises managing & maintaining the housing stock

Suppliers of communal services

Banks Private enterprises Non-Governmental sector

• Building enterprises • Investors • Real estate agencies

• Employers’ associations of communal service providers

• Associations of homeowners

• NGOs with social profile



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Chisinau Municipality

The municipal reform process in Moldova has emphasised decentralisation, deregulation and local autonomy.3 In the new fiscal reality local governments are seen as ‘crisis managers’ charged with a lot of responsibilities related to the provision of infrastructure and services, but without the corresponding resources to address those problems. Municipalities have a directly elected Council, and a Mayor elected at large. Moldova has 65 municipalities; Chisinau being the largest. The functions of local governments include making decisions concerning development programs, urban planning and management, protection of the environment, as well as the budgeting, maintenance and development of communal activities. They plan and regulate the use of building land and adopt development plans and zoning plans. Municipal enterprises also provide infrastructure and services related to water, sewer, waste management, district heating and public transport. Housing is typically a responsibility which is shared between the central and local governments with the central level focusing primarily on legal issues and the provision of housing subsidies. In Chisinau both the urban infrastructure and the housing stock need capital renovation to improve the efficiency and quality of services. While these questions are discussed in more detail in the Infrastructure Concept Paper, the linkages to management of densely populated residential areas and privatized multi-apartment buildings are particularly important. In fact, studies have recognized that the inefficient consumption and loses of water and energy are extremely high both in buildings and heating and warm water supply networks. In conditions of a chronic deficit of financial resources at the municipal level, as well as growing poverty at the household level, communal service providers have failed to adjust the tariffs to real costs of services with detrimental outcomes for the long-term viability of communal networks. The problems, as they relate to the district heating system servicing close to 85% of the housing in Chisinau are summarized in Box 2. Box 2: District Heating and Housing in Chisinau: The Critical Links District heating is often the least-cost option for providing heat to high-density urban areas. In Chisinau, however, the district heating networks were constructed at a time when little attention was paid to energy efficiency. The key issues relating to district heating and energy efficiency are: • The gap between costs and prices continues to be particularly large in the residential heating market. • Competition from improperly priced other network fuels causes major reductions in the district heating consumer base, threatening major distortions in investments; growing poverty also contributes to the move to cheaper non-net work energy, such as wood and coal, with detrimental consequences for the environment. • Regulation of district heating is increasingly delegated to the local government, but it lacks the necessary regulatory experience; the central government is no longer able to cover the cost of uniform service. • Individual metering of heat consumption is the best way to achieve savings on apartment level but it is often non-existent in Chisinau; collective metering is the second-best option but the lack of legal entities at the building level is problematic for collection of payments. • Inadequate information is available about energy-saving measures, materials, technologies, financial benefits, and experience in applying them. • Despite considerable potential for profitable investments in energy efficiency significant financial and legal barriers continue to deter homeowners. Source: World Bank (2002) Coping with the Cold.

3 The general competence of local governments in Moldova is regulated through Law 186-XIV of November 1998. The attributes and functions of the local administration of Chisinau municipality are stipulated in Law 431-XIII of April 1995.



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Despite its importance for the local economy, the housing sector in Chisinau does not seem to be targeted by coordinated donor assistance. USAID/Moldova Local Government Reform Project (LGRP), implemented by the Urban Institute, provides assistance to Moldovan municipalities in terms of capacity building, strategic planning, participatory budgeting and energy efficiency. LGRP initiative is aimed at stimulating open and transparent local government responsive to residents and directed at generating better service delivery and some possibilities for complementarity with housing sector assistance do exist. Box 3: USAID Projects in Energy Efficiency USAID supported Municipal Network for Energy Efficiency and Alliance to Save Energy/Moldova are working to improve the energy efficiency in partner municipalities. The Alliance is working with the National Union of Housing Associations from Moldova, Balti Municipal Council of HOAs, Ungheni Condominium Association, Agency for Territorial Development and Chisinau Municipality to address challenges in the implementation of energy efficiency pilot projects, including legal, organizational and financial issues. Some of the pilot projects involve energy efficiency measures with direct links to housing. Recently, USAID Local Government Reform Project (LGRP) provided support for natural gas extension in the Sheftelik neighborhood of Ceadir Lunga. Contributions of $14,000 from LGRP, $8,000 from the municipality and $1,000 in donations gathered from residents of the neighborhood, financed the cost of the project.

Source: Interview data, The Alliance October 2006

3.2 Private Institutions

Many institutions are involved in the production, allocation and consumption of housing. The lack of well-established regulatory institutions at the central and local level, as well as the weakness of financial institutions, contributes to the inefficiency and immaturity of these markets. The most significant ones in the process are: the developers (private institutions or individuals); the landowners; the financial institutions; the building industry (mostly private); the local housing and planning authorities and the consumers. These new roles and responsibilities are associated with the transformation of the housing sector along market principles. Considerable private sector activity in the market-based housing system is focused on maintenance and renewal. A growing number of small construction firms are competing for repair and improvement contracts with the municipal maintenance firms. The mortgage market in Moldova is underdeveloped. Mortgage lending is offered by a small number of institutions, often the largest commercial lenders with some degree of foreign ownership.

3.3 Non-government organizations and housing market intermediaries

NGOs in Chisinau are at an early stage of development and require support to act as effective intermediaries between the public sector and civil society. They are generally limited in capacity and reliant on international donors for funding. Representative bodies of owners or tenants at the national or local level exist, and there has been some attempt to involve NGOs in the development of national housing policies as well as in Chisinau’s Housing Strategy process. There are no institutions dealing with housing research, surveys, data collection and policy evaluation.



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Studies indicate that despite the effort to establish an adequate legal framework for the operation of these new entities, the privatisation has resulted in quasi-ownership with inefficient way of managing housing assets (Council of Europe Housing Network Country Reports, 2003). Interviews suggest that less than 20 percent of the multifamily housing in Chisinau has HOAs acting as legal entities. Municipal maintenance companies still manage privatized housing under contractual obligations with new owners at locally controlled prices. The scale of multi-apartment developments also creates difficulties in management and co-ordination of financial contributions. In addition, the level of housing related services (water, energy services, district heating, garbage collection and waste management) has declined because of subsidy cuts, rapidly escalating costs and massive arrears with respect to utility costs. As a result of these processes not only the public services have deteriorated, but the normal maintenance of the housing stock has also accumulated a huge backlog.

Privatised housing managed by municipal companies

A housing market and land administration can function only through close cooperation of the public sector (policies, legal framework, institutions, such as the cadastre and rights registration) with the private sector participants, such as the mortgage based financing system, the professions of notaries, surveyors and real estate agents. The introduction of professionally licensed real estate appraisers, insurance brokers and housing managers would improve the operation of the housing market. Similarly, the profession of architects, planners and engineers has to be regulated with regard to qualifications, licensing, monitoring of activities, fee structures and the creation of a self-regulating organization. In Chisinau, Laura is the largest real estate agency providing similar services. While there is no formal multiple listing, some of the largest realtors share information

on a voluntary basis. As the market matures and both mortgage and management contracts become more sophisticated, the need to regulate the work of housing market intermediaries--real estate agents, housing managers, property appraisers and maintenance firms according to international standards will become much more pronounced. In summary, the most important constraints for the efficient operation of housing institutions in Chisinau and in Moldova in general are:

� Lack of adequate institutional capacity of public institutions � Lack of effective institutional cooperation -- bureaucratic structures, corruption, red tape



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� Lack of well established professional intermediaries � Ineffective operation of Condominiums � Unsustainable operation of public utility companies.

III HOUSING MARKET PERFORMANCE

This section applies the approach of the Housing Concept to evaluate current housing conditions and recent trends in Chisinau with an emphasis on the outcomes of housing reforms and the implications for housing markets. It uses data from the last censuses on housing availability, quality, distribution and access to technical infrastructure. Housing choices are evaluated with respect to changes in tenure structure and access to adequate housing. The analysis emphasizes issues pertaining to housing affordability and investment in new housing construction.

1 HOUSING AVAILABILITY

Housing provision in Moldova stands at 359/1 000, which is comparable to the average for South East Europe, but certainly lower than the average of 490 units observed in the EU countries.4 However, Moldova is one of the poorest countries in Europe with GDP per capita being one third of the GDP average in the region, which considerably affects the amount of investment available for improvement in housing conditions. Annex 2 contains comparative data on housing market performance for Moldova and seven other countries in the region of South East Europe.

Table -2: Selected housing indicators in South East Europe

Country year

Dwellings per 1000 inhabitants (urban areas)

Average useful floor area of dwelling national level (m2)

Average useful floor area of dwelling urban areas(m2)

Average number of rooms per dwelling national level

Average number of rooms per dwelling urban areas

Albania 2001 278 67.0 69.0 2.2 2.1

Bulgaria 2001 420 63.3 63.9 2.8 2.6 Former Yugoslav Republic of Macedonia 2002 - 71.2 - 3 -

Moldova 2003 353 59.1 53.8 2.7 2.3

Romania 2002 373 37.4 37.4 2.6 2.4

Serbia 2002 367 66.9 63.1 2.7 2.4

Source: Tsenkova, 2005: Council of Europe Development Bank Regional Housing Survey

4 The number of dwellings per 1 000 people in the region varies from 254/1 000 in Albania to 465/1 000 in Bulgaria.



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It is difficult to find both reliable data and good measures for the quantitative aspects of the housing situation in the region. Table -2 provides a series of indices on the availability of dwellings at the national/urban level in Moldova and the other countries in the region. Contrary to expectations, urban areas seem to have very similar indicators, suggesting minor inequalities in housing consumption (about 10-11%). Dwellings in Moldova tend to be small with 2.7 rooms with an average useful floor area of 59.1 sq m. Local housing market mismatches pose an additional, often neglected quantitative problem. Despite the overall surplus of housing in Moldova, data from the Housing Preferences and Affordability study indicate that urban areas, and Chisinau in particular, experience housing shortages and overcrowding.5 Dwellings often accommodate more than one household/family and the ratio of persons per room is 1.6. For example, in Chisinau 12 percent of the dwellings are occupied by two or three families. There are many cases with more than 3 occupants per room. In addition, over 62,000 families are registered in the old waiting lists of enterprises and other state organisations with another waiting list at Chisinau municipality with 8,859 families qualified to receive social housing assistance. Notwithstanding the widely shared concern that these lists have not been updated for a long time and there might be overlapping registration, the evidence suggests the presence of a housing deficit in the capital city, which might become more problematic in the future.

2 HOUSING QUALITY CHALLENGES In Moldova quality problems of the existing housing stock require significant public attention. While piped water and sewer are available in 80 percent of the urban housing, a large share of the housing stock in the rural areas lacks basic infrastructure and services. For comparisons with the other countries in the region, please refer to Annex 2-Figure 2.

2.1 Deteriorating quality of existing housing The data on the provision of housing with water, sewer, central heating and bathrooms in Chisinau suggest minor improvements in the last few years (Figure 3). District heating is widely spread in the city where the share of dwellings serviced by the system amounts to 84 percent of the housing stock, compared to 25 percent in the urban areas of Moldova. Although Chisinau is clearly in a privileged position compared to the rest of the country, cumulative shortages of financing for infrastructure development, coupled with scarcity of public resources for much-needed upgrades in the technical infrastructure, have led to deterioration of existing networks and frequent disruption of services. Indeed, the question of housing quality in Moldova and Chisinau is directly related to the improvement of existing networks for water, sanitation and heating. Closely related to housing quality are the age characteristics of the housing stock. The available data indicate that most of the housing in Chisinau was built after the WWII. The oldest part of the city, built before 1934, constitutes only about 5 percent of the total housing stock. Investment in housing provision during the Soviet times has resulted in waves of new construction, particularly since the 1960s, to respond to urban growth. Half of the housing in Chisinau is 35 years old, but

5 In the urban areas the total number of households (530 thousand) exceeds the number of dwellings (484 thousand).



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the signs of premature aging and lack of systematic investment in maintenance have eroded its initial quality. 6

Figure 3 Access to infrastructure in the housing stock of Chisinau, 2004

0

10

20

30

40

50

60

70

80

90

100

110

Water Sewerage Centralized heating Bathroom (shower) Gas Piped warm water

Ho

usin

g s

tock (

%)

2001 2004

Source: General Statistical Department for Chisinau Municipality, 2005

A principal feature of the housing system was that new housing was built by state enterprises for rent or sale using standardised methods of prefabricated housing construction. Another distinguishing feature, along with the premature ageing of the housing stock, is the concentration of multi-family apartment blocks in the city compared to the rest of predominantly rural Moldova. While there is a lack of data for Chisinau on the age of buildings and their methods of construction, some aggregate estimates based on previous studies suggest that multi-family apartment blocks account for nearly half of the housing, with two thirds being panel construction.7 This building technique was the privileged construction concept in the 1980s, which allowed for the rapid expansion of urban areas during the communist era creating entire city districts. Interviews with officials, as well as desk review of available studies indicate a wide consensus about three groups of problems related to housing quality: deteriorating housing quality in the existing stock, lack of effective management in multi-family housing and poor living conditions for residents in dormitories and in the historic city center.8 The historic center, despite its market potential, has a significant share of substandard housing. Anecdotal evidence points out to housing in unsafe conditions due to systematic disinvestment and deferral of maintenance in the last

6 Data from the 1997 survey of the National Agency for Housing and Real Estate Services provides the following information for on the age characteristics of housing in Chisinau: 1960-1979- 43.3% of the stock, 1980-1989 - 32.6%, 1940-1959-11.3% and before 1939-4.8%.

7 See for example, PADCO Europe, Ltd.,“Housing Preferences and Affordability Survey” , the survey conducted in 1997 by the National Agency for Housing and real Estate Services (NAHRES) in Chisinau, Balti and Orhei and the UNECE Moldova: Housing Profile, 2002. 8 Historic individual houses in the city center, often not connected to centralized water supply or sewerage, are estimated at 1, 6 million square meters; multi-apartment 5-storey buildings (Khrushevki about 2 200 000 square meters) are also in critical condition(World Bank 2002).



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decades, housing without basic utility services (indoor toilet and bathroom) as well as in structurally unsound buildings with bad physical conditions.

2.2 Lack of effective maintenance and management in multi-family housing Housing reforms in Moldova during the last decade have created new conditions for housing management. A series of legal, institutional and financial reforms has been carried out, but the transformation process has failed to define a system that is efficient, particularly in the cases of multi-family housing. Essentially the transition from a centralized and excessively subsidized system to one based on market competition, private ownership and cost recovery for housing services has been particularly difficult. Housing management faces a triple challenge—technical, social and financial. Privatised housing on the outskirts of Chisinau

The collective form of housing provision from the past has an important effect on housing management, not only in terms of institutions and legal challenges, but more importantly related to the technical conditions of multi-apartment housing. Some estimates suggest that municipal maintenance companies in Chisinau manage about one third of the housing stock and about 85 percent of the multi-family housing. Reportedly half of this stock is in urgent need of repair and energy

efficiency improvements (Council of Europe, 2004). The deterioration in parts of the housing stock has reached a critical stage. Subsequently, inadequate investment in maintenance as well as deferred capital repairs have aggravated the technical problems with leaking roofs, obsolete installations, elevators and poor wall insulation. Data from the Housing Department in Chisinau Municipality presented in Table 3 indicate constant lack of investment in both capital and current repairs since 1998. The tariffs for housing management and maintenance of MDL0.19 per square meter barely cover the costs of cleaning and electricity for common areas. Interviews suggest that the payment discipline exists and more than 90 percent of the households make regular payments, however, Municipal Council has refused to adjust the tariffs to reflect rising costs for building materials and labour. The result is minimum service and constant flow of subsidies to cover emergency repairs in different buildings. In some cases housing has unsafe and hazardous conditions which clearly do not meet Building Code requirements.



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Table -3: Housing investment needs for housing managed by municipal companies in Chisinau, 1998-2005

1998 1999 2000 2001 2002 01.06.2003 2005

Housing fund, thousands sq.m total surface

6203,8 5509,7 5564,6 5529,9 5479,8 5433,7 5343,0

Including housing in private property, thousands sq.m.

4502,1 4221,2 4376,7 4367,8 4547,7 4543,0 4793,0

Share of housing in private property, %

72,6 76,6 78,7 79,0 83,0 84,0 89,7

Including housing in municipal property, thousands sq.m.

1701,7 1288,5 1187,9 1162,1 932,1 890,7 550,0

Share of housing in municipal property, %

27,4 23,4 21,3 21,0 17,0 16,4 10,3

Grand total 6316,3 5585,7 5576,7 5606,4 5423,4 5416,1 5319,4 Housing fund amortization, thousands lei

1276,0 1258,2 1297,8 1343,0 1407,7 1420,4 1395,0

Necessary volume for capital repairs ,thousands lei

33,3 32,7 36,6 36,2 42,3 50,0 62,0

De facto volume for capital repairs, thousands lei

1,8 0,8 1,6 2,1 6,4 3,3 8,9

Meeting the expenses necessary for capital repair

5,5 2,4 4,2 5,9 15,1 6,6 14,4

Necessary volume for current repairs, thousands lei

54,1 52,3 53,7 61,2 59,8 59,2 106,3

De facto volume for current repairs, thousand lei

8,2 10,0 7,3 7,5 7,1 4,4 13,2

Meeting the expenses necessary for current repairs, %

15,1 19,2 13,5 12,3 11,8 7,4 12,4

Source: Housing Department in Chisinau, Interview data September 2006

In the absence of effective support for housing and utility services, more affluent owners have continued to subsidize their neighbours and to finance current repairs. Studies have reported lack of respect for the law as well as refusal to pay regular contributions for the modernization of common areas in privatized residential buildings (UNECE, 2002).

The Gates of Chisinau: The scale of the housing development creates significant management problems

3 TENURE STRUCTURE AND HOUSING CHOICE



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The distribution of the housing stock by tenure in Moldova is characterized by a predominance of owner occupied housing. In most of the countries across the region, owner occupation exceeds 90 percent, which is well above the 60 percent average in the EU. Overall the tenure structure in South East Europe is quite polarized leaving a small and residual sector of publicly owned social housing (ranging from close to 9 percent in Bulgaria and Bosnia & Herzegovina to less than 1 percent in Albania and Former Yugoslav Republic of Macedonia). See Annex 2-Figure 4 for international comparisons. The privatization of public housing in Moldova and Chisinau occurred over a short period of time with a substantial impact on the ownership pattern. According to some estimates, close to 120,000 public housing units were privatized in Chisinau in the early 1990s. Since apartments were privatized mainly in exchange for national patrimonial bonds and in some cases free of charge, the transfer of public assets to sitting tenants failed to raise much-needed revenue. Furthermore, the privatization of apartments was not accompanied by privatization of the buildings, which remained in public ownership until 1997 when provisions were introduced to transfer building ownership to the associations of homeowners. However, this process has been particularly slow.

Figure 4 Tenure structure in Chisinau, 2004

2004

9.8

89.8

0.1 0.3

public private mixed other

Source: General Statistical Department for Chisinau Municipality, 2005

Figure 4 presents the most recent data on tenure change in the housing stock of Chisinau. Although some of this housing might actually function as private rental, responding to pressures from migration and labour market adjustment, most of the housing is owner-occupied. The public share of the housing stock has declined from 15.3 to 9.8 percent in the last five years. Interviews with municipal officials indicate further efforts to proceed with liquidation of the public (state and enterprise owned) housing. This unprecedented transfer of wealth from public to private ownership could be regarded as one of the successful examples of privatization in transition economies. It is not surprising that the privatization of housing has been very popular among the people and enabled households to acquire a stake in the market economy.

In summary, housing choices in Chisinau are very limited – households need to become homeowners, or rent in the informal private rental sector. Chances to qualify for public housing are marginal, given its small share and low turnover.

2000

15.3

83.1

0.11.5

publ i c pr i v a t e mi x e d ot he r



18

4 HOUSING INVESTMENT AND NEW HOUSING CONSTRUCTION

Housing investment has been sharply reduced at the beginning of the transition in Moldova and other countries in South East Europe.

4.1 Trends in new housing construction From a quantitative perspective, the level of new housing construction has reached historically low levels with rates of new dwellings per 1,000 residents around half of the level in the 1990´s. The decline in Bulgaria, Moldova and Serbia was much more pronounced due to the rapid withdrawal of state support for housing and economic difficulties (see Figure 5 in Annex 2).

Figure 5 Dynamics of investment in housing construction in Chisinau

0102030405060708090

100110120130140150160170

1995 2000 2001 2002 2003 2004Sh

are

of

pre

vo

ius

ye

ar

inv

es

tme

nt

(%)

Total investments Housing investments Contractor's work

Source: Adapted from General Statistical Department for Chisinau Municipality, 2005

Data on housing investment in Chisinau (1995-2004) indicate a significant growth by 60 percent in recent years (Figure 5). The indices of investment in three categories—total capital investment, housing, and general contractor’s work—compare the volume of investment to the previous year. Correspondingly, the share of housing investment has increased to 18 percent of total capital investment in the city. Most of the new housing in Chisinau (over 90 percent) is produced by private developers with a significant share of individual investors. Figure 6 presents the trends in new housing construction in thousands of sq meters from 1995 to 2004. Despite some involvement of public sector agencies in the process, this tends to be predominantly housing for sale at market prices. Contrary to expectations, private sector activity in housing construction was less affected by the recession, sharply rising prices, inflation and falling real incomes. In Chisinau the share of privately developed housing has grown steadily, albeit from a very low start. The total number of housing units completed in the city in 2004 is 1,777 and two thirds of the new housing is in individual homes (see Figure 7). These preferences towards single family construction affect the data on the average size



19

of newly built housing, which in 2004 has reached 173 sq meters (compared to 92 sq meters for new apartments).

Figure 6 Housing construction* by type of developer in Chisinau, 1995-2004

0

50

100

150

200

250

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Th

ou

san

ds o

f sq

uare

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rs

public Individual beneficiaries Private collective


*Volume of housing construction in thousands of sq meters.

4.2 Constraints for new housing development Notwithstanding progress, housing production capacity in Chisinau remains limited due to:

• the lack of serviced land has resulted in high land prices

• the absence of affordable financing for new construction due to high inflation and the lack of efficient mortgage markets

• the fact that cash payments have become the basis for financing home construction in the absence of alternative financing and the unattractiveness of mortgages financed at market rates

• the targeting of the upper end of the housing market by private builders.

The production of serviced land for housing in Chisinau is constrained by the lack of a Master Plan and detailed planning documentation, as well as by local governments’ lack of capacity to finance necessary infrastructure. The cash-constrained Municipality has limited allocation for the capital intensive infrastructure work, thus shifting prohibitive costs onto developers and/or consumers. Land supply is a particular constraint in the central area of the city. Urban land is auctioned by the Municipality of Chisinau, reportedly under procedures that are not very transparent. Overall, this has led to high cost of serviced land on the market and fragmented nature of land supply.



20

Figure 7 New housing completions* in Chisinau, 1995-2004

104.3

43.1 48.278.4 75.2

50.2 60.830.2 20.4

73.6103.8

33.8

38.1

87 65.194.7

72

125.5

118.1151.8

170

223.4

0

50

100

150

200

250

300

350

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Th

ou

sa

nd

s o

f s

qu

are

me

ters

Apartments Individual houses


*Volume of housing completion in thousands of sq meters.

5 AFFORDABILITY OF HOUSING With respect to affordability of housing, income is usually taken as an overall index of the demand and purchasing power of households, while the house price is taken as an index of the type of housing supply available. The linking mechanism is the market transaction, which brings together households and housing units. Apparently these processes are difficult to evaluate without systematic data. While a lot more information is needed to analyze spatial differentiation and affordability of housing, several indicators can be used to characterize the situation in Chisinau: income differentiation and housing costs, average prices of housing and price to income ratio.

5.1 Income differentiation and poverty Recent economic growth in Moldova has resulted in a steady improvement in salaries, which have quadrupled in nominal terms since 1999. Not surprisingly, the average salary in Chisinau—MDL 1,503 in 2004—is nearly 30 percent higher than the national average and 100 percent higher than the subsistence minimum per person of MDL 769 (see Figure 8). Inequality in Moldova has increased rapidly during the transition indicating a growing gap between the rich and the poor. The Gini coefficient remains as high as 0,4219. Compared to other South East European countries, the absolute poverty level in Moldova is still considerably higher. The poverty affects not only the traditionally vulnerable groups of population, such as the elderly, illiterate, and those without professional skills that have been unemployed for a long time. It also affects the qualified and underemployed. In 2004, 27 percent of the population

9 Ministry of Social Protection data.



21

lived in absolute poverty, with a level of welfare of less than 327 MDL per month per adult.10 The poverty risk in Chisinau was five times lower than in small towns and rural areas. Only six percent of the population living in the big cities was poor in 2004, compared to one third in the other regions.

Figure 8 Income growth in Chisinau, 1999-2004

483.1

622.7

806.3

985.3

1237

1503.8

304.6407.9

543.7

691.5

890.8

1103.1

0

200

400

600

800

1000

1200

1400

1600

1999 2000 2001 2002 2003 2004

MD

L (

Lei)

Average monthly salary in Chisinau

Average monthly salary in Moldova

Subsistance minimum per person

Linear (Subsistance minimum per person)


While poverty is mostly a rural phenomenon, income inequalities in urban areas, and in Chisinau in particular, are much more significant and have a long lasting impact on housing costs. Figure 9 presents the significant differentiation in monthly salaries (MDL/person) in different sectors of the local economy compared to the average monthly salary of MDL 1,503. The financial and construction sectors stand out with salaries 7 to 10 times higher than the average pension. The data need to be interpreted with caution, given the large share of the informal economy, which according to some estimates is as high as 35 percent of the GDP. Notwithstanding, the income differentiation is likely to generate demand for new and better quality housing, as younger and wealthier people start upgrading their housing conditions faster than the rest of the population. On the other side of the spectrum, regarding social risks and vulnerability, rising housing costs present a significant problem for the elderly, disabled and young families with many dependents. 10 Estimates suggest that in order to lift all households up to the absolute poverty line, 958 million MDL per year would be necessary, which is about 3 percent of GDP. This is twice the amount spent on social assistance benefits in 2004 (1.4% of GDP) (Republic of Moldova Ministry of Economy and Trade “Poverty and Policy Impact Report 2004, Chisinau 2005.



22

Figure 9 Income differentiation in Chisinau, 2004

1669.21871.3

1461.3

2008.1

968.3

392.2

1231.7

1097.7 1036.1

3567.3

0

500

1000

1500

2000

2500

3000

3500

4000

Fin

ance

Manufa

ctu

ring

industr

y

Tra

nsport

Public

adm

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tration

Constr

uction

Com

merc

e

Hote

l and

resta

ura

nt

Education

Health

Pensio

ners

MD

L (

Lei)

Average monthly salary/pension Average monthly salary in Chisinau


5.2 Housing costs and affordability problems Despite the economic and social hardships, most households in Chisinau own their housing without the burden of a mortgage. In most cases this is the most significant asset for the household, which in some buoyant sub-markets translates into substantial wealth 10-12 times the average annual household income. Often these are asset rich but income poor families who could not cope with the adjustment of tariffs for communal services and utilities. Time series data on housing costs from 1995 to 2004 in Figure 10 show a distorted pattern. First, costs for maintenance and management have remained the same. Second, expenditure on utilities is much higher than spending on maintenance, particularly for water and central heating, which due to elimination of energy subsidies has increased disproportionately in the last few years.11 Third, the inability of most households in Chisinau to cope with the rising costs of utilities has resulted in cumulative debt, which is a significant constraint for the efficient cash flow management of municipal utility companies. As of July 2006, accumulated household debt to APA Canal in Chisinau is MDL 39.28 million, to TERMOCOM – MDL 147.19 million and for housing maintenance – MDL 7.8 million.

11 For example, the price of central heating has increased rapidly from 19 MDL/Gcal in 1995 to 233 19 MDL/Gcal in 1995.



23

Figure 10 Utility costs vs housing maintenance costs in Chisinau, 1995-2004

0

0,5

1

1,5

2

2,5

3

3,5

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Water & sewer lei/m3 Natural gas lei/m3

Electricity lei/kWh Housing maintenance lei/m2

Source: Housing Department of Chisinau Municipality, Apă-Canal SA, Chişinău-Gaz SA, 2006

5.3 Rising prices of housing

Figure 11 Housing market dynamics in Chisinau and Moldova, 1999-2004

0

5000

10000

15000

20000

25000

30000

35000

1999 2000 2001 2002 2003 2004

Ap

art

men

ts

0

200

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600

800

1000

1200

1400

1600

1800

Mo

rtg

ag

es

Apartments in Chisinau Apartments in Moldova Mortgages

Source: Cadastre Office Chisinau, 2005



24

Research indicates that Chisinau has the most buoyant housing market in the country with close to 7 percent of the housing stock traded per year. The housing market activity includes mostly property transactions of privatized/restituted housing and exchanges within the existing owner-occupied stock. Dwellings currently under construction (many builders sell houses and apartments before completion) are excluded from this estimate. The number of housing market transaction with a mortgage in Chisinau is indeed very limited in scope and has reached 1,600 in 2004 (compared to 19,000 total transactions).

Lara City – New upscale condominium in Chisinau with active HOA

Previous uniformity of land and house prices has given way to a fairly diversified system reflecting location, quality, accessibility and level of services. This has resulted in the formation of distinct housing submarkets in the urban structure of Chisinau. Recent economic stabilization and growth as well as the growing share of remittances have pushed the prices higher, particularly for newly built housing in the city

center. Figure 12 presents the average price per square m of housing in Chisinau in US$. Inflation and the lack of investment opportunities elsewhere in the economy make property and housing markets financially attractive. Revenue from the informal sector reportedly is channeled into housing, pushing prices even further.

Figure 12 House price* dynamics in Chisinau, 1995-2006

0

100

200

300

400

500

600

700

800

900

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Laura real estate agency in Chisinau, 2006

* Prices are in US$ per sq m of housing



25

House prices denominated in US$ have increased rapidly since 2001 from US$140 to US$800. The aggregate data suggests that the price gap between inner-city housing and apartments in the peripheral housing estates is in the range of 25-40 percent. There is an erratic market for flats, which fetch very high prices compared to income, with prices ranging from US$ 90-110,000. The market for single family homes, although much more limited, has surprisingly similar prices per square meter. In Chisinau single family homes sell for US$ 150-200,000, prices similar to Zagreb and Bucharest.

5.4 Lack of mortgage finance Notwithstanding preferences for homeownership, households in Chisinau overwhelmingly do not have the income and savings to purchase a home. Despite some positive developments in the mortgage market in the past few years, high interest rates and short amortization periods limit the amount that can be borrowed. Banks practice very conservative lending policies with two to three guarantors and high down payment requirements. Table 4 below summarizes current lending conditions. Given the official income distribution, less than 1 percent of households can qualify for a mortgage. However, movement up or down the market is possible for a more significant share of the households who have mortgage free ownership.

Table 4 Mortgage lending conditions, 2006

BCR FinComBank Victoriabank Moldova-Agroindbank

Mobiasbanca with Bursa Lara

Mobiasbanca With the company Dragalina

Credit amount

Maximum amount 70% of the price of housing

Maximum EUR 40,000

Maximum amount 70% of the price of housing Up to US$40,000

Maximum amount 70% of the price of housing Up to US$50,000



Term 10 years Up to 10 years Up to 10 years Up to 10 years Up to 3 years Up to 4 years

Interest percentage

Un-restricted 19 % 14% 16% 20% 16%

Commission … 2% … … 0,5% 0,5%

Collateral Mortgaging the real estate

Mortgaging the real estate





Payment … … Equal monthly payments

Equal monthly payments



Source: Interview data, Chisinau September 2006



26

IV. CHALLENGES AND OPPORTUNITIES

Chisinau is the financial, administrative, industrial and cultural center of Moldova. It takes only 1.7 percent of the territory but is home to 21 percent of the people. The local economy accounts for more than half of the country’s GDP, 55 percent of its industrial production and close to 84 percent of the investment in capital assets. With 28 universities and colleges, many theatres and cultural venues, the city acts as a catalyst for young talent and entrepreneurial spirit. Housing represents a vast potential source of economic growth for the Chisinau and accounts for more than 70 percent of the total new housing construction in the country. Housing, as the new Concept Master Plan indicates, absorbs close to half of the city’s territory and its quality and standards are critical in defining city neighborhoods and sense of place. Despite some positive developments, the analysis has indicated an overall housing shortage and significant problems with deteriorating multi-family housing stock. With the quality and quantity backlogs in the sector, large amounts of investments for the years to come would be necessary to improve the housing conditions. The importance of housing in the local economy can be measured in terms of investment, employment, consumer expenditure, etc. The value of services derived from housing amounts to 15-20 percent of domestic consumer expenditures and forms a large component of national household wealth. Housing privatization applied in almost universal manner has transferred significant national assets in private ownership. While this has boosted private investment in the sector, multi-apartment housing in urban areas has deteriorated due to lack of effective legal, organizational and financial measures for its management.

The Concept Master Plan for Chisinau identifies areas for new housing development and intensification



27

Tenure choices in Chisinau are limited due to the polarized tenure structure and growing affordability constraints. Low wages and employment uncertainty coupled with escalating housing costs and mortgage rates have reduced effective housing demand. Even though households were prepared to pay higher costs for their housing, they found themselves squeezed out of the home ownership market with limited opportunities to improve their housing situation. The gap between income and entry costs has increased dramatically. Current mortgage arrangements, income levels and house prices make housing unaffordable to a large number of households. The previous housing shortage has been replaced by a shortage of affordable housing, suggesting a future deepening of the housing crisis.

1 MATRIX OF HOUSING SECTOR CHALLENGES AND OPPORTUNITIES

The matrix below summarises challenges and opportunities in the housing sector with a particular focus on the housing policy reform and housing market outcomes (see Table 5).

Table 5 Housing in Chisinau: challenges and opportunities

Challenges Opportunities

Housing Policy Reforms

In the area of housing policy, the public sector is playing an enabling role with major responsibilities centred on legislative reforms. Despite efforts to create an adequate legal framework, its enforcement is problematic.

Moldova has a National Housing Concept (1994) and Housing and Real Estate Market Strategy (1999) which provided guidance for further development of a legal and institutional framework of the housing sector. The City of Chisinau has adopted a Housing Strategy in 2004 with well defined priorities.

A series of legal, institutional and financial reforms has been carried out with respect to privatization and housing management, but the transformation process has failed to define a system that is efficient for multi-family housing.

Moldova has made a significant progress in designing adequate legislation to ensure a more efficient market-based system of housing provision in several areas: i) property rights and registration; ii) privatization of public housing; iii) management of housing; and iv) planning and construction.

The Municipality of Chisinau has acquired significant responsibilities in the housing sector without the necessary resources to effectively fulfill its mandate. The municipal waiting has close to 8,900 families qualified to receive social housing, while close to 10 dwellings can be allocated every year. The previous housing shortage has been replaced by a shortage of affordable housing, suggesting a future deepening of the housing crisis.

A centrally funded assistance with utility payment-heating subsidies has over 16 categories of eligible households ranging from people with disabilities, war veterans, functionaries of the State, teachers, police, etc., legally underpinned by 15 different laws, is a good starting basis for demand-based housing assistance.

Housing Market Responses

Half of the multifamily stock and some of the older homes in the historic part of the city are in urgent need of repair and energy efficiency improvements. Inadequate investment in maintenance as well as deferred capital repairs have aggravated the technical problems with leaking roofs, obsolete installations, elevators and poor wall insulation.

Chisinau is in a privileged position with respect to housing quality. The data on the provision of housing with water, sewer, central heating and bathrooms indicates high level of service compared to other cities in Moldova. Half of the housing in Chisinau is 35 years old.

New homeowners have been reluctant to assume responsibility for maintenance and management of privatized housing. HOAs exist in 20% of the multi-family

The municipal firms have been restructured to separate housing management from maintenance activities; smaller units operate on a contract basis providing



28

stock; municipal companies charge uniform fees per sq m for their services (10-15 times lower).

services to the private and public sector on cost-recovery principles.

Although poverty risk in Chisinau is five times lower than in small towns and rural areas, income inequalities are much more significant and have a long lasting impact on housing costs. A large number of homeowners in the city are asset rich but income poor families who could not cope with the adjustment of tariffs for communal services and utilities accumulating significant debt.

The privatization process has transferred significant assets to the households, which in Chisinau’s housing market translates into substantial wealth 10-12 times the average annual household income. The city has the most buoyant housing market in the country with close to 7 percent of the housing stock traded per year.

Housing choices are very limited – households need to become homeowners, or rent in the informal private rental sector. Chances to qualify for public housing are marginal, given its small share and low turnover. Notwithstanding preferences for homeownership, households in Chisinau overwhelmingly do not have the income and savings to purchase a home.

The share of housing investment has grown steadily reaching 18 percent of total capital investment in the city. The share of privately developed housing has increased, albeit from a very low start, indicating a strong preference for single family homes. The average size of newly built housing has doubled with substantial gains in terms of quality and diversity of design.

The production of serviced land for housing is constrained by the lack of a Master Plan and detailed planning documentation, as well as by local governments’ lack of capacity to finance necessary infrastructure. Urban land is auctioned by the Municipality of Chisinau, reportedly under procedures that are not very transparent.

The Master Plan process presents a significant opportunity to resolve issues pertaining to lack of land for housing development. It can identify suitable areas for housing intensification as well as for future single family housing.

2 STRATEGIC PRIORITIES

The evaluation in this Housing Concept paper as well as interviews with key stakeholders in Chisinau assisted the selection of three strategic priorities for the housing component of the future City Development Strategy for the Municipality of Chisinau. These priorities are in line with the Housing Strategy adopted in 2004 but tend to be more operational and lead to the development of pilot projects to test the viability of new models. The need for practical, action-driven approach to housing problems as well as actions largely in the realm of municipal jurisdiction, is considered a priority. The Housing Concept has identified the following three strategic priorities:

� Provide assistance for the establishment of HOAs in privatised multi-family housing � Develop a framework for pilot projects that target area based improvement of existing housing

that leverage private sector investment and actively involve homeowners � Develop a feasibility study of public private partnerships to built new social housing for socially

vulnerable groups.

These priorities emphasize the importance of investment in the existing housing as well as

capitalizing on opportunities created through area based renewal to create new social housing. Currently the Municipality of Chisinau invests about MDL 40 million per year (close to 3.5 percent of its budget) into various ad hoc housing initiatives, emergency repairs and housing improvement. If this limited funding is put into better use on a cost-sharing basis with the private sector and HOAs, it might be able to deliver tangible and sustainable benefits to local communities. Furthermore, the housing sector consumes about 35% of the energy. Improvements in energy efficiency might have a high economic, social and environmental impact in Chisinau, particularly if



29

the principal activities target multi-apartment buildings with existing HOAs. Some of the proposed actions aim at: (i) support to enable private homeowners to improve the energy efficiency through metering of consumption of water, gas, heating; (ii) energy efficient upgrades of systems and constructive elements of existing buildings; (iii) improve the mechanisms for collection of user charges of the heating, gas and water services. In particular, addressing the housing problems of multi-family housing is multidimensional:

� Social: From a social policy point of view, urban areas with a high concentration of apartment blocks are increasingly seen as being stigmatic of poverty and social exclusion. Currently the buildings contain a social mix with low to middle income households sharing the common areas, however, due to difficulties in management and maintenance accelerate decline and deterioration.

� Technical: The life expectancy of multi-family panel blocks is approximately 50 years and a

significant portion of this stock no longer complies with technical standards. In addition, the region is exposed to earthquake risk, so the physical condition of panel housing raises concerns over its capacity to withstand natural disasters. In other cases multi-apartment building have reached this critical stage in the lifecycle assessment where a major infusion of capital will be needed to bring them back to standards. Some energy efficient improvements can address issues of housing quality and reduce higher utility bills.12

� Organizational: HOAs are registered as legal entities, but do not own the buildings; thus,

behind every contract there are individual owners. Renovation planning is also problematic within the context of unclear financial and management responsibilities. Furthermore, in addition to the technical and social challenges, it is difficult to borrow funds for major improvements, which requires audited financial statements of the condominium and collateral. Banks often request individual owners to sign a mortgage or a loan contract, which makes the process extremely cumbersome and costly. In addition to mobilization of funds, savings (including intergenerational savings), loans and mortgages to pay for rehabilitation and renewal, assistance needs to be provided to establish effective organizational entities to manage multi-family housing in the first place.

� Financial: One of the reasons for the poor maintenance of multi-apartment buildings lies

with the difficult financial situation of owners. The prices of housing related services increased at a period of economic decline, which due to the lack of any system for social support resulted in accumulated arrears. The preliminary estimates for the investment needs for rehabilitation and restoration purposes point to figures which will have long term financial implications for the city.

12 See Bouwcentrum International (2005) Modernizing High Rise Housing Estates in the European Union. The Hague: The

Netherlands Ministry of Spatial Planing, Housing and the Environment.



30

3 WORK PLAN AND BUDGET The main objectives of the housing component of the City Development Strategy for Chisinau are to:

(1) Assist the municipality in outlining investment strategies and plans of action in priority areas—institutional development of HOAs, energy efficient rehabilitation of multi-family housing and new partnership for social housing provision—taking into account city-based resources while fostering alliances with private sector investors and communities; and

(2) Build local capacity to effective implement these plans of action, leverage investment, disseminate information, as well as to share the lessons and knowledge throughout Moldova.

The initiative is expected to produce significant results that will: i) improve the operational efficiency of Chisinau’s municipal government in the housing sector; and ii) will create the institutional mechanisms for private sector investment in housing with tangible benefits for low income households. Some of the expected outputs/outcomes are:

� Training and development of educational materials for HOAs & municipal professionals: manual on housing management, budgeting and life cycle assessment.

� Feasibility study and needs assessment of energy efficient renovation in multi-family housing.

� Cost estimates, investment planning and elaboration of a framework for pilot projects for energy efficient retrofits with clearly defined roles and contributions of the municipality, providers of communal services, homeowners and international financial institutions.

� Model for new social housing for socially vulnerable groups through public private partnerships

� Participatory action planning and mechanisms for stakeholder involvement to address Chisinau’s housing priorities.

� Dissemination of learning experiences throughout Moldova through the press and networks for municipal cooperation.

Table 6 provides a summary of expected outputs and outcomes as they relate to program objectives and the main categories of activities in the three priority areas.

Table 6 Expected results

Impact: THE MUNICIPAL GOVERNMENT OF CHISINAU IMPROVES ITS OPERATIONAL EFFICIENCY IN THE HOUSING SECTOR BY ADDRESSING STRATEGIC PRIORITIES

Objectives: (2) Assist the municipality in outlining investment strategies and plans of action in priority

areas—institutional development of HOAs, energy efficient rehabilitation of multi-family housing and new partnership for social housing provision—taking into account city-based resources while fostering alliances with private sector investors and communities; and

(2) Build local capacity to effective implement these plans of action, leverage investment, disseminate information, as well as share the lessons and knowledge throughout Moldova.



31

ACTIVITIES OUTPUTS OUTCOMES

1. Assistance for the establishment of HOAs in privatised multi-family housing Design of course materials on housing management, preparation of a manual for HOAs, training of trainers. Elaboration of municipal rules for allocation of land plots to HOAs and cost-sharing arrangements for common premises/facilities. Public campaign on benefits of HOAs, mechanisms to share learning experiences through newsletters, electronic professional networks, TV and radio information.

Training sessions on housing management for HOAs and municipal housing managers.

Housing management manual approved and widely disseminated in Chisinau.

Improved institutional capacity of HOAs; effective transfer of housing management from municipal to private entities

2. Develop a framework for pilot projects that target energy efficient improvement of existing housing leveraging private sector investment and actively involve homeowners Overview of best practices in energy efficient renovation in multifamily housing with study tour for key decision-makers in other CEE countries. Needs assessment of typical multi-apartment blocks in Chisinau to identify renovation needs, homeowners’ incomes & expenditure for maintenance and communal services, private sector investment potential. Feasibilty study of renovation packages, expected savings due to energy renovation measures and cost recovery (pay back period). Workshops and stakeholder consultation (including HOAs) to define action plans in this area, including changes in the legal framework and financing options.

Feasibility study and needs assessment on energy efficient housing renovation completed in collaboration with local stakeholders and widely disseminated

Cost estimates, investment planning and elaboration of a framework for pilot projects in the sector with clearly defined roles and contributions of the municipality, providers of communal services, homeowners and international financial institutions.

The municipal government of Chisinau improves its institutional capacity to develop housing policy responses in priority areas through stakeholder consultation and sound financial planning.



32

3. Develop a public private partnership model to built new social housing for socially vulnerable groups. Surveys of legal and financial provisions to explore the potential for public private partnerships for the construction of new social housing. Stakeholder workshops to present best practices in CEE and build consensus on appropriate actions in Chisinau. Review of eligibility criteria

Research and survey results on eligibility criteria and private public partnerships for social housing publicized and disseminated to key stakeholders.

Development of guidelines on social housing specifying criteria for beneficiaries, model of construction, management and maintenance, regulations for monitoring the implementation of such projects.

The participatory planning approach applied to create a new housing model in Chisinau for socially vulnerable groups to be supported through future investment programs.

The activities identified in Table 6 will be carried out simultaneously over a 12-month period. The total budget is estimated at EUR 186,700 with Cities Alliance support of EUR 116,700. Every possible effort will be made to leverage additional donor support into housing sector activities, as well as to ensure possible synergies in the development of feasibility studies, action plans and dissemination in the three strategic areas— institutional development of HOAs, energy efficient rehabilitation of multi-family housing and new partnership for social housing provision. Co-financing is expected from UN-Habitat, USAID, World Bank (European Trust Funds), Council of Europe Development Bank and other donors. The financial contribution of the Municipality of Chisinau (cash and in-kind) is estimated at EUR 44,000.

Table 7 Budget estimates (proposed)

Budget Items Cities Alliance

Co-financing

City of Chisinau

TOTAL

Feasibility studies, policy advice, review of best practices, investment planning

Travel (10 @ € 1,500)1 15,500 15,500 Per diem, accommodation (10@€ 1820) 18,200 18,200 Professional Costs Consultants (€ 600 x 20 days x 3) Trainer (€ 300 x 5 days x 2)

36,000 3,000

36,000 3,000

Local Fees Manager, full time (€ 1,000 x 10 mo) Coordinators, facilitators (2 x € 200 x 10 mo) Research Analysts (18 x € 200 x 10 mo) Steering Committee (€ 100 x 2 days x 10 mo)x7

5,000 2,000

18,000

18,000

5,000 2,000

14,000

10,000 4,000

36,000 14,000

2 Surveys @ 5,0002 5,000 5,000 10,000 Travel/study tour (€ 1,500 x 7)3 5,500 5,000 10,500



33

Communication/Operation costs Copies, binding (€ 100 x 10 mo) 1,000 1,000 2,000 Telecommunications & courier (€ 150 x 10 mo) 500 1,000 1,500 Supplies, workshop materials (€ 300 x 10) 2,000 1,000 3,000 Translation (€ 200 x 10) 2,000 2,000 Publications, media outreach 4 3,000 1,000 1,000 5,000 Office space (€ 1000 x 10 mo) 10,000 10,000 Workshop, seminar facilities (€ 400 x 15) 6,000 6,000 116,700 26,000 44,000 186,700

BUDGET NOTES: 1. Estimates for a week long mission based on UN-Habitat rates 2. Surveys contracted out to local NGOs 3. Travel for municipal professionals in CEE to explore best practices in energy efficient renovation 4. Estimates based on rates for media outreach campaign in the Master Plan budget.

Total contribution requested from Cities Alliance is € 116,700 Total value of the project is € 116,700 (Cities Alliance) + € 26,000 (Other donors) + € 44,000 (Municipality of Chisinau) = €

186,700



34

References

Bouwcentrum International (2005) Modernizing High Rise Housing Estates in the European Union. The Hague: The Netherlands Ministry of Spatial Planing, Housing and the Environment. Council of Europe Development Bank (2004) Housing in South Eastern Europe. Solving a Puzzle of Challenges. Paris: Council of Europe Development Bank. Council of Europe Directorate for Social Cohesion (2003) South East Europe Housing Network Country Reports, Zagreb. Strasbourg: Council of Europe. Council of Europe Directorate for Social Cohesion (2004) South East Europe Housing Network Country Reports, Strasbourg. Strasbourg: Council of Europe. Economic Commission for Europe. 2000. Country Profiles on Housing: Romania. Geneva: United Nations Economic Commission for Europe. Economic Commission for Europe (2001). Country Profiles on Housing: Moldova. Geneva: United Nations Economic Commission for Europe General Statistical Department for Chisinau Municipality (2005) Chisinau in Figures 2004. Chisinau:National Bureau of Statistics Lampietti, J & Meyer, A. (2002) Coping with the Cold. Heating Strategies for Eastern Europe and Central Asia's Urban Poor. Washington, D.C.: The World Bank Municipality of Chisinau (2005) The Concept Master Plan for Chisinau. Chisinau: Municipality of Chisinau. National Bureau of Statistics (2005) Statistical Yearbook. Chisinau:National Bureau of Statistics National Agency for Housing and Real Estate Services (1997) Housing Survey in Chisinau, Balti and Orhei. Chisinau: National Agency for Housing and Real Estate Services, December National Agency for Housing and Real Estate Services (1998) Housing Stock Project. NAHRES Report. Chisinau: National Agency for Housing and Real Estate Services, December PADCO Europe, Ltd. (1997) Housing Preferences and Affordability Survey. Washington DC: PADCO Ltd. Republic of Moldova Ministry of Economy and Trade (2005) Poverty and Policy Impact Report 2004, Chisinau 2005. Tsenkova, S. (2003). ‘Housing Policy Matters: The Reform Path in Central and Eastern Europe: Policy Convergence?’ in Tsenkova, S. and S. Lowe (eds) Housing Change in Central and Eastern Europe: Integration or Fragmentation. Aldershot: Ashgate Publishing Limited, pp.193-205. Tsenkova, S. (2005) Trends and Challenges in Housing Reforms in South East Europe. Paris: Council of Europe Development Bank. United Nations Development Programe (2005) Moldova Human Development Report. Chisinau: UNDP World Bank (2005) Meeting the Millennium Development Goals in Europe and Central Asia. Background Report Moldova. Washington DC: The World Bank

Documents

Development Strategy for the Municipality of Chisinau...City Development Strategy for the Municipality of Chisinau Housing Concept Paper Sasha Tsenkova & Svetlana Dogotaru 6 art. 42