Housing Abroad: Central and Eastern Europe

Policy Reform in the Period of Economic Transformation

Before 1990, despite significant differences between states in the socialist countries, most of the economy was state owned and centrally planned. For housing, this meant strong state intervention directed at decommodifying housing by means of extensive subsidies for the construction of public housing, the expropriation of private residential property, and rent and price controls. These interventions created a segment of mass public (semipublic) rental housing, in which rents and utility prices were kept extremely low. Low housing costs made it possible to suppress the wages of the working population and, for some time, keep the socialist economies internationally competitive.

Public tenants were granted a high level of tenure security. No one spoke about “renting” but about [Page 321]the “right of use” of a flat. Right of use became a status distinct from that of tenancy: It was granted for an unfixed duration, and it could be inherited, transferred to relatives, or exchanged with other holders of user rights. This system of formal and informal user rights later became known as quasi-homeownership. As American sociologist Peter Marcuse has shown, the tenancy title that existed under socialism was close to the ownership title in the United States.

The centrally directed housing systems soon became marked by inequality (in housing allocations, people loyal to communistic ideology, the nomenklatura, were favored), structural inefficiencies, corruption, and abuse. The lack of private investment and the state policy of low rents quickly led to a rising housing maintenance debt. The ineffective allocation system generated an artificial housing deficit and long waiting periods. Prefabricated technology and uniform residential development plans were also used to remedy the discord between the demand for flats and the limited public resources. The construction of large prefabricated housing estates became a characteristic feature of the majority of socialist countries.

When socialism collapsed, national governments were able to retrieve pre-socialist specific national traditions. A whole range of reform acts emerged, along with a variety of housing policy approaches. However, there was one government objective that was rather shared by all the post-socialist states: to use housing as a shock absorber for the painful effects of economic transformation. As the state budgets became constrained by costs of other transformation measures, the only possible way to meet this objective was to preserve the institution of quasi-homeownership in the new market environment.

The first method, which became the most common one, was the giveaway privatization of public housing. Most post-socialist governments opted for the quick, mass, and centrally directed sale of public housing to sitting tenants (tenants legally remaining at a property that changed ownership) at giveaway prices. In fact, in some countries such as Estonia, Lithuania, Russia, Ukraine, Albania, Moldova, and others, the transfer was executed free of charge. The biggest motives were to establish a housing market founded on private housing ownership, compensate for wage suppression during socialism, and use housing as a shock absorber. There were a few exceptions. For example, in Poland and the Czech Republic, central right-to-buy was not passed, and public housing privatization was left to the municipalities as an open option. However, both Poland and the Czech Republic decided to retain the “socialist” form of rent control and tenancy protection for all running tenancies. Consequently, public landlords were unable to introduce any effective way of managing the housing stock that could save them from subsidizing it. With their hands tied by rent control and the quasi-homeownership entitlements of tenants, municipalities again started to sell their housing to sitting tenants at a low price.

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