The region underwent three simultaneous Transitions:

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The region underwent three simultaneous
Transitions

• From centrally-planned to market-oriented
  economies
  
• From stable, if stagnant, economies to countries
  now recovering from (sometimes deep) recessions
  
• From peaceful places to conflict (or proximity to
  conflict) and then to integration into the
  European economy

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But, this transition to Europe is still impeded
by

• Transition legacies They constrain the housing
  sectors contribution to the broader economy
  and
  
• The constraints, in turn, contribute to
• -unemployment
• -increased poverty
• -social distress

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Why is the Sector so Constrained?

• 1. Income plays such an important role in
  housing demand, and
  

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Until recently large amounts of deterioration
160
Russia 17-26
140
Albania 90-99
120
100
US 29-38
Moldova 90-99
GDP Growth
Albania 90-99
80
US 29-38
Russia 17-26
60
40
Moldova 90-99
20
0
1
2
3
4
5
6
7
8
9
10
Ten year period
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Now, however, things are changing
160
Russia 17-26
140
Albania 90-99
Croatia 91-00
120
100
US 29-38
Moldova 90-99
GDP Growth
Albania 90-99
Croatia 91-00
Romania 90-00
80
US 29-38
Russia 17-26
Romania
60
40
Moldova 90-99
20
0
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Why is the Sector so Constrained?

• 1. Income Deterioration

2. Urbanization patterns dictated by the old
regime.

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For example, some countries in SEE followed the
Socialist Urbanization Pattern Others Did Not
70
1990
Bulgaria
1990
65
C
A
Socialist Pattern
60
Macedonia
55
Croatia
1960
Romania
FR Yugoslavia
Urbanization ()
50
1960
B
Moldova
45
Bosnia-Herzegovina
40
Albania
35
10,000
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
0
GDP per capita (1990 US)
world except low income
Socialist
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But, not only did socialism affect the level
urbanization, it also affected the distribution
of population

• Within cities
• Across cities

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Within CitiesSocialist Cities are shaped like
doughnuts Market cities are shaped like hills.
350
300
Paris
250
Cracow
200
Population Density (p/ha)
150
100
50
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
Distance from city center (km)
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The Legacy of Socialist Spatial Distortions

• Housing was often built in places where it
  wouldnt be in market economies.
  
• Thus, adjustment will often mean that people need
  to move.

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Such movement will require new investments.
However

• There were low levels of housing and
  infrastructure investment for a long time.
  
• Housing production in 1999 was less than 40 of
  its 1990 level.
  
• Moreover, one third of the the transition
  countries are producing less than 20 of the 1990
  level, and by 1999 none had reached its 1990
  level.

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As a result, of the lack of investment
unemployment remains high
even though needs remain unmet.
Source SEE Online, ILO Statistics
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Why is the Sector so Constrained?

• 1. Income Deterioration
• 2. Urbanization patterns and perhaps most
  importantly,

3. Conflicts and Shocks
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Conflicts
19
Conflicts slowed integration FDI per capita
SEE Countries
Comparators
But, things are looking up.
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Thus, the current situation is one in which

• countries are beginning to grow after deep
  shocks
  
• places where people need to move and need new
  investment to do so but
  
• places which have had prolonged reductions in
  production and lack of maintenance

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So, if housing supply can respond to the growth
in income a virtuous cycle of growth can result
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Housings Virtuous Cycle in this Context
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II. The Dimensions of the Evolving Policy
Environment
To unleash supply we need to focus on
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The Evolving Policy Environment

• The legal basis of Private Housing
• Energy Pricing
• Housing Utility Subsidies

Financial Sector Development
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Now that the environment has evolved the vicious
cycle can be broken.So the Questions are

• How can this be done?
• Does the World Banks Experience offer any lesson?

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Overall Bank lending in SEE.

• 8 housing and land projects in the region for a
  total of more 280 million USD in lending 3 of
  these projects focus on reconstruction.
  
• This lending was part of an overall assistance
  program to the region of about 8 billion USD
  in.
  
• While there have been problems, performance has
  been very strong, all 6 completed housing
  projects rated satisfactory.
  

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Performance Has Been Strong, 1991-2001
ECA Housing
sat
100
ECA
Urban Bank
90
Bank
80
70
60
50
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Lessons from the Banks Experience
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Lesson 1 Project Performance is Affected by
Country Reform Progress
Performance on Bank Loans and Measure of Reform
Outcome, sat
Reform Index (Better Reformer Lower Number)
Source Freedom House- Nations in transit 2000,
EBRD Transition Report 2000
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• Thus, if Moldova can improve its environment to
  that of Bulgaria, it can expect projects, and
  their corresponding rates of return, to improve
  dramatically

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Lesson 2 Poverty in SEE Countries is often very
different from Traditional Bank clients.

• Life was fundamentally disrupted
• Services are often not widely available
• Urbanization and poverty are not related to the
  traditional rural-urban migration.
  
• The Climate makes the provision of heat a basic
  aspect of well-being.

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Lesson 3 To break housings vicious cycle
second generation reforms of the housing sector
are often fundamental.

• For example, large housing transfers result in
  very little new production.
  
• In addition, the public underpinnings for vibrant
  private sectors are not yet in place.

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Conclusion

• Housing policy sits at the intersection of
  fiscal, financial, social, and even energy
  policy
  
• More than most sectors, success in this sector
  requires a benign macroeconomic and political
  environment
  
• Now that such conditions have been realized
  housing reform represents an important and
  far-reaching second generation reform.