16 april 2012

Prime Minister Vladimir Putin chairs a meeting on housing construction in the town of Istra

Vladimir Putin

At a meeting on housing construction in the town of Istra

“I believe that current economic, administrative and other conditions in Russia provide a historic chance to turn around the situation in the housing sector. We have everything we need to do so today, including land, financial and administrative resources.”

Transcript of the beginning of the meeting:

Good afternoon, colleagues. We will discuss a critically important issue today, housing construction in Russia. I believe that housing construction should become an essential part of the work performed by all levels of authority, from the federal to the municipal, in the coming years and perhaps even decades. We have knowledgeable experts in construction and the economy here. I hope that you share my perspective that current economic, administrative and other conditions in Russia provide a historic chance to turn around the situation in the housing sector. We have everything we need to do so today, including land, financial and administrative resources. Certainly, we need to initiate steps that will help us move forward quickly and carry out high-quality construction projects. It takes about 30 months to prepare construction-related paperwork on average, whereas the Russian Housing Development Foundation does so in 11 months. Do you see the difference? I’m confident that the foundation’s work can be further improved. We will now discuss other parts of this work, such as financial support, land arrangements and so on.

As you are aware, I focused greatly on this topic during my speech at the State Duma last week. Resolving the housing issue in Russia will take quality of life to a new level, open new demographic, social and economic horizons to the Russian people and facilitate the balanced development of Russia’s regions. There’s one more advantage to it. Removing annoying barriers in the construction sphere will come as an important performance indicator of our efforts to improve the investment and business environment in Russia. Let me make it clear that cosmetic   half-measures will not do if we want to effectively resolve the issue at hand. I would like everyone in the audience to realise that we need to turn the situation around. We can’t afford to spend years on getting construction approvals and permits, because our people are ultimately affected by these inefficiencies. We have the capacity to build a lot of houses at affordable prices, but we are not using it in full.

I believe that I have already mentioned in the Duma and at other public forums that according to the Doing Business ratings, Russia is ranking 178th in the construction industry. What kind of work is that? This is simply shameful!

It is particularly important to support the construction industry now that it has almost regained its pre-crisis levels. Last year, the housing commissioning rates increased by 6.6%, with 62.3 million sq m of commissioned housing which is slightly below the peak figure of 64.1 million sq m that we had in 2008.  In 2012, we need to build about 67 million sq m, and by 2015, as I said before on many occasions, we should be able to build 90 million sq m of housing annually. That’s about 1.5-2 million houses or flats of the most popular low-rise, modern and comfortable economy-class housing. Of course, there is an economic problem here: as we know, the global financial crisis began with a bubble in the construction industry. It’s imperative that we do not repeat the mistakes made by other countries, in particular, the United States, as we step up our construction efforts. There should be zero price bubbles in the construction sector. Instead, things should be balanced in the economy and at construction sites.

Let me reiterate: we should make it possible for a large number of Russian households to solve their housing problems. There should be no administrative, bureaucratic or corruption barriers on the way to achieving this basic goal.

According to the Ministry of Regional Development, about 23% of Russian households were able to solve their respective housing problems in 2011 as compared to 9% in 2004. In other words, we have more than doubled the construction volume and housing available to our people.

There was some progress lately. For example, developers now can have their projects assessed by both public and private experts. In the future, we may be able to do without compulsory expert analysis of construction projects and increase developers’ liability for the safety of buildings and structures. You know and I know that buildings used to collapse and tragedies happened before too, despite stacks of technical requirements. The issue is not about bureaucratic procedures; it’s rather about sound organisation of the construction process.

Next. We have taken a decision to extend the duration of technical requirements governing the hook-up of new housing to utilities. You are aware of this. In addition, the State Duma is considering amendments that will streamline the allocation of building parcels. According to the Ministry of Economic Development, these amendments will cut the approval time for documents from 12 to 1 month, and the time it takes to prepare decisions on the provision of building parcels from 60 to 10 days. I would like to ask my colleagues who are in charge of this issue to keep tabs on this process and to keep in touch with the Duma deputies. The Duma is expected to consider this document in late April. Of course, this is the right way to go.  

I am convinced that plans to remove administrative barriers, approve area planning arrangements and attract private investors to the housing and utilities sector adopted by the government and, most importantly, full and accurate implementation of these plans in each region and municipality will bring about tangible results. In this regard, I would like to urge heads of federal and regional administrations to take actions provided by this plan in a meticulous and timely manner. In addition, we also need a system-wide breakthrough in the development of housing construction. This is exactly why we have identified the most problematic areas in our nationwide entrepreneurial initiative. We proposed using the capabilities of the Strategic Initiatives Agency in conjunction with the business community to develop a road map to improve the investment climate in the sphere of construction. We will have preliminary hearings about this work today in order to be able to take a decision on a draft road map at the next meeting of the Strategic Initiatives Agency’s supervisory council.

There are certain things that I believe are of paramount importance, and I would like to call your attention to them. First, it’s imperative that we preclude the emergence of new barriers instead of the ones that we are about to remove. Unfortunately, this is often the case: we adopt a series of measures to eliminate certain barriers, but new ones appear shortly after. Certain administrative officials just have a knack for coming up with such creative ideas. In this regard, I suggest that a final, exhaustive list of construction-related administrative procedures should be adopted at the federal level.

With regard to regions, municipalities and housing maintenance and utilities organisations, as well as power grid companies, any additional procedures that they might want to introduce must be agreed in strict compliance with existing regulations in order to preclude any and all unauthorised bureaucratic activities.

Second, we have gained extensive experience in the comprehensive development of land plots allocated for construction. The Russian Housing Development Foundation is very active in this area as well. Last year, we inspected its high-rise development replete with corresponding infrastructure in Kirov. Today, I had the chance to see how the work is being done here in Istra. As we know from previous experience, projects tend to be completed fairly fast if all the participants of the construction process, such as local authorities, builders, designers, construction oversight authorities, banks, utility and infrastructure companies, work in a coordinated manner. In fact, the Russian Housing Development Foundation is good at this. Therefore, I propose forming a uniform regulation governing interactions between the participants of construction projects that are being implemented under regional housing programmes. Such a regulation should include a clear description of mutual undertakings and approval deadlines, so that there is a basic understanding of the time it takes to hook up a newly built house to utilities or for a bank to decide on issuing a construction loan and so on.

We also need to ensure that local governments are duly performing their duties with regard to working with general layouts in their settlements. Unfortunately, as you are well aware, we have left things largely attended in this field, which slows down development projects and leaves room for non-transparent, so-called individual-based decision-making for each new project.       

Third. We are implementing housing programmes in every region of the country. I believe we should provide greater support to those regions that have achieved the best results in housing construction. As part of the federal targeted programme Housing, we have allocated about 21 billion roubles to support the best performing regions, is that correct Ms Nabiullina (Minister of Economic Development)?     

Elvira Nabiullina: Over 21 billion roubles.

Vladimir Putin: Initially, it was 21 billion…

Dmitry Kozak: It is 21 billion roubles for the entire period. Three billion roubles per year.

Vladimir Putin: We have a meeting on budget planning scheduled for this week, let’s consider this at the meeting.

Today, I would like to say that the lack of necessary social and utilities infrastructure is the main factor responsible for the slow pace of development projects. In this regard, regional programmes should be laid out in more detail.

After inspecting the low-rise development project today, Mr Gromov (Boris Gromov, Governor of the Moscow Region) asked me: “It looks very nice on paper, the kindergartens and other facilities, but who will be funding all this?” I told him that it should be the region.

To which he said that the region is funding housing projects for the military, but for this project they want the issue to be solved differently. And the same thing is happening in St Petersburg, in the Leningrad region, in Kaliningrad, in the Urals, and the Far East. Therefore, we need to think this issue through and take a final decision.   

Obviously, under no circumstances can we allow a situation wherein we will be building housing without furnishing it with roads and social infrastructure facilities. We cannot leave people without stores, outpatient clinics, hospitals, kindergartens, and schools. This was often the case in the past, but we should not be doing it today. Therefore, we need to think in advance how to deal with issues in a comprehensive manner.       

We have been talking about actively engaging self-regulating non-governmental organisations in the construction market. I believe that we should be actively developing non-governmental oversight structures.

Decisions taken by such agencies on the compliance of the newly built facilities with technical requirements should have the same status as the decisions of state construction oversight agencies. At the same time, construction companies should be increasingly held accountable for the quality of their work, which also includes financial accountability. It would be right to specify that the construction company guarantees property owners that the building fully complies with the requirements of the project documentation.     

Fifth. We need to make available a great number of new land plots for construction projects. This is a very important issue. For this purpose, I believe we should be actively using the experience and capabilities of the Russian Housing Development Foundation. In this regard, we need to consider the possibility of granting it additional powers.    

Today, federal land managers are artificially delaying the transfer of land to the foundation citing a lack of resources to properly delineate the plot boundaries and to include it in the cadastral register. It is definitely a costly procedure, which requires a certain amount of effort and money. This is understandable, but if they are lacking funds…  

Quite often, however, they are simply not interested in transferring the land, but rather want to sell it later. I am not referring to corruption here, just a bureaucratic interest, the desire to sell the land and use the funds in the interests of their agency. These bureaucratic interests are understandable, but in this case and for these projects we must be guided by the public interest. Mr Braverman, I think you and your foundation should be able to cope with this.  

Alexander Braverman (Director General of the Russian Housing Development Foundation): Yes, Mr Putin, we have extra-budgetary funds that we can use for that purpose; we do not have budget funds. We can deal with these issues.   

Vladimir Putin: Very good.

In addition the foundation should be able to draft proposals for expedited inclusion in the market of the vacated lands and the property located on them that were formerly owned by the Ministry of Defence. The ministry has been vacating lands, but unfortunately it often takes too long before they are used for construction projects in the region.   

I also think that the foundation should get involved in the projects to remove industrial facilities from the cities, relocating them to new areas. This will provide cities with additional development space and help deal with transport and environmental issues. Obviously, I would like to emphasise this to everyone present here and first of all to Mr Braverman that people should be provided with jobs in advance when implementing such projects.   

But most of the time, and you are also aware of this, we are talking about the industrial facilities that have long since ceased to operate, they have been abandoned, and there is no real production there. But they continue sitting on the land and are still connected to the power grid. That is why we should first of all focus on these facilities. In general, we should deal with this issue, but – as I said earlier and would like to reiterate – on condition that the interests of the people working at that facility, if it is still operational, are protected.      

Sixth. As I have mentioned earlier, we need to develop the rental housing market. For that we should stimulate the creation of specialised companies, improve tax laws, and implement comprehensive measures that will guarantee the rights of long-term renters and ensure that they won’t be asked to vacate the housing in violation of the existing arrangements. We need to ensure stability in this market. We also need to create a social housing stock.      

In conclusion, I would like to mention another important issue. We need to pay the most serious attention to the maintenance and renovation of the existing housing stock. In this regard, we should develop professional management companies and prescribe a liability insurance mechanism for these companies. In addition, we should stipulate in the law the requirement for these companies to join professional self-governing associations.    

To fund scheduled major repairs of residential housing in the regions, a system needs to be put in place that will ensure the accumulation and, most importantly, the security and targeted use of the funds, allocated from various sources, including payments by residents. Unfortunately, far from all regions are following these steps. Quite often they raise funds from the residents, but fail to use it properly for months and even years.   

Creating such a system will be a requirement for the regions to obtain funding from Housing and Utility Services Reform Fund, the activities of which have been extended until 2015.

But I think it will continue to operate beyond 2015, as the volume of housing in need of repairs is extremely large. I am not going to provide figures here, but I know that in many regions they have not done any repairs for decades, for 50-60 years. The renovation programmes funded by the fund make a real difference for people who have been living in such housing.   

Therefore, we will be considering ways to extend the fund’s operation. Ms Nabiullina, we will soon be working on the budget and will need to include these expenditures in it.

This is what I wanted to say in my introductory remarks. Mr Basargin has the floor. Go ahead please.

Viktor Basargin:  Thank you.

Esteemed Mr Putin, colleagues. We have prepared proposals together with experts, with development institutes, on considerably increasing housing construction and on removing administrative barriers. In line with the tasks you set forth in your article “Building Justice: Social Policy for Russia,” I would like to say that, as you have already noted, since 2010 the Ministry of Regional Development has been solving many problems that impede construction together with our colleagues. Now the major obstacles, as we call them, are the issues of property and land relations, issues related to connecting to infrastructure, and the improper enforcement of laws at all the levels – municipal, regional and federal.

The regions have their own peculiarities. In Moscow, Krasnodar, St Petersburg, and other administrative centres, for example, business is mostly worried about the burden and the high prices of utilities infrastructure. In most other regions with less construction under way, the obstacle is precisely the lack of that kind of infrastructure, lack of stable demand and limited availability of financial resources. These are our major problems.

The situation is aggravated by the fact that procedures regulating construction activities are currently worked out or monitored by twelve federal agencies. As a result builders keep on visiting different federal bodies in their localities to comply with unnecessary and occasionally duplicating requirements and approvals despite the ban on this in the Construction Code.

While preparing the document you mentioned, we have used the methodology of the World Bank and an analysis of 43 cities. We have arrived at a list of 33 minimally required approval procedures in residential housing. Currently there are 100 approvals if not more.

We call this project Normative City. As a result, the time it takes to go to the construction site and start construction will decrease from the 946 days you were speaking about to 367 days, that is, it will decrease 2.6 times. Each of the remaining procedures will be further refined to reduce time and to ensure transparency. We expect that this consolidated list, Mr Putin, will be enforced by your first executive orders, which you spoke about in the State Duma.  All of these documents have been prepared and are ready as of today.

We have also figured out how to cut those 30-plus procedures to 12, and this is a real road map that will change dynamically. That is, we are planning to make this process last 180 days. Today 16 of the 33 procedures concern connecting to four types of networks. I believe there is also an opportunity for streamlining in these areas as well, and I’ve just discussed with Sergei Shmatko how to streamline all those procedures.

The next proposal that you noted concerns creating a culture of personal responsibility among decision-makers: head engineers of projects, chief architects, experts, and, most importantly, the inspector, the one who will be monitoring the quality of the work performed. Personal responsibility should be promoted as a guarantee as well as the creation of public registries and an accreditation procedure for professionals. This will make it possible to shed numerous redundant control procedures.

Business often sees conflict between private and public interests as a barrier. In this regard, Mr Putin, we suggest town-planning legislation be separated into territory development planning and procedural legislation on construction, i.e. the issues of location will be resolved and agreed on at the stage of town-planning documentation review, whereas everything connected to construction proper, and this includes the technical audit, will be resolved in the process of construction.

Concerning organisational measures, we propose starting as early as 2012 to, first, (and you also noted that) approve standards for deals with monopolists which will ensure oversight and transparency of those deals, i.e. a guarantee of sale in exchange for waiving the connection fee, that is, this is also a comprehensive list of all the procedures to be followed from the point of view of infrastructure organisations that supply resources. Second, fine-tuning the institution of investment agreements, which establishes a complete list of the developer’s and the authorities’ liabilities during the construction. All this is related to the administrative pressure from municipalities or regions. Third, introducing the institution of non-government construction monitoring, which will result in the issuance of an evaluation authorising the commissioning of the constructed facility. Leonid Kazinets (chairman of the board of directors of Barkli Corporation) and I looked at it, and saw that commissioning a facility now takes 170 days, so if we introduce such an institution, it will save at least half a year.

The next important issue is land. As you noted, we do not suffer from lack of land. We lack land prepared for construction. Land surveying has not been completed yet, there is no inventory of previously surveyed plots, we do not have coordinated schedules governing the timeframe and order in which plots with engineering infrastructure are provided. In our view, the work of the Russian Residential Housing Construction Fund should not only be fostered, but also its model of operation should be adopted at the regional level, i.e. promoting the establishment of regional funds for the development of housing construction in the regions. We have good examples of this practice in Tatarstan, Belgorod and a number of other regions, and this experience is positive.

Last year we completed the second level of federal housing policy within the framework of the regional programmes. That experience speaks for itself. We believe such programmes should be made mandatory and introduced in all the regions, including by legislation. Last year we completed all those programmes on a voluntary basis with all our development institutions.

As part of the regional programmes we suggest that the demand for individual housing construction be analysed, i.e. applications should be collected from all citizens willing to participate in building a private home, as well as measures on the free allocation of land plots for individual construction and also on setting up a reserve of plots that might be required for housing construction within the following year.  

Then, we think, the third and the main municipal level of housing programmes should be introduced based on the general layout of the communities and cities. Municipalities should be obligated to approve measures on synchronising the development plans of natural monopolies with town planning within six months of the adoption of the general layout.

In fact, Mr Putin, we confronted outrageous cases in which a single customer approved the infrastructure development plan and the territory development plan, and those two programmes were completely at odds. This is absurd! That is, we provide an investment tariff and build infrastructure but it in no way ensures infrastructure for housing construction. We think that in the coming six months such problems should be totally eliminated.

We consider it reasonable to discuss financial support for such work. The priority should be given to the comprehensive development of the territories. To ensure advanced infrastructure for land plots we have to set up the institution of land developers, to separate land plot formation into a separate business which will not be affiliated with developers, i.e. public-private partnership pattern should be established based on the principle “land in exchange for a square metre.”

The developer should join in the process when everything can be totally calculated, that is we have papers ready on the territorial layout, the plot is connected to utilities, and there is a clear plan for building transport and social infrastructure.

You have mentioned the recalculation of the federal targeted programme for the promotion of infrastructure development. We believe that funding for infrastructure and comprehensive development projects also needs to be increased. The regions that implement housing programmes successfully must be provided with state support per each square metre under construction. This will require about 70 billion roubles. All regions are prepared to provide an additional 1,000 roubles per each 1,000 roubles of federal funds today. Thus, the cost of housing construction will be reduced by 10-15%, according to the proposals you made in  your article.

Such state intervention on the investment market could be conducted through Vnesheconombank or some other development institution’s specialised programme for investment in utilities, transport and social infrastructure. This will remove a considerable restriction and make it possible to increase the area of the plots under construction by 50-67%.

As for the new materials, we approved the strategy for the development of the construction materials industry almost a year ago. We discussed this at a government meeting in the summer. We analysed the deficit in each federal district and made this information available, and now we believe that everyone can see where construction businesses need to be established. Obviously, this information will be in demand, but so as not to waste two or three years we should together with the Federal Antimonopoly Service carry out an analysis and take measures to demonopolise the construction materials market in 2012. At the same time, control over the growth of tariffs for transporting construction materials needs to be introduced for 2012-2014, as the cost of materials doubles as soon as you load them on the train to be shipped. It’s impossible to work under such conditions!

We believe that the development of regional institutions of exchange trade for basic construction materials will produce an additional effect. The prohibition on selling construction materials in regions without exchanges will also help us to combat local monopolistic markets. These measures will reduce the cost of construction materials by 15-20%.

To promote the growth of innovation activity, we propose introducing accelerated amortisation of fixed assets and regarding investments as expenditures while implementing new technologies. The existing regulatory system will enable the introduction of new technologies onto the market within two months. Purchasing housing for state requirements on the primary market only and only the housing that was built using new technologies will increase housing supply and lower its cost. To live up to our commitments to certain groups of citizens, Mr Putin, we spend up to 80% and more on purchasing housing on the secondary market, thus heating up the secondary housing market and jacking up the price of a square metre.

Another issue is what should be built and where. We believe that today a layout of Russia’s territorial planning for residential areas is as relevant as ever. As for the second part of the question – what should be built – more than a half of Russian citizens would like to improve their living conditions. Still, only a quarter of them can do this in reality, even with the use of loans. We have recently reached this indicator, 24-odd percent, but it doesn’t make it possible to substantially increase the construction volume. Demand needs to be promoted at all levels, including at the middle class level.

We have singled out three basic social groups and we assume that each of them requires its own tool for the implementation of housing policy. This is social rental housing for vulnerable social citizens and state employees who account for 16% of all those who need housing; rental housing for reasonable price, including corporate rent, for citizens who have higher income than the first group but cannot afford to buy housing (these are 53% of all those who need housing today); and individual housing for reasonable price for citizens with income that allow them to buy or expand their housing in the long term (this is about a third of all those who need housing).

To increase housing supply for socially vulnerable citizens, privatisation needs to be completed. The state should only provide social or rental housing with the option to buy. We expect that buying will be possible only for large families, which will become owners of this housing if they have a third, fourth or fifth child (it depends on the norm we will establish here).

Vladimir Putin: We won’t establish any norms.

Viktor Basargin: We will start with a third child then. The construction of social rental housing by private companies is possible along with the provision of a private plot of land equipped with the necessary infrastructure. This is our number one priority. Given a guaranteed profitability of 10% and tax benefits, these conditions are attractive for many investors. Mr Putin, we will need 200 million square metres of social housing to resolve this issue. There will be investors for such volumes of construction under such conditions – we have discussed this with developers. We could use a similar pattern for the construction of rental housing. Considering the scale of the task (demand for rented housing may be up to 700 million sq m) it would be practicable to create a single state customer in the market of housing for state needs, a state housing corporation, or to see if our current development institutions could be transformed to fit that purpose. To develop corporate rent we propose to support businesses that rent housing for their staff; we believe it would be reasonable to allow them to write off the cost of renting housing for their staff as production costs.

For people with above-average incomes we should create a new affordable product, for example, widespread construction of low-rise housing (we have discussed this with the association) at the price of 2-3 million roubles per family. In order to concentrate resources for creating that product we propose to set up a standard pool of financial benefits for banks, insurance companies, businesses and buyers of housing who are prepared to join these state projects. The main instrument should be reducing the rate of mortgage loans. That can be achieved only under the following conditions. First, to issue mortgage loans with the down payment of above 30% without reserving assets with the Central Bank, which will put mortgage interest rate at 3-4% below the interest rate for commercial loans, i.e. about 8% a year.

Second, we believe it is necessary to create a state housing construction bank, with the state investments in the new agency to be repaid later. Third, we believe the operating bank’s margin should be fixed at 0.5%. This year we did not use up the VEB money, the so-called benefit money, when the VEB issued the operating bank loans at 3-4.5% while our developers got that money in the shape of a commercial loan at between 11% and 17% interest, so we believe that the operating bank must have a fixed margin of 0.5%.

Fourth, it is imperative to stimulate the regional easy-term mortgage loans programme for population groups involved in priority state policy areas, i.e. young families, rural teachers and doctors. We need programmes that guarantee a 5% mortgage rate. We have developed such products with Alexander Semenyaka (Director-General of the Agency for Housing Mortgage Lending) but on condition that financial resources are accessible and the state provides guarantees. Then we can issue a mortgage loan at that level. All this will increase to 35% the share of people who can afford to buy housing either using their savings or by taking out a mortgage. According to our calculations the proposed set of measures will make new housing affordable for 60% of families; it will improve the standard of living and balance the development of territories by offering a social perspective. To prevent the proposed measures falling within the competence of different ministries and agencies, as is the case today, it is necessary to adopt a decision on establishing a single state institution that lays down the rules of the game in construction. If there is a single decision-making centre, there will be a single centre of responsibility. We should draw on the post-war experience of Germany, where the creation of such an agency and state support for the building sector to the tune of 30-50% of the total amount of investments solved the housing problem within several years. We believe that all these measures will help to develop the building sector. Thank you.

Vladimir Putin: Thank you. We need to make sure that all these proposals, at least the key ones, do not remain on paper but are translated into the resolutions of the government and possibly of the president.

Viktor Basargin: We have drafted some of them so that they could be included in your early resolutions as president.

Vladimir Putin: Good. Elvira Nabiullina, please.

Elvira Nabiullina: Mr Putin, colleagues. I would like to touch upon some issues connected with the granting of plots of land for housing construction. There are several problems involved, and I will first name these problems and then speak about the measures we are proposing to solve them.

First. Not enough plots of land are offered for auction. Last year local government bodies offered only 3000 plots of land for auction for housing construction. That is a drop in the ocean for a country as large as ours.

Second. We do not have a procedure for making plots of land available without auctions to rural  residents, those who run private farms where there is practically no demand for land and there are no procedures for making plots of land available for the construction of individual homes.

Third. We have a considerable amount of unused land belonging to federal institutions and enterprises – in fact, not only federal, but I am referring now to federal lands that are not used and are located in or around cities and thus obstruct the development of cities.

Fourth. A large share of land is federal land that is leased or sold without auction by the owners of the buildings that stand on these plots of land. Accordingly, municipalities are not motivated to sell these lands because they are federal property. What measures do we propose? A draft law on all these matters is being discussed in preparation for the second reading.

First, as regards increasing the amount of land put up for auction. There are three factors today that are holding back this process. First, a lack of resources for infrastructure development; second, the absence of approved standard documents on the layout of the plot of land; third, municipalities are able to transfer these plots of land in in alternative ways, bypassing auctions, and not for housing construction but for various other purposes. Therefore we propose to ban the transfer of plots of land without auction and exempt from the auction requirement only the areas reserved for linear infrastructure: transport, power transmission lines and social facilities. By the same token, individuals and legal entities and enterprises should have the right to apply for the holding of an auction making it obligatory for local government bodies to put these plots of land up for auction within three months. This is easy to do if the plot of land has been registered and entered in the land registry. But even if it is not in the land registry the applicants can carry out registration procedures at their own expense (businesses can afford it) – they need not be very burdensome for business – and establish the same period of three months for putting up a plot of land for auction following an application. That is the first measure.

Second, measures to provide plots of land to rural residents. In order to create an incentive for young university graduates to move to rural areas we suggest that they be offered land without auction for building individual homes, running a private farm, or having a private subsidiary plot. But to prevent abuses we propose that these plots be offered free to be used for five years following which they have the right to take out a land deed. The regions should be given the right to establish a list of municipal entities that are allowed to do it (because it makes no sense to use that procedure in big cities and big communities) and the categories of recipients, the occupations whose members are entitled to receiving land on such soft terms.

Now let us look at what are effectively abandoned lands of federal enterprises and institutions. These are plots of land that used to be owned by defence and security agencies and agricultural lands, as well as industrial lands that are located in city centres. We propose to introduce an extrajudicial procedure of seizing unused lands from state unitary enterprises and state institutions. At present we only have a court procedure, and it is a very time-consuming procedure, which makes things difficult.

The fourth measure is truly very important: how to provide economic motivation for local government bodies to sell land and develop transport and social infrastructure? Prior to 2005 the plots of land under enterprises that were federal property were privatised as such. In some municipalities the share of federal land exceeds 50%, i.e. the municipalities practically cannot dispose of the land resources that they have. We propose to transfer to the municipalities all the federal lands that are used solely to derive income from the rent or sale and are not reserved for federal needs…

Vladimir Putin: But we should make sure that they are not kept by municipalities for needs other than construction. There must be a procedure so that in transferring these plots of land we could be sure that they will be used for housing construction.

Remark: In a strictly targeted way.

Vladimir Putin: Yes, probably.

Elvira Nabiullina: On the one hand, it can be targeted use. I will say in a moment how in my opinion we can motivate the municipalities. But if we transfer federal lands to the municipal level, we have assessed in a tentative way the revenue shortfalls, because at present the federal budget receives about 5 billion roubles in rent. But in effect that would be a resource that we transfer to the municipalities for the purpose of infrastructure development. I think it makes more sense than giving them subsidies instead of letting them dispose of the resource that they have. It is better to let them have this resource. I think there is much to be said – and I support Viktor Basargin on that – for creating agencies that will work with plots of land at the level of regions and municipalities, structures similar to Alexander Braverman’s. And of course, municipalities must be motivated to derive incomes from that property. We have already suggested that incomes from real estate must go to the municipalities and we believe this holds a promise. The government is currently discussing the option of having the tax on the incomes of individuals paid not at their place of work, but at their place of residence, and then the municipalities will be interested in expanding their revenue base. We have prepared a draft law to the effect, it is being prepared by specialists for the second reading.

I would like to say that we have run into one problem: we will have to harmonise this law with the new version of the Civil Code, which has been submitted. We will try to complete that work as soon as possible.

There is one more important and perhaps controversial topic. I would like to raise it here. We have prepared a draft law that abolishes the division of lands into categories. This has been a long-standing institution. I may remind you that the introduction of land categories was prompted by our wish, on the one hand, to prevent chaotic development of territories (only in accordance with the categories), to protect and preserve agricultural land, and to protect the forests and natural reserves. As for natural reserves, we already have a separate law that regulates these issues. As for lands under forests we believe that we could include in the draft law the requirement of changing the boundaries of the forest stock without easing requirements.

As for agricultural land, having this category of agricultural land does not in fact solve the problem. We see that agricultural lands are being developed chaotically without changing the category of that land. Particularly valuable plots of land that are needed for agriculture are not distinguished in any way from those where construction can be carried out. Therefore in our opinion having the category of agricultural lands does not solve the problem. We propose to introduce a separate category of very valuable agricultural lands that we must preserve in the country in order to ensure food security. For other lands we should impose regulations allowing the development and building of roads and agricultural facilities.

However, we must resolve the contradiction that exists today. We have division of lands into categories and the Urban Development Code envisages zoning indicating allowed modes of land use. In reality the powers are distributed differently between government bodies in different places and as a result there are ample opportunities for fishing in troubled waters. There was a time when we imposed tougher requirements to the transfer of land from one category to another, for federal lands we also need a government decision, but that is in fact an administrative barrier in the way of normal construction. As soon as we simplify regulations problems arise. In our opinion, we should pursue further the topic of legal zoning. It should be detailed and verifiable so that businesses should understand what can be built and what can be done on this or that plot of land and we would like you to support our proposal to give up land categories.

The next thing that in our opinion can facilitate infrastructure building (for any purposes, for housing and non-housing construction). In order to enable us to build utilities infrastructure, communication lines, a separate plot of land should be allocated. Sometimes this land is condemned (it takes up to five years to condemn a plot of land and then build infrastructure) and sometimes without condemnation: you allocate part of the owner’s land and lease it, that takes up to three years. That involves huge financial outlays and it takes time; as I have said, in effect it is a brake on infrastructure development. We propose to introduce the normal institution of servitude when there is no need to form a separate plot of land with condemnation and subsequent allocation, and when a zone for limited use of a private plot of land is identified and a contract on compensation is concluded. In our opinion, this will reduce the time it takes to do the paperwork to make land available for infrastructure development to three months and the cost by up to 12 times. We see instances – we have looked at communications lines – when building takes a month but doing the paperwork for the plot of land takes five or three years… Something must be done about it. Servitude is used in many countries and if we could develop it, that would be very useful.

The next area, matched by a separate draft law, has to do with the auctions to sell plots of land in order to cut the price of a square metre of residential space, so that the plots of land… so that the winning bidder should be the one who offers the lowest cost for building a square metre of housing. And we are developing a separate draft law for Alexander Braverman’s Fund, but we believe that the procedure should be applied not only to the fund’s land, but to all lands. We believe this is how we should act in the future.

There is one more theme that is frequently raised by the construction business and it is partly connected with the granting of plots of land. Many plots of land have not been registered with the land registry. The Land Registry at present includes 60 million plots of land, of which 30 million have poorly defined boundaries; this was done prior to 2000 and the coordination procedure was not followed closely, the boundaries were not properly agreed with the neighbours, and it is very difficult to make transactions with these plots of land, and even determining the precise boundaries could cost 30 billion roubles. Why do I cite that figure? Not because we should rush to allocate the money and to determine precise boundaries. It has been suggested that we should somehow get rid of the notification principle of registering plots of lands. At present the potential rights holder may or may not register his property, he or she is under no obligation to do so, therefore registering a plot of land and describing it (something that other countries have been doing for centuries, which is how they have formed their land registries) involves huge cost. If we want to bring these plots of land (not only privately owned, but also those of municipalities, institutions and enterprises) into circulation they need first of all to be registered. We propose either making the rights holders, including Federal State Unitary Enterprises and Municipal Unitary Enterprises, register their lands and incur the corresponding costs (which will be considerable) or putting the burden on the municipalities. But this problem needs to be resolved because if the notification-based principle stays in place these plots of land will remain unregistered for a long time. In my opinion, it would be wrong to have the rights holders – individuals and businesses – shoulder the cost because when they acquired their land they had no idea what the imputed cost of registering it would be. But that is just one option to be discussed.

Another option, of course, is to combine it with the transfer of revenue-generating sources to the municipalities (because land is also a source of revenue) and to give them the right, and in some cases oblige them to register these plots of land so that, among other things, taxes on these plots are paid. This question is currently being discussed by the experts. We need to choose between the two options. I for one am leaning towards the second option.

Vladimir Putin: Say that again.

Elvira Nabiullina: The first option…

Vladimir Putin: No, no, what is the second option?

Elvira Nabiullina: Under the second option the municipalities would have the right to register and describe plots of land even if they do not possess the rights (we cannot speak about ownership because ownership has not been registered in this case), those that are owned by private individuals and companies as a future taxable base so that they would finance the description of the plot of land and its entry in the land registry. But that will cost money, it would require a corresponding timetable to be set for it.

Vladimir Putin: They will say that they have no money and that will be the end of it. Everything will grind to a halt.

Elvira Nabiullina: They may, but it is a chicken and egg situation: if they don’t have the money, then there will be no taxable base until they register the plot of land. When we transfer incomes, property taxes to them…

Vladimir Putin: Do you think this is too expensive and burdensome for the owners?

Elvira Nabiullina: It is too expensive for individuals. We may consider it for legal entities.

Vladimir Putin: Legal entities.

Elvira Nabiullina: But then it would be unfair.

Vladimir Putin: Why is it expensive for individuals?

Elvira Nabiullina: Because registering a plot of land is not about obtaining a certificate. You have to summon a cadastral engineer to measure your plot and secure agreement…

Vladimir Putin: Why can’t we subsidise that work?

Elvira Nabiullina: But that would mean budget outlays.

Vladimir Putin: How much?

Elvira Nabiullina: I have mentioned the figure of 30 billion, that’s only for the plots of land that are registered but need to be verified. And we do not even know how many unregistered plots of land there are. We have no idea how many and cannot even make an assessment. But we are talking about tens of billions of roubles, at the very least.

Vladimir Putin: Are you sure it’s that much? You see, like in many other spheres – education, healthcare – when we shift that burden to the municipality, nothing gets done. And within 10 years things get run down and then we begin to develop some federal programmes. We begin supporting primary healthcare and schools because everything quickly runs to seed there. The municipalities are strapped for cash. We will either have to give them money anyway or we need to bring in owners and subsidise them partially. The second option may even be cheaper because owners will invest at least some of their money in this work, I mean those who are interested in formalising their ownership of the land.

Elvira Nabiullina: We might then end up having to subsidise every individual.

Vladimir Putin: Why an individual? Subsidise the organisation.

Elvira Nabiullina: Many of the owners are individuals.

Vladimir Putin: I understand, but we can cut the rate for them and that’s all. Viktor Basargin was speaking here now and he said that the bank involved in this type of activity needs a rate of 0.5%. I’m not saying that’s fair, I’m just listening for the moment. Perhaps it is not enough. But we can think about it and impose some limits, especially if we are helping financial institutions. We are helping them and the provider of services can be partially subsidised.

Elvira Nabiullina: We will examine that option, although in my opinion subsidies are best given to the consumer who buys the service because otherwise the cost will be overstated, but we will think about it.

Vladimir Putin: All right, this is an option.

Elvira Nabiullina: Yes.

Vladimir Putin: This is an option but it would be more difficult to deal with every individual…

Elvira Nabiullina: To administrate every…

Vladimir Putin: Administering is more complicated, but the first option is easier to administer: you are right, they will use up the subsidies and do everything the wrong way. One can follow different paths, but I think it would be dangerous to make ourselves dependent on municipalities, they are not going to have the money. Or else we will end up having to allocate them money from the federal budget. So we will have to allocate money either way. We should simply make calculations and decide what is more effective. Under the second option, the owners will at least sustain part of the cost.

Elvira Nabiullina: I proceeded from economic motivations because when we incentivise an individual or a company to register their property, if they don’t want to sell it they have no motive to register it, but if the municipality registers that property it stands to gain something out of it because it will get extra tax revenues… I understand that this sounds right in theory but…

Vladimir Putin: Elvira, but if an individual does not want to sell you can’t force them to sell after the municipality has registered it? As it is…

Elvira Nabiullina: We can tax them…

Vladimir Putin: Yes.

Elvira Nabiullina: And if a Federal State Unitary Enterprise has registered unused land we can seize it through administrative procedures.

Vladimir Putin: I understand, but our main aim is not financial, but to promote the construction market.

Elvira Nabiullina: I agree.

Vladimir Putin: Give some more thought to it.

Elvira Nabiullina: Yes.

Vladimir Putin: Sorry for interrupting you.

Elvira Nabiullina: If I may, a few comments on Viktor Basargin’s presentation. He suggested that we should subsidise regions per square meter of housing built. I think if we have to allocate subsidies they should not be given out per square meter of housing built, but for the social and engineering infrastructure because otherwise the square meters will be built at the expense of a balanced urban development – as you said – without any relevant infrastructure.

And for purely economic reasons I would not ban over-the-counter trade in construction materials. Because there are builders who have established links with suppliers and who in some way guarantee the quality of materials. What needs to be promoted is competition in the building materials sector. We have seen the situation with cement when…

Vladimir Putin: But how? I understand that Basargin thinks there is no other way to promote competition. But how?

Elvira Nabiullina: I just wanted to cite the example of the cement industry. Cement prices were going up sharply before the crisis and there were many projects for building new cement factories. Because a cement factory has to be built, but investors have indicated that there is a shortage of cement and prices are rising, therefore cement factories should be invested in. And in the meantime, to ensure competition, we cut customs duties and prices went down, but cement production developed, and many companies modernised even during the crisis. And then, not all building materials are tradable goods: an exchange commodity must have uniform characteristics. That is not quite right. We should simply offer opportunities for building… Construction material factories are being opened in many regions now.

And concerning the proposal of dividing the Urban Development Code into two codes, the Construction Code and the Spatial Layout Code. I wouldn’t do it. We may introduce changes in legislation, but a code is a pivotal thing. Business gets used to a certain standard, and if we keep changing it… We have three Codes and contradictions between them may arise: The Land Code, The Urban Development Code and the Spatial Layout Code. Perhaps we should concentrate on the existing codes and improve them rather than adopting a new one. Thank you very much.

Vladimir Putin: Thank you.

* * *

Vladimir Putin’s closing remarks:

Esteemed colleagues, in conclusion I would like to repeat what we all know very well, namely that the issue of housing provision is crucial if we are to build a society based on social justice. It is one of the foundations on which a person can stand and feel secure, look to the future in terms of planning a family and so on and so forth. Apart from anything else the building sector is a powerful stimulus for the development of the entire economy because it generates jobs in related sectors. In short, it is one of the most important tasks facing the country, and one which we are capable of solving. We can definitely bring about a dramatic change in the situation in the next 7-10 years, that much is clear. We need to pull together and work and build a system, improve corporate procedures, state, municipal and regional regulations and coordinate our work. All those present have been speaking about this in a very hands-on and professional way and they have made their proposals which I think are very interesting and absolutely correct. All this should be structured and I ask my colleagues in government to put them together in the form of at least two documents. They should be integrated in the draft presidential decree so that once these provisions are in the decree the next government can pass its own decisions on the follow-up steps at the executive level. In that way we can put in place the legal framework and start working under new conditions.

I would like to thank you for the discussion today. I think it was very substantive and very useful. Thank you very much.