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Tatyana Polidi - About the economy of housing redevelopment in Russia’s regions

Authors of the draft law “On Housing Redevelopment in the Russian Federation” consider that the main goal of the law is to put an end to simple substitution of hazardous housing [by replacement buildings] in the country. The document is rather small. It comprises only 30 pages. According to the draft law authors’ estimates, the regions willing to launch the process are still few in number: there are only 5–6 regions.

T. Polidi, Executive Director, IUE, has the view that we have to learn how to attract investors and correctly assess economic capacity of the project. The expert emphasizes that not only residential areas need redevelopment. In Russia’ cities, there are many plots occupied by residential buildings, non-permanent structures, and former production facilities. IUE jointly with the Center for Strategic Research prepared a draft (though neither yet published nor submitted for consideration) specifying redevelopment for any territory whatsoever.

There is a bad practice widespread in Russia ‘when a residential neighborhood with dilapidated buildings was given away to an investor who picked out an empty plot in its middle and erected a building there,” says Polidi. This approach destroys the area because these ‘towers’ in the sea of one-storey buildings ‘drain’ all the ground rent from the neighborhood, thus contributing to the loss of interest on the part of other investors.

Redevelopment means a new construction in a previously developed area, argues Polidi, and a project emerges whenever there is a demand and an opportunity to increase capitalization of the territory. If a one-storey neighborhood can be replaced with a notional “City”, that will be in demand, then capitalization of the territory will be 5–10 times higher.

Before seeking investors a city should consider the demand for housing, office properties and commercial real estate, and have a look at town planning regulations to find out what project can be constructed there, with what density, of what height, and whether the project will be economically sound? If not, the town planning regulations can be adjusted accordingly. For instance, increase density of a residential area, change the purpose of the redevelopment area by way of making it a mixed-use area instead of a residential one.

Cities must assess the effectiveness of the use of their land resources. On a land plot in a marketable area there may be a wasteland, an abandoned building or enclosed by a fence facilities owned, let’s say, by the Ministry of Defence. That is, the most marketable assets, which should drive the economic growth, turn out to be ‘locked’, goes on the expert. “The restrictions have to be removed. We work with the city of Yekaterinburg, where some attempts are made in this direction: they assess the potential of the city’s territories, develop a more favorable investment climate,” provides an example Polidi.

She considers that compensations to owners, soft terms to investors can easily be settled down if there is an economically sound project at hand, “the principle is simple, in fact: those who invest should benefit from the project. And if the investor reaps benefits from the project, then, dear friend, you are welcome to create the infrastructure. That is the logic behind the process. Yet, we got used to play tug-of-war to gain profit. Walter Gropius once invented a term ‘total architecture’, which implies that we cannot “look upon a city in a fragmented manner”. Rather, we need a supervisor who has the view of the city from above instead of thinking about how to make money under arrangements with developers.”

Experts interviewed by “Vedomosti” are of the opinion that redevelopment is actually an endless process. According to Polidi, this may take up 7-10 years, if calculated in terms of ‘projects’, when a mid-size residential area is taken into account. “In the current economic conditions we will be unable to deal with longer periods. With current interest rates on a loan this has to be done faster because a private developer will have neither money of clients nor, most probably, state financing,” says the expert.

Vedomosti, issue date November 15, 2018