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President Vladimir Putin: Good afternoon, dear colleagues.

Today’s meeting of the State Council Presidium is to examine a subject of vital importance to us, a priority for us – that of providing Russian citizens with affordable housing.

It is no exaggeration to say that for all Russian families housing is a question of the fundamental quality of their lives. The housing question and its resolution have traditionally influenced the general economic and political climate in the country and continue to do so today. The issues that we are to discuss today, therefore, have a far greater reach than simply housing policy or the economic aspects of the construction sector’s work.

I think that you all understand the vital importance of the tasks before us and I hope that through combined and coordinated action the authorities at all levels, state agencies, State Duma deputies, the government and the municipal and regional authorities will be able to change significantly the situation for the majority of people in need of housing in the Russian Federation.

Russia’s housing stock today comes to a total of almost 3 million square metres. Trading and maintenance of this huge sector has long since been operating on a market basis. Almost 70 percent of the housing stock is in private hands today and private capital participates in more than 90 percent of the country’s construction companies. Residential construction is financed primarily through investment by private individuals, who also take upon themselves the main commercial risks.

The Russian construction sector is an area in which the latest technology coexists side by side with outdated rules and instructions and with a housing maintenance and utilities infrastructure that is worn out and is being poorly developed.

I would like to note that housing construction has increased with every passing year over the last three years. In 2004, for example, 41 million square metres of housing were built – 12.5 percent more than in 2003. But I must also point out, unfortunately, that even this level is still a long way behind that of the late 1980s and, more worrying, the amount of housing being built for people in lower income groups is decreasing.

According to some estimates, some 4.5 million families are still on the waiting list for housing. It is shameful to say that people have to wait a whole 20 years before getting housing. This is while only around five percent of the population can afford to buy an apartment or single-family house. At best, only seven percent of the population can buy a home of their own if they are able to take out a bank loan in addition to their own savings.

The average price for housing at the end of 2004 was around 20,000 roubles for one square metre, while the actual construction cost comes to 9,700 roubles for one square metre. The average price is more than double the cost price. It is clear in this situation that buying housing, even with mortgage schemes, remains the privilege of the well-off.

Our priority task in this situation is to create a large-scale affordable housing market. This requires us to put in place the legal, financial and economic and organisational conditions that would enable the majority of Russian families to independently purchase housing that fits their financial possibilities and their personal idea of comfort. Furthermore, people should be able to buy housing in the place that fits in best with their work and study requirements and their plans for their lives in general. This is of great importance for the state, too. A mobile population in today’s world, in the conditions of a modern economy, is a key requirement for effective development.

Another priority for the state’s action should also be providing lower income families with housing, including in accordance with state commitments made earlier. I would like to point out that the state does not have the right to and will not go back on previous commitments.

Although the legal foundation has been laid for modernising the housing sector, there has been a visible slowdown of late in the positive changes that had got underway. This concerns above all the implementation of laws already passed, including the new Housing and Urban Planning Codes and also the legal foundation for long-term loan institutions.

Many state officials feel the traditional need today to spend as much budget money as possible, but reform itself, which cannot just be about passing laws, is not being implemented in practice.

Preparation and approval of legal norms and acts, ministerial documents, the relevant regulations and instructions by the regional and local administrations should go ahead without hiccups and delays. It is very important in this respect that the State Council Presidium and the State Council Working Group were involved in preparing this subject today. I must say that the government and I have discussed these matters several times recently and I very much hope that today we will be able to coordinate the measures and solutions proposed by the State Council Working Group with the government’s plans in order to give a genuinely powerful boost to development in this area.

We need to review the current federal targeted programme, “Housing”, and concentrate the allocated budget resources and money raised on resolving the priorities we have set.

You know how much debate there was and how difficult it was to pass the basic housing and utilities sector legislation. But overall, the new code is a good one. Of course, if there is a need to clarify provisions, make them more specific and adapt them to local conditions, action should be taken. But what I expect from the government, from every ministry and from every region of the country is, above all, rapid work to implement the laws already passed. That is the first thing I wanted to stress in particular.

I also want to look at other important areas of work today.

We need to increase solvent demand from the population by developing institutions that can provide long-term loans and taking steps to lower interest rates and ensure that loan repayment conditions are not burdensome for people. The objective here is to be able to make up to a million mortgage loans a year in the country within the next 5–7 years. I have no doubt that all of you here today know very well that there was more construction going on under the old system in the 1980s, but we also know that the overwhelming majority of people were not satisfied with how the housing problem was being resolved.

Maintaining the old system would make no sense in today’s conditions. The system will be effective only if the entire economy and the state’s economic policy is effective. It is impossible, for example to provide mortgage loans at interest rates low enough for the average Russian citizen to be able to pay off in 5–7 years if we have high and rising inflation. I want to especially draw the attention of the government officials here to this point.

We also need to take measures to increase the annual rate of housing construction. Many of the delays today are due to the fact that obtaining land for construction involves fulfilling additional commitments to the regional and local authorities. This entails increased costs and, ultimately, higher housing prices. This is what leads to the disparity between the cost price of housing and its price on the market.

As from October 1, the owners of land, municipalities, will make construction sites available only through open auctions. This is a new system and I therefore ask you to prepare its introduction thoroughly ahead of time so that we don’t have any problems when it goes ahead. The aim here is to de-monopolise the construction market and open it for effective companies. This is a crucially important task and we cannot resolve it without the cooperation of the regional legislative authorities and regional governors. By 2010 we need to ensure a housing construction rate of 70 million-80 million square metres a year.

One final point: the housing market is, objectively, a local market and each region has its own specificities. I agree with those who think that a great deal in this area will depend on the stand taken by the country’s regions and municipalities.

One of the areas for which the regional and local authorities have responsibility is the gradual introduction of new mechanisms for financing in the housing and utilities sector and the development of competition for the provision of services in this sector. I think this can only go ahead insofar as regions are ready for it and, I particularly want to stress this point, only on a voluntary basis. Let’s also discuss this issue separately today. This does not mean that we don’t need to introduce change – we most definitely do need to, for we won’t resolve the problem otherwise, but before launching into reforms, we need to prepare the ground thoroughly first, after all, all the measures we are taking in this sector are aimed at improving people’s lives and not making them worse off.

Of course, we cannot resolve such a complex problem as housing without administrative instruments. But it would be both foolish and harmful to try to rely only on administrative methods in order to carry out a national project of this scale. A great deal depends on business and on citizens’ activeness and their knowledge of the laws. In this respect it is crucial to put in place a system for informing people about the measures being taken and the new possibilities available to them for resolving the housing issue. Many people are not aware of all this, unfortunately, and this is our fault.

Overall, we need to develop new mechanisms for managing a project of this scale, mechanisms that will successfully coordinate the work of all the authorities at the different levels. In this context, I think it could be good to look at setting up a national council for housing policy. Housing is a key issue for the country and we need to give it our constant attention at the highest level and not avoid or run away from complex issues. All the necessary documents for this should be ready in the nearest possible future.

These are just some aspects of the issue we are to look at today.

I propose that we begin our discussion.