Mortgages have not recently made housing affordable even at a zero rate, the State Duma noted
The mechanism of savings banks, housing leasing, and support for the secondary housing market can become an alternative to massive preferential programs and make housing more affordable for Russians. This opinion was expressed by the chairman of the State Duma Committee on Construction and Housing and Communal Services Sergey Pakhomov at the conference of the Association of Banks of Russia (ADB).
Housing affordability has decreased
While there was a wide preferential mortgage, market participants were not very interested in finding alternative tools to increase housing affordability. In addition, the preferential mortgage itself led to an increase in prices and worked more for the investor, the deputy noted. “Let’s be honest, mortgages have not recently made housing affordable even at a zero rate,” Sergei Pakhomov said.
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Irina Nosova, Senior Director of the ACRA Financial Institution Ratings Group, also speaks about the decrease in housing affordability. The excessive demand, which was observed every time before the end or tightening of the conditions of the programs, led to an increase in prices. As a result, accessibility did not increase, the expert explained. “Preferential mortgages work if the growth rate of household incomes exceeds the growth rate of real estate values. The exact opposite happened with us. Developers turned out to be in a bigger advantage, we see this, in particular, in their profitability,” Irina Nosova noted.
According to a study by the Institute of Urban Economics (IEG), housing affordability has decreased over the past four years: household income growth has not kept pace with rising housing prices. This trend was especially noticeable in large cities. According to analysts, the most inaccessible housing among Russian cities by the end of 2023 turned out to be in Sochi. To save up for an apartment of 54 square meters, a family of three will need 7.7 years compared to 3.9 years in 2020. The affordability of buying a home with a mortgage has decreased, according to the IEG. On the one hand, preferential programs have made the purchase of housing with a mortgage more affordable compared to 2019. On the other hand, they also led to an increase in housing prices, outstripping the growth of household incomes.
Read also: How housing affordability has fallen in Russia and what will happen next. Study
How to increase accessibility
Now the situation is changing: new rules for granting preferential loans will be in force on the market and alternative mortgage instruments are needed, such options are being worked out in the State Duma, Sergei Pakhomov noted. As an example, the parliamentarian cited savings banks, for which a draft law has already been developed. We are talking about a special contribution that helps you save up for a down payment on a mortgage or send money to buy a home.
Another tool for increasing housing affordability, according to Pakhomov, may be leasing — renting an apartment with the possibility of subsequent redemption. He noted that now many potential buyers have difficulties associated with the need to rent a home during the construction of a house, as well as problems with accumulating a down payment on a mortgage. According to ACRA, at least 13% of housing loans received an initial payment not from their own funds. “These are both consumer loans and some debts (for example, people borrowed money from relatives). But these are debts, they need to be repaid,” Irina Nosova explained.
In addition, it is necessary to support the secondary housing market, the chairman of the State Duma Committee on Construction and Housing and Communal Services continued. According to him, now almost half of the transactions with new buildings are related to the sale of the previous apartment on the secondary market. “If there is stagnation in the secondary market, no preferential mortgages will help. Therefore, secondary mortgages should also be supported, but perhaps with a strict link to the purchase of new housing,” the deputy said.
Among the mechanisms for increasing housing affordability, he also called a reduction in mortgage payments, which is possible by reducing both mortgage rates and prices. In addition, it is possible to introduce new programs to support individual professions, such as IT mortgages. These can be the military, doctors, representatives of the public sector, Pakhomov gave examples.
See also:
- The Central Bank announced the difference in prices for new buildings and secondary housing at 55-60%
- Preferential mortgage for secondary housing: who can use it
- The Ministry of Finance announced changes in preferential mortgage programs
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