How much housing was actually put in operation in 2016?

How much housing was actually put in operation in 2016?
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Kirill Kholopik, Construction Industry Development Institute

The Russian State Statistics Service (Rosstat) declared that in 2016 79.8m sq.m of housing were put in operation, which is 6,5% less than in 2015, and 5.2% less than in 2014. Individual construction in 2016 totalled 31.6 m sq. m, which is 10.2% (or 3.6, sq. m) less than in 2015, and the construction of multi-family dwelling totalled 48.2 m sq. m, which is 3.9% (or 1.9 m sq. m) less than the previous year.

The results published by the Russian Federal State Statistics Service (Rosstat) are preliminary. As a rule, by May, when the organisation’s statistical data are adjusted, the results grow. Thus, in January, 2015, the Rosstat declared the result of putting housing in operation in 2014 as being the figure of 81m sq. m and by May the figure grew by 3.2m (84.2m sq. m). In January, 2016, the Rosstat reported 83.8 m sq.m put in operation in 2015, while in May the figure increased by 1.5m and became 85.3m sq. m.

So, we may forecast that the resulting amount of the housing put in operation in 2016 will total about 82m sq. m, and in the multifamily dwelling construction sector it will stay at the level of 2015, about 50m sq. m, as we had forecast a year ago.

Why did individual construction decrease by 10% whilst the putting in operation of multifamily housing did not? This is explained by the fact that the state program for the subsidising of the mortgage rate included only multi-unit residential projects. Those who built individual houses could not use it.

One may conclude that if there was no such program, developers would have commissioned less housing, equally by 10% and meaning that would be only 45m sq. m, not 50. Accordingly, the total housing put in operation would have equalled 75m sq. m. Thus we may evaluate the contribution of the mortgage rate subsidising in the total result of housing commissioning in 2016.

As far as 2017 is concerned, two factors should be taken into account: firstly, developers do not decrease the volumes of incomplete housing construction. All in all, there are 105 – 110m sq. m being erected on construction sites all over Russia. Usually, the annual putting of housing in operation is a little less than half the volume of incomplete constructions.

Secondly, market mortgage rates are decreasing and presently they are lower than 12%. For example, Sberbank, Gazprombank and Uralsib retained the minimal rate at the level of 11.5%. This provides the opportunity to hope for developers to retain the same level of putting housing in operation, if serious economic shocks do not occur. 

Among negative factors the most significant is the decrease of the real income of the population. In 2014 it was 0.7%, in 2015 it was 3.2% and in 2016 it was already almost 6%. It is a very disturbing index from the housing construction financing perspective.

The tendency is that a further fall of real income is not likely: the government has already announced pensions’ indexing. In the last months of 2016, Rosstat registered salary growth. This is a signal that the economic situation is improving, and money is appearing that allows people to buy real property. It may influence the housing purchase growth, which is positive for putting housing in operation.

One more tendency should be noted: the number of flats put in operation decreased only by 1%, while the total amount of housing put in operation fell by 6.5%. By May, when the Rosstat specifies the data, we are likely to see a record number of newly built flats.

In other words, flats are becoming smaller. For the last three years, the average area of flats built by developers decreased by almost 10%, approaching 50 sq.m. The decrease of flats’ dimensions is the response to the changes in the paying capacity of the population.

In individual housing construction this mechanism does not work, as few people build houses smaller than 150 sq. m. and it is difficult to build such a house in conditions set by falling income, even when economising on everything. This is why the majority prefer to buy a flat.

The individual housing construction sector will continue stagnating until the income growth starts. If the population’s incomes start growing again, the volumes of housing put in operation is likely to increase.