Re.Housing for Ukraine: current challenges and prospects

These are just two terrible episodes of the Russian war. Over the past year and a half, Russian troops have destroyed a number of Ukrainian cities: Bakhmut, Volnovakha, Popasna, Maryanka, Lysychansk, Severodonetsk - these cities are now ruins. Mariupol, Chernihiv, Irpin, Bucha - this is just a small list of cities that have been destroyed as a result of Russian aggression. Unfortunately, the list is much longer.

The Russian war has led to a huge demographic and social crisis in Ukraine, significantly changing not only the lives of millions of people, but also the context of world history. Meanwhile, in search of a just restoration, national and local officials, experts and analysts, and domestic and international donors are now looking for solutions to these and other issues.

One of these challenges is the housing crisis, which embodies many more problems than the actual destruction of buildings. The housing crisis encompasses not only the destruction of houses, but also the destruction of people's usual way of life, as the choice of housing is linked to education, work, and other social and economic opportunities.

The first problematic aspect of the housing policy is the significant damage to the housing sector, which, according to various estimates, reaches 10% of the country's housing sector, leaving more than 2.5 million people homeless.

According to the Kyiv School of Economics, the number of destroyed and damaged private and residential buildings by December 2022 amounted to 149.3 thousand, of which 131.4 thousand were private (individual) houses.

All this is accompanied by changes in the social structure of society. Thus, according to the IOM , as of January 2023, the number of internally displaced persons in Ukraine amounted to 5.4 million.

Under these conditions, the issue of arranging temporary housing becomes more relevant. Thus, at the initiative of the Red Cross of Ukraine and the Ministry of Infrastructure of Ukraine in cooperation with other non-governmental organizations, the "Prykhystok" social program was introduced in the first months of the war, which provides for the possibility of granting free housing to internally displaced persons. Owners of such housing are entitled to receive financial assistance from the state in the amount of about 15 UAH (about 30 UAH during the heating season) for 1 day of stay of 1 person. In parallel, work continued on the arrangement of temporary accommodation centers on the basis of social service institutions. In total, more than 1 million internally displaced persons took advantage of this initiative.

In addition, 11 modular towns were set up for temporary accommodation of internally displaced persons in the de-occupied localities of Kyiv (Irpin, Bucha, Borodyanka, Makariv) and Chernihiv (Novoselivka) regions, as well as in Lviv.

Attempts to conduct fundraising campaigns for the construction of comfortable temporary housing are ongoing. An example of such a project is Re:Ukraine Housing, a pilot version of which is proposed to be implemented in the Bucha territorial community (Kyiv region). The project plans to equip 2 residential sections for 15 families (about 50 people), a center for interaction between internally displaced persons and the local community, a leisure space for residents with a workspace and a children's area, a sports and rehabilitation area and a playground, a RE:Ukraine System research office, and an experimental site for testing construction technologies. The total cost of the project is $989,000, and a fundraising campaign is underway to raise funds for this initiative.

To solve the housing problem, in April 2022, the government planned to purchase 53,400 apartments for 186,000 Ukrainians through custom-built construction or purchase from developers in completed residential complexes or houses with a high stage of readiness. The expected cost of such measures was USD 65.9 billion. However, in August, this action plan was rejected due to a significant budget deficit.

As a result, the President's Office presented an updated housing recovery plan to Western politicians and diplomats as part of the Fast Recovery Plan, which included the involvement of international donors.

At the same time, some progress has been made. In April 2022, the government passed a resolution allowing the construction and purchase of housing for internally displaced persons.

As a result, communities took advantage of this opportunity and allocated appropriate land plots. For example, 179 hectares were allocated in Kirovohrad region for the construction of 25 houses with 2,000 apartments, a program worth UAH 50 million was approved in Lviv region to complete the construction of 13 houses for IDPs, and the first land bank in Ukraine for the construction of housing for IDPs was registered in Zakarpattia region.

In Irpin, which suffered from occupation and hostilities, a 7-hectare area was allocated for the construction of five-story buildings with a total area of 50,000 square meters.

Thus, during the year of war, the state made attempts to solve the problem of crisis housing. Overall, as of the beginning of 2023, about 17% of the population was in need of housing, which is high, but not critical.

The second, no less negative, aspect is the crisis in the housing market. Thus, according to a study by Ernst & Young (EY), the scale of destruction of Ukrainian real estate exceeds the amount of housing put into service over the past seven years.

According to Forbes, in 2021, the supply of new housing reached 11.4 million square meters, the highest in 30 years. It was expected that this trend would continue in 2022, as the number of commissioned facilities in the first six months of the year amounted to almost ⅕ of the planned annual volume.

Meanwhile, Russia's full-scale invasion has destroyed these plans: a number of developers have suspended their work due to the war, which has resulted in a 38% decrease in the total amount of housing put into service compared to the previous peak year. The worst performance was in the southern and eastern regions, where new housing starts fell by 70-90%.

According to various estimates, more than 200,000 investor citizens were unable to exercise their property rights and obtain ownership of apartments due to delays in putting buildings into operation and the lack of construction work on such facilities.

It is worth noting that the situation with housing construction is complicated by inflationary processes and falling living standards. According to The Page, over the past year, the average cost of construction materials increased by 60%, and the cost of labor by 30%. Given the expected devaluation of the national currency and rising electricity and fuel tariffs (in particular, a 20% VAT on fuel is expected to be refunded starting July 1), this trend will continue in 2023.

At the same time, the material well-being of a significant share of the population has declined, which has led to a decrease in demand for home ownership, especially in the context of the ongoing war. Potential housing users prefer to rent, as evidenced by the gradual recovery of the market. In particular, the demand for rental apartments in Kyiv in February 2023 was 13% higher than in the same pre-war month in 2022.

At the same time, the housing rental market is often abused by potential landlords. For example, a number of rental advertisements contain warnings about the impossibility of renting to men, families with children, or people with pets. As a result, some groups of people face constant harassment and discrimination in the rental market.

Another aspect of the housing crisis is that it is aggravated by demographic factors, as mobilization and migration have left a large part of the working-age population unable to be engaged as a productive force in housing construction, slowing down the pace of construction. This state of affairs is likely to continue after the end of the war, leading to a decrease in the share of economically active and an increase in the share of socially vulnerable groups. Thus, in such circumstances, the issue of finding cheap labor, particularly from Asian countries, is becoming more urgent, requiring the introduction of special government programs to attract qualified personnel from abroad.

One solution could be the introduction of the state program "Restoration Guard" and the involvement of workers with remuneration on a market basis, the provision of vouchers and/or certificates to participants in the reconstruction processes to obtain property privileges, and national exchanges in construction, which would help to stitch the country together and develop social integration within it.

Meanwhile, despite the negative context and significant budget deficit, attempts are being made at the national level to find tools to restore housing infrastructure.

One such step is the "eHouse" program, supported by the German development bank KFW. Under this program, citizens can get housing on credit at a preferential rate of 7% per annum, subject to a down payment of 20% of the cost of housing. At the same time, a lower interest rate of 3% is provided for the military, educators, scientists and doctors.

At the same time, the disadvantage of this program is the limited list of lending objects. Thus, this program covers the purchase of apartments in apartment buildings only. Since it is actually a matter of paying with the participant's own resources, it would be a fair step to expand the scope of lending so that program participants have a wider choice of housing.

An important step in ensuring fair restoration was the adoption by the Verkhovna Rada of Ukraine on February 23, 2023, of the Law on Compensation for Damage and Destruction of Certain Categories of Real Estate as a Result of Hostilities, Terrorist Acts, and Diversions Caused by the Military Aggression of the Russian Federation.

This law provides a number of legal guarantees for owners of residential properties depending on the category of housing and the degree of damage:

1) owners of damaged housing have the right to have local governments carry out the necessary repairs and/or provide funds for independent repairs;

2) owners of completely destroyed apartments - to receive a housing certificate for an amount commensurate with the value of the destroyed housing, which can be used for any housing on the real estate market within 5 years.

3) for owners of completely destroyed private houses - to receive funds to a specially treated account that can be used exclusively for construction needs or a housing certificate (at the recipient's choice).

A positive aspect of this law is the fact that the compensation practice is based on the provision of certificates rather than in-kind housing and monetary compensation, because in the first case, "distribution of apartments" would not take into account the needs of the final recipients, and in the second case, it would create risks of abuse by recipients and use for other purposes than housing.

The practice of applying housing certificates should promote the development of the housing construction market on a competitive basis and take into account the needs of war victims.

It is important that the law does not contain any restrictions on the maximum size, location or area of such housing, as in some cases it is not rational to purchase housing in the same locality. For example, the destruction of a number of industrial enterprises has significantly changed the structure of the economy, and potential owners may choose to buy housing based on their own economic opportunities, including the availability of a place of work or study in a particular community.

To implement this law, the Government has now approved resolutions to provide funding for measures aimed at restoring damaged housing. Thus, on May 10, 2023, the state program "eRestoration" was launched, under which owners of damaged housing can receive compensation for repair work. The amount of assistance will be determined by a special commission, whose model regulations were approved on May 19, 2023.

According to the Ministry of Reconstruction, the number of potential recipients is about 160,000 people. Meanwhile, the maximum amount of assistance cannot exceed UAH 200,000.

At the same time, this program does not currently cover compensation for homeowners who have repaired damaged property at their own expense, even if the property owner has fiscal receipts and store receipts. Given that a number of properties in de-occupied communities have been restored at the property owners' own expense, it seems fair to launch a special procedure for reimbursing such costs.

Another problem is the lack of an updated procedure for providing compensation for the restoration of destroyed housing, which makes it impossible to implement the adopted law in practice. However, according to government officials, the implementation of the relevant procedure will take place based on the results of an assessment of the procedure for restoring damaged housing.

Obviously, the practical implementation of the law is highly dependent on the financial aspect, as it is based on the international and reparations nature of fundraising, which makes the issue of restoring housing policy dependent on the availability of the appropriate political and economic will of international partners.

At the same time, given the systematic support of international partners, there is a positive expectation that such a housing recovery program will be properly supported.

Therefore, the Ukrainian government faces two important tasks: to ensure the development and implementation of the relevant procedures referred to in the law, and to ensure the efficient and transparent distribution of funds for equitable housing reconstruction, which requires appropriate public involvement.