MASS HOUSING SUPPLY DURING THE TRANSITION IN BULGARIA

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1 MASS HOUSING SUPPLY DURING THE TRANSITION IN BULGARIA Antoaneta Yoveva, SWF, architect, urban planner, Bulgaria 37 Hristo Botev blvd., 1606 Sofia, Bulgaria tel , fax: , ayoveva@aster.net Abstract The paper analyzes the former housing situation in Bulgaria, when the State controlled over it. Described are the changes since the beginning of the transition, the home privaiization and ownership, which reached about 90%. The reforms towards a market-oriented system in Bulgaria brought to changes in the housing supply, which made the home prices unaffordable for the mass consumers. Mentioned are some of the factors, which led to the increase in the prices of housing estate and the social differentiation of the homeowners, Revealed are the current trends in housing and construction, the private sector development and the new acting forces On the Scene. Conclusions are drawn about the major issues and recommendations made for thek improvement. 1. Introduction - Summary of the issues discussed in the paper and its contents While attending several international meetings, l found out that there is insufficient information about the recent changes about the housing sector in the countries in transition. The processes of globalization and the mutual interests of the countries, seeking opportunities for CO-operation require wide exchange of information in order to be found the most effective best ways for beneficial collaboration and support. This paper surveys the former and the current housing situation in Bulgaria in the transition of the economy. Presented are the issues leading to inadequate and unaffordable housing supply - Inflation, lack of financing, lack of policies in support of social housing development. Revealed are the socials and economic changes provoking new relationships among the major actors in the housing supply - owners of land, developers, real estate agencies, consumers' groups. Presented are some of the current trends in the private construction. The newly created private construction sector faces a lot of obstacles, which prevent the successful market development and the supply of affordable housing. The professionals - planners and architects can have a new role in the housing development by mediating and lobbying among the acting forces - municipalities, entrepreneurs and consumers. In details is discussed an experimental project under current implementation, which aims at the development of model for private public partnership for renovation of the prefabricated residential areas. The paper concludes with some recommendations for future measures for improvement of the affordable housing supply. 2. Analysis of the former housing situation in the country, quality of housing. 2.1.Horne ownership before the transitional changes During the socialism the economic management was centrally planned. The State had a responsibility and control over the housing system. The central institutions and enterprises dominated in the planning and realization of housing supply. There was control over the allocation of resources and strict regulation of the production and distribution of housing. The housing stock was owned and provided to the people by the State and the local authorities. The dwellings, predominantly consisting of relatively small apartments in prefabricated housing blocks of flats, were distributed according the needs of the population. They were affordable for all as the prices were controlled and equal for alt consumers, not dependent on their income. The housing supply was not

2 sufficient and the quality of the dwellings unsatisfactory but there was no choice available for the people, who waited for years to get a shelter or an own independent home. The housing supply was a State monopoly. The State determined the prices for the land, the building materials, the labor and the home units as a final product. The State budget subsidized the difference between the price of the state dwellings and the actual construction costs. The building costs were reduced by subsidizing the state owned construction enterprises from the budget. The utility fees - water, electricity, heating were also state subsidized by %. The home ownership was affordable The trend in Bulgaria was - the dwellings received initially from the state for renting, at a next stage to be bought by the people. As a result during the socialism in Bulgaria the home ownership was above 70 %. By ,773,833 homes were built in Bulgaria. 10,6% of them are with a single room and kitchen only, 29,7% - with two rooms, 31,7% - with three rooms, 11,1% - five and more rooms. There are 323 homes for 1000 people, 93 % of them being private ones. Until ,6 % of the houses realized were made in an industrial way - prefabricated panel blocks of flats. (Vitanova et al, 1996) The apartments in the prefabricated) blocks of flats have an average size of 55 sq. m. They are of poor quality, done in a quick way in many cases by untrained workers (soldiers, brigades, etc.), which were sent to help the state combinats for construction. Large enterprises produced prefabricated elements and did the construction of the new housing stock in the periphery of the big cities, where the demand for housing was the highest. In the 80-ties the initiatives of the housing cooperatives was encouraged. The people could use personal resources - savings, private land and own labor to build homes. The process was difficult due to many administrative obstacles for obtaining permits, lack of sufficient financial support from the state (loans) and speculation on behalf of the construction organizations The beginning of the transition At the beginning of the transition each family, renting a state owned apartment found a way to gather resources and invest in the purchase of the occupied dwelling. The prices were lower (1 5%) than the market values of the dwellings. Housing finance was only provided by one bank, which still has sort of monopoly on the housing credits. The high Inflation and the high interest rates hamper the housing development. In 1993 the share of industrial panel buildings dropped to 6,9 %. Above 2 million people live now in prefabricated homes all over the country. More than persons with bank deposits are waiting for compensation of about 2,500 USD each from the state. Their deposits were blocked for many years in expectation that they will receive home, provided by the state households live in restituted houses and are waiting for urgent accommodation. The municipalities are not directly responsible for it. Homelessness is a serious treat to these households. (Vitanova et al 1996) The housing industry in 1989 provided completed units, while in only (Evrev et al 1996) 3. Reforms and privatization in construction, new housing and the role of the private sector, privatization of construction and building materials industries, situation of newly established companies. 3.1.The new situation after the transition The transition towards a market-oriented System in Bulgaria brought to changes in the housing supply, privatization of the public housing, housing finance and the nature of home ownership. The housing homeownership was changed due to the institutional, legal and financial policy frameworks.

3 With the beginning of the transition and the starting inflation the home ownership was increased to 93%. The development in Bulgaria in the early 90-ies strongly was affected by the changes in the politics, the attempts to be restructured the economy and the new trends in the society. New relationships started to be established among the institutions and the acting forces with the appearance of the private sector. In the production and market of dwellings emerged: the developers or entrepreneurs, the private producers of materials the real state agencies, the management firms, the financial institutions or banks providing credits at very high rate (recently about 16%), the owners of land interested to get the highest and best profit of their plots, the class of the "nouveau rich", the consumers, driven by the fashion to live in the city outskirts and able to pay speculative high prices. 3.2.Prices of homes after the market oriented changes. Reasons for the unaffordability of the housing supply in the new unregulated conditions Some of the factors, which led to dramatic increase in the prices of housing ate - the elimination of production subsidies, escalation of construction costs, planing delays, which put up the process of the newly built housing. The prohibitive infrastructure costs and repressive taxation (18-22%) also affected the prices to increase. The price changes are due to the inflation process, increased prices of building materials, energy and transportation costs. Up to 1989 about 2,5 annual incomes were necessary for a household to buy 75 sq. m. home in Sofia. (Vitanova et al 1996) In 1989 and average house price was Bg Lvs and the ratio between house price and income 3,4. In 1995 the house price reached 1,875,000 and the ratio became - 14,2, which means 14 annual average salaries of a dual income were required for the purchase of an average apartment in the capital. (MTRS, 1996) The lack of mortgage Instruments and the high interest rates, which ranged between 3550% in the beginning of the transition (now they are 16%) practically made impossible the purchase of a dwelling by a standard household. In the absence of a market-based strategy, policy and organization of the financing system of housing - the only way out for those in need is self-financing in installments. The sources of funding have no transparent origin in most cases. (Tzenkova, S. 1999). The fact that the wages are far behind the inflation and living standards dropped by 40% makes the purchase of a new home unaffordable. The market oriented situation brought to increase of the prices of homes during times. (Imoti, 1995) The average dwelling unit size was increased from 64,1 sq. m - 86,9 sq. m., while construction costs raised $120, $ 176lsq.m. In the period of deepest recession at the end of 1997 and highest interest rates - 300%, the output and the sales decreased. Constant adjustment in prices was done, so the buyers lost confidence in the private entrepreneurs due to often bankruptcies and fear to get trapped in the so called "pyramids". The unstable and risky environment made the businessmen seek short-term gains and speculate. While the developers expected significant gains form the affluent people, little or no attention was paid for the development and supply of affordable housing. Land costs are about 17% in average from the construction costs for Bulgaria, while for the capital they can reach 35%. Construction costs have increased steadily and are 11 times higher compared to the controlled levels of 1989, (Tzenkova, S.) There is a great difference between the prices for homes in the central city parts and in the periphery in the prefabricated estates. The demand of panel homes is declining, their quality was deteriorated due to lack of maintenance and management system for maintenance. The prevailing parts of

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