No guarantee — No tax
Evgenia Chabanova
Up to 90% of the market share is informal Market capacity of housing rent in Moscow, bln.rub.
18.5
19.1
16.5
2010
2011
2012
400 thousands flat are for renFng out (10% of housing stock) 23,5 thousands of owners rent out officially Source: Data of Moscow Department of Economic Policy and Development, INCOM data, Miel Group data
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Moscow informal renEng market
Research quesFons for theoreFcal research: – How does the market operate?
Research quesFons for empirical research: – What factors influence spaFal allocaFon of flats? – How does it influence the urban economy? Methods of research • TheoreFcal analysis • GIS-‐mapping • Econometrics • Interview with experts 4
TheoreEcal analysis • Housing rental market is a market of imperfect compeFFon • Housing rental market as a “quasi-‐market for lemons” (Akerlof Model) • Asymmetric informaFon problem for tenants and owners
For tenants: • No data about neighborhood • No data regarding flat infrastructure
For owners: • No data about tenant’s paying capacity • No data regarding clean habits Source for images: clker.com, wheatonbible.org
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How does Moscow rental market operate? Search Independent Verbal arrangements
Informal
Via real-‐estate agency Signing up a contract
Up to 1 year
More than 1 year
Formal
Contract registraFon Tenants registraFon Paying income tax 6
Average rental price for 1-‐room apartment
7
Average rental price for 2-‐room apartment
8
Average rental price for 3-‐room apartment
9
Infrastructure and informal rental housing 125 observaFons (Moscow districts) Dependent variables: average rental prices Independent variables: social, economic, infrastructural Average rental price 1 room
Average rental price 2 room
Average rental price 3 room
Pedestrian tunnel units
0.51***
0.82***
Motorway juncFon
-‐1.04*
-‐1.61**
Restaurants
0.08***
0.17***
1.61** -‐5.09** 0.83***
Parking
0.17**
0.19*
Bars InformaFon centers Constant
29.72***
38.65***
ObservaFons
125
125
0.49
0.59
0.47
0.58
Adjusted
-‐2.94*** 2.67* 55.44*** 125 0.53 0.51 10
Factors of informal rental pricing Average rental price 1-‐room flat
Average rental price 2-‐room flat
Average rental price 3-‐room flat
InternaFonal business area
0.13*
0.39***
0.81**
Immigrant area
-‐0.02***
-‐0.03***
-‐0.09**
Emigrant area
0.07**
0.10**
0.19*
Crime in area
0.04***
0.05*
0.12*
Wealth of area
0.01***
0.02***
0.03**
0.27*
1.00**
Healthcare in area -‐
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Brief summary -‐> research driven hypothesis Rental housing market is in quasi-‐equilibrium: • insecurity of counterparts • social tension • bad quality of housing stock • damage to city image
Hypothesis: Informality is a “posiFve bacterium” in short run but in long run it has negaFve consequences
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Why does the market structure differ aSer coming back to capitalism again? Russian empire
Soviet union
5% of housing stock – in private property 40% of housing stock – mulF-‐dwelling units (commercial apartment buildings)
Up to 90% of housing stock is owned by state. The main owner is government Social rent: • Unlimited • Unbreakable • Inherited
“free” tenant
“paid” tenant
1790
1917
Russia
76% of housing stock is private PrivaFzaFon as compensaFon mechanism
“free” owner
1990
2014
Privatization as a compensation mechanism influenced people’s perception of real estate property => housing dwelling is quasi-private property => no incentives to pay taxes
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Government intervenEon: tax issue • Tax usage for improving neighborhood condiFons • ProtecFon of tenants’ and owners’ rights • Legal contract
• MinimizaFon of transacFon costs • Easement of registraFon
• Contract enforcement • Housing court
• Reducing informaFon asymmetry • United database of flats for renFng out • Feedback possibiliFes, history of tenant/owner
“Moscow Government must create incen4ves for people to pay income tax on housing rent” — Kirill Niki4n, partner of PwC, expert in taxa4on
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Government intervenEon: commercial apartment buildings Currently 9 unsubsidized buildings owned by Moscow government • No subsidies for housing and communal services • No privaFzaFon
2285 flats, 4050 people
“Private investments in commercial apartment buildings are unprofitable when money is expensive” — Aleksey Shchukin, Expert magazine, Special correspondent Source: budget.mos.ru, housing.mos.ru
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Conclusions: future research quesEon 1. Housing rental market without government interference operates under informaFon asymmetry 2. Inheritance of real estate from soviet Fmes washed out incenFves for paying taxes 3. Moscow housing rental market can be improved though it calls for massive government intervenFon 4. In order to formalize the housing rental market the state should suggest something in exchange of taxes
Is Moscow Government ready to invest much financial and human resources to “build” housing rental market? 16