The meeting agenda included measures to develop the construction sector, including by implementing investment projects, introducing new technology, harmonising construction legislation and applying public-private partnership mechanisms.
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President of Russia Vladimir Putin: Good afternoon, colleagues,
Today we will discuss ways to develop the construction sector and improve urban planning.
I do not need to tell you about the importance of this issue. The construction sector is a strategically important element of the country’s socioeconomic development. It is also one of the most rapidly expanding and promising segments of the market, which accounts for nearly 6 percent of GDP.
This sector has the potential to become a key driver of economic growth, but only if its huge potential is realised in full.
A decade ago, we adopted the Urban Planning Code to streamline construction legislation. Since then we have achieved significant, even record-high performance results in housing construction. In 2014, we turned over 84.2 million square metres of housing to tenants and further increased construction to 85 million square metres last year. Moreover, the construction of economy class housing has increased by 20 percent.
However, the public demand for better housing has not been satisfied yet, which we can only do by using reliable market mechanisms such as the mortgage system. Over the past five years, mortgage loans have helped us increase housing construction by 60 percent and the construction of economy class housing by 90 percent.
The mortgage system is a powerful driver of housing construction, and the Government and the Bank of Russia should certainly look for ways to lower the interest rate on mortgage loans and new methods for attracting investment in the mortgage system without increasing budget expenditures. I know that the State Council’s working group has formulated proposals on this issue. Let us discuss them today.
I would like to add that co-financing construction is one of the most widespread ways to buy housing. But there are many drawbacks in this system, and the biggest of them is the developers’ failure to fulfil their obligations. Unfortunately, many investors have been defrauded, and there is a concrete family or individual tragedy behind each of these cases.
Abandoned construction projects and companies that have vanished together with their investors’ money, to put it bluntly, are undermining public trust in co-financing construction and hence affecting people’s ability to improve their housing conditions.
We have formalised additional guarantees for co-investors and also spelled out new requirements for insurance companies that sign contracts with developers. Unfortunately, we see that these measures are not enough to prevent construction projects from stalling and to reliably protect people’s rights.
For example, not a single abandoned project has so far been completed with insurance funds. We have to admit that our insurance companies have not yet accumulated sufficient resources for dealing with this problem, or at least this is what they claim. In these conditions, we might consider an initiative for a government housing construction compensation fund. I am asking you to share your ideas on this issue.
On the other hand, we do not need a mechanism that would only cover up other people’s mistakes, inefficiency or, worse still, fraudulent deals. The state must not act as a sponsor of such inefficient work.
We also need to take an inventory of unfinished construction projects and propose a procedure for finishing them and registering the ownership of them. We should more actively use the system of public-private partnership in doing this.
It is also important to develop a modern rental market for housing, as we have more than once agreed to do. Of course, this is a challenging task, but we must certainly do our best to fulfil it. I am asking the Government to consider implementing pilot projects in this sphere, first of all in large cities.
On the whole, I would like to say that residential construction accounts for 75 percent of total construction costs. We must provide all-round support to this sector, remove obstacles to the allocation of land for residential construction and help investors by ensuring unfettered connection to public utilities.
We also need to discuss ways to reduce the number of permits and the time needed to coordinate housing construction projects. We have discussed this issue more than once, but we can still see examples of glaring differences between adjacent regions in terms of time and costs.
Moreover, we need to determine additional measures that should be taken to ensure the successful implementation of construction projects under the Housing for Russian Families programme.
Today I would like to focus on issues of fundamental importance for the situation in the construction sector, notably, technical regulations and pricing. I must say that there are great many acute unresolved problems in this sphere.
By the way, I want the Government to take note of the fact that pricing where it concerns government allocations has remained a problem for years. I have recently discussed this issue with the military and the defence industry sector in Sochi. It still remains one of the key problems.
These issues must be addressed systemically and their solution must have a synergic effect by saving budgetary funds, improving the business environment, promoting competition and, of course, enhancing transparency at all stages of construction, as well as by reducing corruption and actively introducing modern, including energy efficient technologies and safe, low-impact materials.
I would like to focus on what I see as the biggest issues.
We know that the existing pricing standards system has long become obsolete, and we have no clear, substantiated and reliable data on spending at the design and construction stages. If I may say so, due to this anarchy costs are estimated based on standing practice or more precisely, prices are pulled out of a hat. As a result, it is impossible to monitor the feasibility and efficiency of budgetary investments in various construction projects. The situation is equally difficult in the sphere of technical regulations, which are far below modern requirements and international standards.
We obviously need to formalise construction standards and make them binding. We must also create a state system of pricing notification in the construction sector, introduce technology and pricing audits of planned investment and create a comprehensive package of reference documents on technical regulations.
It is also necessary to exclude situations where new requirements are put forward in regard to construction projects that are ready to break ground. This is something the Emergencies Ministry, the Rospotrebnadzor consumer rights regulator, the Fire Service and other agencies keep doing. They introduce their new rules without the Construction Ministry’s consent. And you can imagine the position of investors and developers. As a result, the entire design phase for future construction projects becomes useless. So they need to start over, re-calculate and redesign things, and spend extra money and time. This certainly needs to change, and business-like, effective interagency cooperation needs to be established.
Colleagues, we have already discussed most of the issues I have just listed. And today I would like you to report back how they are being resolved.
Another important issue is the work of self-regulatory organisations (SRO). This format has been operating since 2009 and now includes 502 organisations; ideally, it has to ensure the quality, reliability and safety of engineering surveys, design and consequently the construction itself, but these objectives have pretty much remained on paper. These organisations’ activities are often limited to issuing permits for certain types of work. And some of them simply sell such permits. I remember hotly debating this issue with the business community and how our partners argued how this innovation was absolutely necessary.
Let me remind you that this format was actually established at the request of business leaders, in order to help them overcome administrative barriers and in order for them to maintain a bona fide, uncorrupted, professional approach to business. But in reality, unfortunately, we ended up with more red tape, now on the part of the business community, as individual entrepreneurs show the same bureaucratic approach and even abuse their position as SRO members in the corporate interest, something we have also noted, unfortunately. Only the consequences are worse, because they discredit the very idea of self-regulation.
Yet, I am not saying we need to give up this format. It is necessary to take into account all the mistakes, carry out the necessary reforms and direct the professional community’s potential to the areas where it can really make a difference.
Any territory is a single living organism with its history and traditions. One in three Russian cities and its plentiful towns and villages boast unique architectural and cultural legacies, cultural heritage. These must all be taken into consideration in urban development decisions and territorial development plans.
It is equally important to coordinate these plans with people’s needs and make sure that the construction of new neighbourhoods does not overload the existing infrastructure. I mean primarily the social and transport infrastructure because city development is aimed at creating favourable, comfortable conditions for people to work and live in. We must do our best to ensure that cities and towns are developed in such a way that would meet people’s expectations. We must renovate parks, public gardens, recreation areas, pedestrian streets and sports grounds and also create new ones. The Government should support the regions willing to get involved in these modern urban projects, comfortable and important for people.
I will not say anything new here. Clearly, it is easier to build things in places with infrastructure. It is obvious, but there must be a measured approach. Infrastructure has to be developed not only because it is easier and cheaper for building, but ultimately because it raises the standard of living.
The issue on today’s State Council agenda has many aspects to it. I have outlined only the most crucial ones. Undoubtedly, you have your own opinions, your viewpoints and your own ideas.
Mr Levitin [Presidential Aide] was just telling me how the discussions went on until the last minute, so to say. It is only natural because the subject is essential for people, one of the most important ones along with education and healthcare.
Let’s get to work.
Vladimir Putin: In closing, I would like to share some figures. According to a fairly objective 2003 survey, 61 percent of Russian citizens needed better housing in 2003. This number stands at 41 percent now, a third less. The average area of a flat in 2005 was 45 square metres; in 2015, it was 54 square metres. That’s then versus now.
Now, with regard to what we can expect in the future. The total demand for the next five years (of course, this doesn’t include housing provided by the government, relocation from dilapidated housing, and the like) amounts to about 300 million square metres. That represents about six million households, with 50 percent of them (this is to answer the question about how the mortgage system works) planning to improve their housing conditions by taking out a mortgage.
From 2004 to 2016, five million Russian households improved their housing conditions using mortgages. This, of course, does not mean that we shouldn’t work on other instruments. We should. It goes without saying that the issue is not about competing with the banks. It’s not that anyone wants to create a non-competitive environment for the banks. The issue is about the reliability of these instruments. Of course, we still must think about it and work on it.
The mortgage market has grown 22 times over in real terms in recent years. Today, 50 percent of customers with mortgages are young people under 30. In other words, mortgages have become an effective way to address housing problems for young people and young families. Of course, if mortgages can be provided on better terms, such terms should be made available to bank customers.
As you may be aware, we adopted a programme to subsidise interest rates from the federal budget in March 2015, which helps keep them at an acceptable level. By the way, this programme was adopted by the Government at just the right time, as it helped to avoid a dramatic decline in mortgages issued by banks, as was the case in 2009. Back then, the amount of mortgages issued fell by as much as 75 percent. The decline in mortgage lending in 2015 was not so critical, also probably due to timely Government decisions.
As you are aware, the average key interest rate is currently set at 12 percent. It is imperative to focus on issuing securities. Hopefully, this and other measures that we discussed today will work.
I would like to conclude our meeting with the following. As you know, housing is a perpetual problem in Russia. It appeared in times immemorial and has always been very acute. It has never been settled. The solution of this issue depends on the people who are now in this room.
This is what is very interesting and important, and what I want to bring home to you. All of you – all of us together – can solve this historic problem. It appears to defy solution just as road construction in Russia, with its immeasurable territories. It appears impossible to build the necessary amount of roads here, but it is quite possible to build the necessary amount of housing. Big and small problems will certainly spring up now and then but, on the whole, on the historical level, this is a negotiable problem and we have an epoch-making opportunity to cope with it.
It will take some effort to accomplish this, and this effort must be made. We must disentangle decision-making on land distribution from red tape. We should not allot land to our friends and relations, but should realise that if we are efficient and prompt with the task, the situation can change dramatically in every region and in the entire country – dramatically, mind you! The relevant instruments have started working. We will improve them and possibly add something expedient, as proposed by our colleagues in the Duma, by public organisations and the expert community. We have an historic opportunity, believe me!
We all – you all – will be a part of addressing a problem that has never been settled in Russia, and we can do it. We should allot land plots, eliminate bureaucracy from the entire decision-making system, get rid of all corruption schemes and free businesses from unnecessary pressure from law enforcement agencies. We should concentrate not only material and financial but also administrative resources on the government level and the level of Russia’s constituent entities.
I insistently ask those who worked on these issues today to be as attentive as possible as they put the finishing touches on final decisions with consideration for the ideas and proposals voiced here. Federal authorities should not implement them alone. We have convened this meeting with precisely such membership because our teamwork depends on the effective solution of those problems, starting with municipalities, on which regional governors have very dynamic influence, and major cities – mainly municipal entities, with the exception of Moscow and St Petersburg. So this includes the municipal, regional and federal levels.
I call on the presidential envoys to study with the utmost attention whatever concerns the municipal and regional levels, and everything that relevant decisions contain and that will concern them. They and their colleagues in the regions will make necessary improvements to these decisions and implement them. They should not intimidate anyone but should help regional governors to implement the decisions made today.
Let us wish each other success and thank the working group for their work. Thank you.