Catch up and overtake Moscow

Housing prices are rising in all major cities of the country

Real estate prices in the largest cities of the country were divided into four groups.

In the first group is Moscow with an average price of $5,299 per square meter. The second group included St. Petersburg ($3,115), Yekaterinburg ($2,563) and Novosibirsk ($2,438). These are the largest cities in the country in terms of population and economic weight. The third group included Perm ($2,215), Samara ($2,172), Krasnoyarsk ($2,050), Nizhny Novgorod ($1,982), Ufa ($1,932), Rostov-on-Don ($1,896) . In the fourth group are the cities of Kazan ($1,681), Omsk ($1,680), Volgograd ($1,636), and Chelyabinsk ($1,584).

Moscow is certainly ahead of its closest “competitor” St. Petersburg, where the price is 70% lower than in the capital. In other cities of the country, prices are two or three times lower than in Moscow.

At the same time, there is no need to say that Moscow somehow stands out in terms of price growth rates. Long-term observations show that prices in different cities have increased at about the same rate in recent years. The average price increase in the country's largest cities over eight years was 8.44 times. If in some cities the market calmed down for a long time, then sooner or later the X hour would come and an explosive rise in prices would occur. This was the case, for example, in 2007, when in St. Petersburg, Nizhny Novgorod and Ufa, where for a long time residents rejoiced at the calm in the real estate market.

As the economy develops, the real estate market becomes increasingly linked to the city's potential. If we compare the city’s place in the price ranking in 1994 and today, an obvious pattern will emerge. The largest cities in the country have also become the most expensive. If in 1994, during the period of general crisis, Ekaterinburg was in 11th place out of 14, now it is firmly established in third place. In addition, it should be noted that over the past year there has been an accelerated rise in prices in the regions of Siberia and the Urals (with the exception of Chelyabinsk).

The forecast for the next year is a further increase in prices in the second price group: St. Petersburg, Yekaterinburg and Novosibirsk, as well as the growth of the Nizhny Novgorod market as the fourth largest and successfully developing multifunctional city.

There is another approach to predicting future market behavior. Previous studies (G. Sternik) indicate a constant relationship between the prices of the largest cities in the country. If some cities lagged behind or came out ahead, then sooner or later everything returned to the framework of a stable price structure: either prices in the city rose sharply, catching up with the market, or they slowed down, and the “Russian market” caught up with them.

The largest cities in the country are divided into two distinct groups based on the rate of price growth since 2000. The first category included cities in which prices increased approximately 7-8 times. These are St. Petersburg, Ufa, Kazan, Nizhny Novgorod, Moscow, Chelyabinsk, Rostov-on-Don. The second “leading” group, where prices increased 10-12 times, includes Yekaterinburg, Volgograd, Omsk, Perm, Novosibirsk, Krasnoyarsk. The low growth of Ufa - five times in seven years - does not indicate that the market will begin to grow in this city. The fact is that, unlike other cities in the country, the Ufa real estate market “fell” to a much lesser extent during the 1999 crisis.

At the same time, forecasts based on a different approach indicate a future sharp acceleration in prices in cities of the first group (increased by 7-8 times) with a growth potential of about 50%. Moscow, which is included in this group, by the end of 2008, according to this hypothesis, will reach an average price level of $8,000 per square meter. With such an average price per square meter, the capital will reach the level of leading cities in the world, such as London or New York.

We build more - lower prices?

How high can prices go? There is a persistent stereotype that as soon as we start building a lot of housing, prices will collapse. But, firstly, it is necessary to build for a very long time and a lot. After the collapse of the USSR, construction in the country consistently declined. Compared to 1990, in 1999, half as much housing was built per year. This happened due to the collapse of the previous mechanism for financing the industry based on state planning. Credit conditions for both developers (construction loans) and citizens (mortgage loans) were unfavorable, so a mechanism for financing construction was created using the funds of “interest holders”, which, in the conditions of a sharp decline in real incomes of the population, could not ensure a sufficient flow of money into the construction industry. industry.

The total volume of housing that has not been built in the country during the 18 years of economic transition to a new direction can be estimated at 380 million square meters. Despite the fact that, thanks to the difficult but, judging by the results, successful start of the national program “Affordable and Comfortable Housing,” the pace of new housing commissioning has almost reached the Soviet level, significant efforts are still needed to saturate the housing market. Even with the construction targets of 95 million square meters per year recently announced in a speech by First Deputy Prime Minister Dmitry Medvedev, it will take more than ten years to build the housing that the country has not received over the past 18 years.

At the same time, we should not forget that a significant part of the housing stock is deteriorating and goes out of circulation. In addition, one should remember the need to quickly replace houses of the first industrial series due to physical wear and tear. All this adds to the potential volume of required construction.

There is a relationship between housing prices and construction rates, but it is complicated by factors such as economic growth in cities. The analysis carried out (the ratio of housing commissioned per capita in 2000-2006 and the increase in housing prices) shows that in Kazan, with its largest volume of housing commissioned among the largest cities, the increase in prices in the real estate market was even greater than what was observed in Nizhny Novgorod, where construction volumes have been the lowest over the past eight years. A similar comparison of Krasnoyarsk and Rostov-on-Don: with approximately equal volumes of housing commissioning, price growth in the latter is 1.5 times lower.

To be fair, it should be noted that in the cities where prices have increased the least (Ufa, Moscow, Kazan, St. Petersburg), the authorities pay a lot of attention to supporting the construction complex. At the same time, even such a high level of housing commissioning did not prevent prices from rising seven to eight times over seven years.

Demand will increase

The question that everyone who buys an apartment asks themselves: can prices really rise endlessly, because people don’t have that much money?

First, about housing affordability and cries of “how long!” All over the world, housing is considered an expensive commodity. If we read blogs and guest books of forums in other countries, we will get the feeling that “I’ve already heard this somewhere.” Everyone, everywhere, angrily condemns rising prices and expects them to fall.

Not every resident, even in Western countries, can afford to buy an apartment with their own income. Housing affordability coefficient, which reflects the theoretical possibility of a standard family to buy a standard apartment of 50 square meters. m, provided that the income of all family members is spent on this, shows that Russia and Moscow are by no means in a deplorable position in terms of this indicator. In Moscow (4.1 years), this figure is close to the American average (3.7 years). In Russia it is slightly higher - 4.7 years. In Europe, the situation with housing affordability is on average better - the affordability ratio is three years. If we compare the indicators of Great Britain (5.5) and London (8.3), it becomes clear that housing affordability is relatively high in Moscow. At the same time, the growth of opportunities created by mortgage lending, with an increase in construction volumes, will increase the affordability of housing. The target coefficient given by the Institute of Urban Economics for Russia should be equal to three.

In addition to supply factors, the rise in real estate prices is also based on fundamental demand factors. On the one hand, about 75% of transactions in the secondary market are alternative transactions. When making such transactions, you do not need to pay the full amount of the cost of the apartment. Usually we are talking about an additional payment of several tens of thousands of dollars. Finding that kind of money is much easier. In addition, mortgage opportunities are expanding significantly. Today, according to official data, the number of mortgage transactions exceeds 15% in all federal districts of Russia. The mortgage market is developing rapidly. Let us recall that back in 2005 such transactions averaged 3-4%. The target for the “Affordable and Comfortable Housing” program is 30%.

It is worth remembering that on the demand side, the situation in the real estate market is determined not only by the fact that many people want to improve their living conditions. Thanks to economic growth and increased incomes, people began to have savings and opportunities to use credit resources. The very model of behavior and consumption standards in the country have changed. The difference between what we see on television as a model of life, and what we see in reality, imperceptibly becomes an incentive to improve living conditions. Modern apartments are becoming larger, more and more families remain single-parent, and the tradition of living with parents is becoming a thing of the past. Already from this incomplete enumeration of factors contributing to the imbalance of supply and demand in the market, the fundamental basis for rising prices in the real estate market is clearly evident.