Housing Privatization in Transition Economies

Abstract

This paper examines the extent to which market forces are now responsible of the determination of housing prices in cities of the Former Soviet Union (FSU) and explains what implications follow from the reliance on market forces. Analysis of data drawn from the emerging housing market in Moldova, a republic of the FSU, over the period 1998-99 is presented in the paper. Micro level data for flats in the cities of Chisinau and Tiraspol are used to estimate hedonic price equations in an attempt to discern the extent to which market forces are now determining prices. Despite the fact that Moldova is taking a rather slow approach to economic transition in general, with the economy in a continued decline with GDP per capita falling, these data reveal a high degree of housing market rationality based on market forces. The role of emerging mortgage markets, insurance, and development of the legal system are also discussed in the paper in order to set the full context within which privatization of the housing stock is taking place. In addition, the potential role for computerized mass appraisal of housing units in the development of a property tax system is also discussed. Finally, implications of privatization and reliance on market forces for re-shaping post-soviet cities are discussed.