Moscow Mayor Hopes to Destroy Housing Projects in Order to Save Them

By Nathan Hodge Features Dow Jones Newswires

Vitaly Slavin loves his home in northwest Moscow. Built in 1968, the brick apartment building was one of thousands of prefabricated five-story buildings thrown up during the Soviet housing boom of the 1950s and 1960s.

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"It's in solid shape, it's a 10 minute walk to the subway, and there's a park nearby," he said.

But Mr. Slavin's building is one of thousands targeted for demolition by Moscow city authorities in what is shaping up as the city's biggest face-lift in a generation. This spring, the city published a list of 4,500 apartment buildings that will be torn down, the first phase of a renovation plan that will eventually see 8,000 aging buildings demolished and replaced with high-rise apartments.

For the Russian real-estate industry and foreign property investors, the plan is the first bright spot in years in a business that has been hammered along with the rest of the country's economy by the ailing energy sector and western sanctions put in place after Russia's annexation of Crimea in 2014.

Moscow Mayor Sergei Sobyanin has estimated the first installment of the plan would cost around 300 billion rubles ($5.3 billion) over three years, according to the news agency RIA-Novosti. Officials project the longer-term cost of relocating and rehousing tens of thousands of people over 20 years would cost at least $53 billion.

The demolition program is moving forward at a time when Russia's currency has firmed against the dollar and property prices in Moscow have stabilized. The average price of a square meter of residential space is more than $2,900, up from $2,600 a year ago, according to IRN.ru, a Russian real-estate index.

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But the program touches a potential third rail for some apartment owners who worry they may face eviction-by-edict by government authorities. The city government says owners will be offered new flats in the same area, but some protesters have feared they will be moved to high rises in the outer suburbs.

Concern about the demolition program has been magnified because details haven't been revealed. Early in May, local media outlet Republic.ru reported developers were beginning to prepare to make bids. But it's still too early to say how this will work, as the formal legislative framework for making this happen has yet to be passed.

In a press conference in early May, Moscow City Duma deputy Elena Shuvalova said the proposed renovation program would disrupt the lives of Muscovites.

"People are used to their way of life," she said. "They go to shops, clinics, take their children to school, go to work, they are used to their neighborhood....And suddenly, they say move."

The program underscores the conflicting political and economic forces at work in the Russian housing market, which was privatized after communism fell more than 25 years ago but still shows traces of state planning.

On one hand, the apartments slated for demolition were originally owned by individuals who were allowed to acquire their units after the Soviet Union dissolved. On the other hand, it isn't clear how much power owners will have to stop the program if authorities move ahead in a heavy-handed fashion.

Opponents of the plan say the final word over the Moscow demolition and rebuilding is in the hands of President Vladimir Putin, who is seen as the arbiter of any politically charged issue in Russia. Mr. Putin is "the only person who can decide the outcome," said Mr. Slavin.

If the program moves forward it promises to refashion the landscape of Russia's richest and most populous city. With an official population of over 12 million, Moscow is more than the seat of government -- it also is the financial capital.

Mayor Sobyanin has been the most visible proponent of the plan. In a recent radio interview, he said the renovation plan would be carried out in a democratic manner: If two-thirds of the residents of an apartment block don't want to be relocated in new housing, they will not be included in the renovation program.

"There is no desire to drag anyone into this program by force," he said. "Everything is voluntary -- if the residents want it, we include their building, if they do not want it, we don't include it."

For President Putin, the decision to move more than a million Muscovites is potential political dynamite. Thousands took part in a street demonstration against the plan in mid-May.

The five-story buildings, built largely during the Khrushchev era, are cramped and utilitarian in design, with thin walls and low ceilings. But some residents have a strong sentimental attachment to them.

Ilya Shumanov, the deputy head of Transparency International Russia, the local chapter of the international group that battles corruption in governments, said the city-funded construction boom needs more oversight. The Russian legislative process, he said in a recent report, doesn't provide adequate oversight of the interests that may be lobbying for the renovation plan.

"It is not known who is behind this or that bill, what interests are pursued by this or that group, and whose money will realize a project," he said.

If the renovation of Moscow is a success, authorities say the program could be replicated in other cities. Vyacheslav Volodin, a Kremlin insider who is speaker of parliament, has described it as a "pilot project" that could pave the way for similar grandiose housing schemes across Russia, according to the news agency RIA-Novosti.

Write to Nathan Hodge at nathan.hodge@wsj.com

(END) Dow Jones Newswires

June 06, 2017 07:14 ET (11:14 GMT)