The Suburban Housing Market in Russia is Having a Blast

Natalia V. Altynova

, Yuliya B. Kostrova

and Olga I. Shvaika

Ryazan state Radio University named after Utkin, Gagarina St., Ryazan, Russia

Moscow Witte University, Ryazan, Russia

Keywords: Real Estate Market, Suburban Real Estate, Pandemic, New Construction, Square Meter.

Abstract: The article is especially important due to significant impact of Covid-19 on suburban housing market in Russia

as one of the main factors of sales increase on this market. Covid-19 changed the economic landscape of many

industries not only in Russia but around the world. The author of this article makes an attempt to investigate

how Covid-19 impacted the market of suburban housing in Russia and find an explanation why this market

demonstrated growth during the recent years. The author of this article attract research from different sources

and make analysis of the trends in this industry. The topic of this research is relatively new and

underdeveloped. The author of the article believe that their research will make an input into research of the

changes in economy caused by Covid-19 in general and will be developed further.

1 INTRODUCTION

Suburban housing (construction in a mixed-used or

residential area existing either as part of the city or

urban area or as a separate residential community

within commuting distance of a city) demonstrated

decline over the years before Covid-19 (Blokhin et

al., 2021). According to RBC research in 2018 the

suburban housing market could not get over the crisis

and the prices for the property were going down

constantly. The offer of the suburban housing was

significant and a customer had a wide choice which

created strong competition among market players.

The market situation changed with Covid-19. Russian

citizens moved actively to the suburbs and out of

cities looking for suitable property either to rent or to

buy. Those of them who had their own out of the city

propery started using it, while others stated looking

for property to buy. Experts think that they are not

likely to come back to their city apartments after the

Covid-19 pandemic is over. Russian suburban

housing market had to be reloaded because it is to

create a bigger offer at different prices and quality for

different segments of customers. Starting from the

beginning of 2020 prices on suburban housing market

went up in 77 region of Russia out of 84 regions. The

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most sugnificant increase by 15-16% took place in the

Amursk region, the Khabarovsk region, republics of

Komi and Khakasia and the Udmurtia region. The

strong increase also happened in resort regions.

People having no chance to spend their vacation

abroad travel to places like Sochi, Crimea, Causasus

region, Altai. They get positive experience there and

buy private property in those regions.

According to CIAN, a leading Russian real estate

marketplace, suburban real estate gained over 43% in

price since the start of the pandemic (April 2020)

(Real Estate Market in Numbers, 2021).

The price of a sq.m. rose from 33089 rub. to

47444 rub. outside of the largest metropolitan

communities. In Moscow, the rise has been less

dramatic, only 31%, mostly because prices had been

high enough already. As of October 2021, suburban

real estate in Moscow averages 131421 rub. per sq.m.

Although suburban real estate prices rose intact

with the rest of the market (apartments gained a

similar 28% over the same time period) the reasons

behind this rise are more diverse, and some of them

have nothing to do with the major force driving the

housing market in general – the COVID.

The purpose of this article is to makе an attempt

to investigate how Covid-19 impacted the market of

suburban housing in Russia and find an explanation

334

Altynova, N., Kostrova, Y. and Shvaika, O.

The Suburban Housing Market in Russia is Having a Blast.

DOI: 10.5220/0011120200003439

In Proceedings of the 2nd International Scientiﬁc and Practical Conference "COVID-19: Implementation of the Sustainable Development Goals" (RTCOV 2021), pages 334-338

ISBN: 978-989-758-617-0

why this market demonstrated growth during the

recent years.

2 MATERIALS AND METHODS

To achieve this goal, the following research methods

were used: general scientific (dialectical, analysis and

synthesis of available literary data, comparisons and

analogies, annotating, inspecting and referencing

information obtained from modern scientific

sources), special (system, comparative analysis, etc.).

The main sources of information were publications by

Russian and foreign scientists and analysts on various

aspects of the development of the real estate market,

in particular the suburban housing market; statistical

services; special portals and other Internet resources,

news and notes published in the media.

3 RESULTS AND DISCUSSION

There is no denying, however, that the COVID

pandemic has impacted the lives of Russians in many

ways. Families were suddenly spending time together

24/7, and it turned out that many weren’t ready. While

the pandemic gave us time, it also demanded

something most didn’t have readily available – space.

With schoolchildren and college students forced to

learn from home, the one and (usually) only home

computer suddenly became a scarce resource. Parents

had to buy equipment and rethink their work

schedule. However, as reports from the Ministry of

Health became the routine go-to morning news,

another problem arose, and this one couldn’t be cured

by a mere visit to MVideo’s computer aisle.

It is no secret that most Russians’ living

conditions are quite cramped. According to Minstroy,

the Russian construction authority, the average

Russian citizen owns 26,9 sq.m. (Dumanskaya,

2021).

This is modest compared even to Eastern Europe

(35 sq.m.), and especially – to the United States,

which boasts 65 sq.m. per person. But who needs the

space when you live mostly at work? The pandemic

changed the work/home balance for many. Office

works suddenly found themselves participating in

hours-long meetings from their bedrooms, kitchens,

garages and even cars. Family conflicts over who gets

the room and for how long became the norm. The

obvious, although very expensive, answer was

upgrading your living quarters – moving to a larger

place. The pandemic had a word here, too. According

to a study by CIAN, most buyers are now looking for

an apartment with a dedicated office space and/or a

terrace. A better answer yet, however, is a country

house. Without a need for a lengthy drive to town,

which used to be named as obstacle #1 by prospective

house-buyers, suburban real estate suddenly became

king.

The pandemic, however, was not the only factor

behind the suburban real estate boom. According to a

study published on nedvio.com (Nechitaeva et al.,

2019; Krylov, 2021).

Air quality in the entire center of Moscow is

characterized as “extremely negative” with the rest of

the city only slightly better in this respect. In a study

conducted by “Strelka”, a city anthropology center,

respondents named ecology as the main factor

influencing their choice of a country house

(Homayko, 2020).

This trend is not only Russian, but rather pan-

European. According to Hugo Thistlethwayte, Head

of Global Residential Operations at Savills, a leading

real estate broker, country houses initially purchased

as weekend getaways, have been increasingly

becoming primary residences over the last decade.

Relocating to the countryside always involves a

longer commute. That, in turn, calls for a separate

vehicle for every adult family member. The typical

“soccer mom” feels almost like a cab driver,

especially should her daily drive involve a 20+km trip

to town. However, the number of vehicles in a family

sometimes present a cause of relocation in itself. Over

the last several years, paid parking has become the

norm in Russia – and not only in the capitals. While

it did free up some parking space, after years of

havoc, it also created an article of expense – for many,

this was yet another reason to move out. As of 2021,

in Moscow, a monthly parking permit can run as

much as 30 000 rub. – an average monthly salary in

some of the poorer regions. In Saint Petersburg, a

similar permit is 12 000 monthly. Even in a very

average city, such as Tula, monthly parking will take

2500 rub. out of your pocket (Rudyk, 2019). At the

same time, most separate housing plans now include

a built-in garage, often even for 2 cars. It is also quite

unthinkable that paid parking will make its way into

the suburbia of even the largest cities. Safe to say, this

is not something to worry about.

Another factor adding to the rising demand for

suburban real estate is the surge in apartment prices.

New construction in Moscow added 38%, with the

current average price of a sq.m. at 263 000 rub.

Apartments have become increasingly expensive for

a number of reasons, too. Experts agree on the fact

that subsidized mortgages (special government

The Suburban Housing Market in Russia is Having a Blast

335

programs, administered through major Russia banks)

have been the major reason. Under such programs,

buyers have been able to receive a mortgage loan at

an earlier unthinkable rate of 6.5%. The government

compensates banks for the difference between the

subsidized rate and the actual cost of money. The

programs has a limit of 3 mln. roubles , and used to

also have a higher limit of 10 mln. for property

located in Moscow and St.Petersburg. According to

mos.ru, the city administration site, over 90% of all

mortgage loans in Russia are currently issued under

this program. The program was initiated in 2020 as a

means of support for both real estate developers and

mortgage borrowers.

According to Rosreestr, Russia’s property

registration authority, over 107 thousand mortgage

loans have been taken out by Russian over the period

of April 23. 2020 through November 1. If we multiply

that by 3 million, we arrive at a whopping 321 bln.

Roubles. With all that liquidity suddenly available to

the markets, developers resorted to the major surefire

move known since Adam Smith – they started raising

prices until supply finally met demand. Unfortunately

for buyers, the meeting took place at price points

earlier unseen.

This makes buying a larger apartment an

unattainable dream for many prospective

homebuyers. The suburban market, although also

inflated, offers a much more affordable 131 000 rub.

even around Moscow, which affords buyers a place

almost twice as big for the same money. As a result,

prospective homeowners with low and moderate

budgets are driven outside the largest metropolitan

markets, thereby further increasing the demand.

The market has also answered with an earlier

unseen decrease in apartment space. Single-room and

studio appartments now account for 53% of all

available stock, according to RASK (a rating agency

with a focus of construction companies). It is worthy

of note here that in Russia a 1-room apartment is not

the same as a traditional single bedroom worldwide.

A 1-room apartment is comprised of a room, which

doubles as a living room and a bedroom, a kitchen and

a bathroom. Moreover, in 10 regions of Russia this

number is even higher, 60% - the regions include such

seemingly wealthier territories as St.Petersburg. In

Moscow, where prices are traditionally the highest,

20- and even 11 sq.m. studios (a number which makes

even the smallest hotel rooms look luxurious) are no

longer an obscure rarity.

As of November 2021, developers in Moscow are

offering over 16000 units for sale in the so-called

mass sector (economy and comfort class), a 23%

increase year-on-year. Of that number, studios

amount to 21% of the supply. The number of studios

on sale is greater than the number of 3-room (2

bedroom) apartments. If we add 1-room apartments,

the supply arrives at 51%. The major factors behind

this trend is cost. While studios do offer a higher

sq.m. price, the total check still comes up way lower

than even the smallest 1-room apartment.

The decrease in travel also added to the situation.

According to ATOR (a tourism association),

international travel from Russia decreased by a

drastic 77.5% in 2020 (ATOR summed up the tourist

results of 2020 and talked about three scenarios in

2021, 2020). This was due to obvious reasons –

borders were closed, air travel restricted to “special

needs” only. However, internal tourism also suffered,

shrinking 35-40%. While some destinations are open,

people are increasingly wary of COVID and therefore

not ready to travel. An obvious replacement for a trip

to the sea has always been the “dacha”, so when it

became clear that travel wasn’t returning any time

soon, many people turned to upgrading their existing

dachas to accommodate year-round living – and buy

new ones.

Some of the buyers in the suburban market are

former owners of foreign real estate, which they have

had to get rid of, and COVID only had a partial say in

this.

The state, with its position of double citizenship

for government employees, influenced the situation

as well. Since July 2021 Russian officials are not

allowed to hold foreign citizenship, with a few

exclusions. This was another step towards ensuring

the officials’ loyalty, adding to the already common

practice of declaring foreign real estate (Gorovtsova,

2021).

It is no secret that many Russian officials, and not

only federal, owned an “escape plan” in Italy, Spain

or Bulgaria, which they now had to sell, or risk they

career. Having done that, however, most directed

their money towards buying a beach house in Mother

Russia- namely, Sochi or the Crimean Peninsula.

They were followed by a horde of others, with no

limits on owning foreign homes, but with a very

unclear vision of how soon they were going to be able

to see them. Most European countries demand that

visitors present proof of vaccination by a WHO-

accepted vaccine, none of which are available in

Russia. As of November 2021, the only countries in

Europe ready to accept visitors vaccinated with the

Russian Sputnik-V are Hungary (this country also

accepts Russians who have chosen the other vaccines

– EpiVacKorona and CoviVac), Slovakia, Turkey,

Montenegro and Estonia. Even Greece and Bulgaria,

historically the most Russian-friendly sites and

RTCOV 2021 - II International Scientiﬁc and Practical Conference " COVID-19: Implementation of the Sustainable Development Goals

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favorite vacations spots for many Russians, require a

negative PCR-test.

Even if tourists manage to enter a country, leaving

it and safely getting home can be an issue in itself.

The newly discovered “omicron” variant of COVID-

19, characterized by higher contagiousness and

theoretically more severe, has caused South Africa to

declare a lockdown, which includes blocking

incoming and outgoing airtravel. This left a number

of tourists, including Russians, wondering how and

when they would be able to get home. The omicron

variant, according to the earliest studies, may not

blocked as effectively by the known vaccines, as the

earlier known variants of COVID.

Adding to increased airfare and rising costs of

upkeep, for many this is a clear sign to sell and go

back home.

Finally, the construction costs factor. An article

by «Kommersant» shows that most construction

materials showed an increase in price, sometimes 2 or

3-fold (Rusakov, 2021). Specifically, steel and steel-

based materials gained over 100%, and wood – 150%.

As a result, the price of a typical brick house (shell

only) rose from 1,5 to 5 million rub.

An article by Vesco, a large contractor, gives a

clear view of growing prices.

Table 1: Dynamics of prices for construction materials,

2020-2021.

№

Product Unit

Price

July

2020

Price,

Jan

2021

Price

July

2021

months

growth

, %

months

growth

, %

1 Waterpro

ofing

sq.

54 75 160 39,4 197,4

2 Plywood she

161

2400 460

48,6 187,8

3 Edged

woo

m3 850

12000 180

41,2 111,8

4 Rebar T 410

65300 752

59,3 83,4

5 Dry wood m3 128

18900 225

47,7 75,8

6 Penoplex m3 420

4300 740

2,4 76,2

7 M 150

Bric

piec

15 20 25 33,3 63,3

8 Full-bodied

ric

piec

13 15 21 18,8 62,5

9 Granite

rubble

190

2400 280

26,3 47,4

10 M350

granite

concrete

420

5400 565

28,6 34,5

11 Sand m3 640

680 750 6,3 17,2

12 M350

gravel

concrete

m3 420

4900 490

16,7 16,7

13 M500

cement

bag 325 365 365 12 12

If we compare this to the housing prices, the

former seems quite modest. However, one must keep

in mind that a significant part of the supply is made

up of 2000 and even 1990s construction, often

characterized by exorbitant sizes (sometimes in

excess of 1000 and even 1500 sq.m.), unreasonable

floor plans, poor choice of construction materials and

highly questionable design. Such houses are

expensive to service and uncomfortable to live in. The

mistakes made by their original owners can often be

corrected, but at a cost, which the prospective buyer

will be sure to discount off the asking price. It is safe

to say, therefore, that once the market is done with the

old supply and the offers with have been up for years

are gone, new construction will maybe offer us better

options and building quality, but for sure at new, yet

higher prices.

The latest statistics prove all of the above.

According to a study conducted by Rosselhozbank, a

leading mortgage loan provider, 81% of Russians

view moving to the countryside favorably.

The report shows that over half of the above

mentioned 81%, over half are people 35 to 50 years

of age. Of those, 54% are ready to move to the

countryside permanently, and 27% - only for short-

term visits. The report also shows men as more

decisive in their desire to more, and women – more

reluctant. It is also worthy of notice that only 19% of

respondents were firmly in favor of city living.

The respondents were also asked about the factors

which influence their decision to move out of the city,

and came up with the following answers.

Figure 1: Influencing factors.

“The pandemic changed view of suburban living.

Moreover, government policy helps create

comfortable living and working conditions in rural

0,08

0,11

0,13

0,29

0,39

Fewer

people and

less noise

pollution

Natural

food

Larger

floor space

Ecology,

clean air

All of the

above

Influencing factors

The Suburban Housing Market in Russia is Having a Blast

337

areas. It is no surprise that almost have of the

respondents (47%) would like to purchase suburban

real estate. Many have a conscious desire to replace

the city buzz with the peace and quiet of rural living,

work in a new place, perhaps even become a farmer”

– says Boris Listov, Chairman of the Board at RSHB.

4 CONCLUSIONS

While its arguable what weight factors other than the

pandemic have had in the rise of the Russian suburban

market, it is certain that the buyers’ changing housing

needs, along with the newly reinforced ecology trend,

limited travel opportunities, growing apartment

prices and rising construction costs have all added up

to form a new reality, where a house – for the first

time since before the 1917 revolution – has become a

viable choice for many a Russian.

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Institutional Transformations of Russia’s Housing

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