In the Latvian real estate market, a problem which remains essentially unsolved is Soviet-time multi-apartment buildings. They are increasingly ageing, but a relatively small proportion of them have experienced serious reconstruction. Because of the insignificant number of new projects entering the market and because of their prices, the Soviet time-era houses remain a very important resource for the housing fund in many cities of Latvia. Therefore, turning to serious reconstruction is an unavoidable step.
Latvia is currently implementing the largest-ever energy efficiency program of multi-apartment houses with the support of European Union (EU) funds. Even more expectations were linked to the new EU Recovery Fund, which aims to restart the European economy following the Covid-19 crisis. However, the initial version of the plan shows that the renovation of multi-apartment buildings is not considered to be a matter worth serious consideration.
Real estate agency Ober Haus estimations show that the 2020 plan in Vilnius, Lithuania, aimed for 5,200 new apartments, approximately 3,000 apartments planned to be completed in Tallinn, the capital of Estonia, while in Riga a little more than 2,000 apartments were planned. Thus, according to estimates of Ober Haus, developers planned to build an average of 17 apartments per 1000 inhabitants in Vilnius in 2019-2020, 14 apartments in Tallinn, while in Riga - 7 new apartments per 1000 inhabitants. It should be noted here that the pandemic may have led to adjustments in these plans and that some of the projects planned will take longer.
Similarly, there are still relatively few new apartment buildings, but prices are higher. Swedbank's Baltic Housing Accessibility Index shows that if, overall, in the third quarter of last year, the average sale price of apartments in Riga was EUR 1,163 per square meter, the average price of new projects and renovated apartments was EUR 1,632 per square meter.
The fact that newly constructed multi-apartment houses are still not regarded as an alternative to changing trends in the real estate market as a whole is also indicated by the housing price index produced by the Central Statistical Bureau. Although the prices of older housing are lower than those of new buildings, overall price changes in both segments are almost identical. This shows that the demand for lived-in dwellings is not diminishing and that price changes are not lagging behind those newly built.
This is also confirmed by an overview of the “Cenu banka” tool for real estate transaction analysis. It shows that between May and October 2020 more than half of the business on the Riga apartment market consisted of deals with Soviet time-type building apartments, less than 30% consisting of dealings with apartments in new projects, and the remainder – dealings with apartments in pre-war buildings.
All of this shows that Soviet-era multi-apartment houses are not a segment that would decrease in the Latvian urban real estate market. Therefore, in order to escape the very sad consequences of the ever-increasing deterioration of the technical state of these buildings, Latvia has to launch targeted reconstruction of these buildings, eliminating the problems that have prevented it from happening until now. It is a very complicated procedure for house apartment owners to agree on a renovation.
Since 2016, Latvia has implemented the most extensive energy efficiency improvement program of multi-apartment houses, for which funding is provided by the development financial institution “Altum”. Up to 50% of the costs invested in improving the energy performance of houses are covered by EU funds, while the other costs should be borne by apartment owners themselves or through bank lending.
Currently, 258 homes have been completed, 50 buildings are under construction, while more than 500 projects are in various other stages of implementation, according to information from Altum last December. In total, 988 house renovation projects have been submitted since the beginning of the program, with a total of €420 million planned for renovation.
Are we missing our chance?
High expectations were associated with the new EU Recovery Fund, which aims to restart the European economy following the crisis caused by Covid-19.
It is currently estimated that €1.65 billion of this new fund will be available to Latvia. Latvia's original plan for the allocation of funds has also been published. There are still possible changes to it.
However, the original version of the plan agreed by the ministries shows that the renovation of multi-apartment buildings is not an area that has got serious attention from public officials. It is currently estimated that EUR 36.6 million will be allocated for the redevelopment of multi-apartment buildings.
These figures can be compared to the Altum program already implemented. If we use this program's estimate that there is an average investment of 430 000 and the assumption that, as in the Altum programme, the grant will be half of EU money, the planned EUR 36.6 million can only support the renovation of 170 residential buildings. There are approximately 12000 apartment buildings in Rīga alone.
In the meantime, many are pointing directly to the renovation of buildings and energy efficiency as one of the most desired investment lines, including Executive Chairman of the European Commission and EU Trade Commissioner Valdis Dombrovskis.
“There are still a lot of buildings in Latvia that have not been warmed and are not energy efficient. A substantial part of the funds could be earmarked for such objectives, since on the one hand it will allow climate objectives to be achieved, on the other hand, will create an economic stimulus in the short term, which in turn is jobs in the construction sector and in other sectors related to building renovation. Building renovations will benefit residents because of lower heating bills. This is just one concrete example, but there are also many more topics,” Dombrovskis said in an interview to LETA.
The Ministry of Economy has also prepared the Housing Accessibility Reform, which includes a goal for all households in Latvia to have access to housing, while the existing residential fund meets high standards of energy efficiency, construction, safety and mobility by 2050. In this case, guarantees for bank loans are provided for the reconstruction of existing multi-apartment buildings or for the construction of new buildings. However, an unanswered question is what to do with privatized Soviet time buildings, whose apartment owners do not qualify for bank credit today and are unlikely to qualify tomorrow and the day after.