A Model of Housing Privatization Decision: the Case of Russia

This study addresses the issue of housing privatization in Russia in the course of the1990s. Privatization was started as a first step for creation of housing market in order to efficiently allocate resources in the use and production of housing, as well as to phase out the state budget financing of housing. Unlike the other post-socialist countries where housing was sold to the residents at discount prices, in Russia dwellings were offered to their residents free of payment. The objective of this study is to offer a better understanding of the structural components of privatization by formally modeling housing privatization decision from the household point of view. The model is based on a trade-off between certain value of renting and uncertain value of owning. Using the results of the theoretical model, an empirical model of the privatization decision from the point of view of the household is formulated. The findings of the empirical model are that household characteristics such as education and age affect privatization decision but income does not. Higher quality dwellings are more likely to be privatized. There are also locational effects indicating that place-specific factors such as amenities, municipal policies affect privatization decision. This research has important policy implications with respect to housing policies in Russia, and future housing privatization efforts in other countries.