Expert: State Budget Planned for Building New Khrushchyovkas in Areas with No Demand or Jobs

The stateplans to start building apartment buildings in smaller rural areas, but according to Argo Pillesson, the head of Estonia's largest real estate office Uus Maa, the problem there is not the availability of real estate, but the lack of jobs, and state aid would be ineffective and would create new market failures. In Pillesson's view, the solution could lie elsewhere. 

„Building apartment buildings in rural areas at the state's expense does not meet real needs or market conditions, because many settlements have historically been agricultural or industrial centers where so much labor is no longer needed. Apartment buildings in our charming small towns and villages are largely a Soviet-era legacy. There is a clear market economic reason why no new real estate has been built in some regions or towns for 35 years or attempts have been made and failed," said Pillesson. 

"In most smaller settlements, there is actually a wide selection of real estate and availability is good, and the root problem is that people move to cities and centers of attraction where there is work. I myself come from a small town in central Estonia and from my generation I see that 30-40-year-olds who return to a small town do so mainly because they can afford to buy or build a private house there. I have not heard of anyone dreaming of living in an apartment building in a small town. In essence, it seems that the state wants to build Khrushchyovkas in the middle of a field again, which it will later privatize," said Pillesson. 

„In the big picture, there is indeed a long-term risk for the state in the fact that more and more people no longer own a home, but prefer lifelong renting. If the number of taxpayers falls and the share of renters grows, then more people are created who expect the state to come to their aid in old age to compensate for rental costs, which further burdens the tax system. Building new apartment buildings in smaller villages with state support does not solve this issue," noted Pillesson. 

According to the head of Uus Maa, the state can best improve real estate availability mainly by simplifying its own regulations, bureaucracy and planning procedures. „The state cannot significantly change the price of building materials or labor, but simply pay on top of building. Rather, this creates new market failures that affect the balance of the real estate market – leading to a situation where it no longer makes sense to build without state support," added Pillesson. 

„The state and municipalities should focus primarily on building infrastructure and promoting entrepreneurship – a good recent example in Estonia is the city of Võru, which itself developed single-family residential plots infrastructure and put the plots up for auction on conditions favoring young families. A similar scheme is widely used in Finnish regions with declining populations as well. The positive impact of major infrastructure projects can be seen in the construction of the four-lane section of the Tallinn-Tartu highway at Mäoni, which has given significant impetus to the real estate market in Paide and its surroundings," said Pillesson. 

„The more active role of local municipalities in developing new residential real estate and business infrastructure could be an effective way to guide the development of rural areas. The state's role should be to support such initiatives, not to build new apartment buildings in areas where demand for them is questionable. According to an old truth, you should give a fishing rod, not the fish," added Pillesson.