Title: Ethan Frome
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Ukrainian Housing Management in Transition
Sergei A. Rudoi, Programme Coordinator
Housing and Municipal Reform Support Centre

Abstract 
This paper outlines the Ukrainian context for housing privatisation, rental sector reform and housing finance, as well as the technical assistance approach used during the USAID Shelter Sector Reform Project and the project’s results. In addition, the report focuses on the USAID pilot project, which was undertaken in Odessa to demonstrate the feasibility of private management of municipally owned housing. The project involved the city issuing a request-for-proposals process to encourage applications from private organisations and to offer a service contract to a selected provider. Subsequent surveys of the residents revealed the success of privatisation – residents of housing units participating in the project are more satisfied with almost all types of housing services. The pilot program has been replicated in eighty-six cities throughout Ukraine and was instrumental in the local government’s housing reform initiatives. This report will also address steps taken to enable the private housing management to play a larger role in state-owned housing. Recommendations for project implementation are also provided.

Ukraine's Transition to a Market Economy
Shortly after Ukraine proclaimed independence, it began working towards radical economic restructuring. Since 1991, Ukraine has made significant progress in controlling inflation, introducing a relatively stable currency, and liberalising trade and prices on a macro level. Ukraine's transition from a centrally planned to a market-oriented economy has been accompanied by a significant increase in both domestic and foreign products and services on the Ukrainian market. While stabilisation was attained in Ukraine, economic growth has yet to be achieved, therefore suggesting that macro-stabilisation is a necessary, but not sufficient condition for growth. In 1998, Ukraine's economy declined by nearly thirty percent, experiencing another year of sharp decline (CIA, 1998). Even considering the unofficial economy and the unreported value added, a continual decrease in the overall GDP is apparent. Liberalisation at the micro level has not taken place, and accordingly, the cost of operating enterprises legally is still extremely high. The notable absence of enforced quality standards, legislative shortcomings, a general lack of trust in courts and the low awareness of citizens about existing consumer rights have encouraged many companies to offer low-quality or faulty products and services, thereby causing dissatisfaction among, or often damage to consumers. The transition to a market economy can be sustainable only if the population at large actively participates in and is aware of the impact they can have on the development of the market (Aghion and Blanchard, 1996). Protecting consumers from the effects of poor quality products and educating them on their rights is an important means for ensuring the successful transformation to a market economy. 

The Housing Sector in Ukraine
Since 1992, probably no other sector in Ukraine has experienced such massive reform as the housing or real estate sector. Mass privatisation, which was widely announced in 1992, was at that time mostly related to housing rather then to other sectors of the national economy. Even prior to Ukraine’s separation from the former Soviet Union, it was well known that housing was at least an efficient sector of the national economy in terms of investments versus returns. Housing is still crucial in Ukraine, representing one of the largest segments of the economy, consuming twenty-five percent of all investment and thirteen percent of the wealth (Dubrovina, 1998). Ukraine’s housing sector is an economic engine, generating approximately one-fifth of all inputs into the national economy. Throughout its various branches, the housing sector employs thousands of people. In Odessa, for example, eight thousand of the city’s one million residents work in the state housing sphere (Dubrovina, 1998). As of 1 January 1999, total housing amounted to 998.3 million square meters, with seventy percent of it being in urban areas (Mouliar, 1997). In this context, the housing sector is not only essential for meeting the demand for better shelter but also plays an important role in the economy as a whole. Therefore, when real estate suffers a crisis, as at present, the nation’s economy suffers as well. 
In spite of real estate’s importance to Ukraine’s economy, this sector is rapidly eroding in value. The percentage of housing reaching the end of its useful life is approaching ten percent and will either require major rehabilitation or demolition (Ukrainian State Committee for Housing and Municipal Economy, 1999). The housing problem has become one of the most significant social and economic issues in Ukraine. According to recent statistical data, nearly 2.4 million families and singles line up in queues requesting shelter (Ukrainian State Committee for Housing and Municipal Economy, 1999). The average floor area of residential houses per person is only 18.8 square meters – two to three times less than in the developed world (Ukrainian State Committee for Housing and Municipal Economy, 1999). Meanwhile, the overwhelming majority of the population is not capable of purchasing houses or apartments with their own savings on the existing market and, thereby, solve their housing problems on their own. This trend will accelerate in the future due to the fact that, as housing units get older, there is an increasing demand for capital investment and yet the budgets for maintenance are declining. The actual amount of appropriations spent on maintenance is also declining, and some estimates indicate that as little of forty percent of the maintenance budget is spent for that purpose (Ukrainian State Committee for Housing and Municipal Economy, 1999). State enterprises managing these properties, known as Zheks, still hold a monopoly in the housing sphere as both customers and contractors of all kinds of services. The absence of competition in housing management and maintenance not only deprives the customers/residents of choice, but also minimises the quality of housing, maintenance and repair. The current condition of housing in Ukraine is gradually exhausting its potential and is not able to meet the residents’ requirements. Even so, the state spends approximately one fourth of its gross domestic product on housing, and the sector employs a large number of state workers (Olson, 1996). 

Housing Privatisation 
Although specifics varied across the former Soviet Union, Ukraine faced a common set of housing and urban development problems in the 1990s. A combination of shifting ideologies, politics and budgetary necessity motivated Ukraine to seek ways to reduce the state role in the housing sector through privatisation and reductions in production, rent and maintenance subsidies. With the corresponding collapse of state-sponsored housing production, Ukraine sought alternative ways to develop, finance and maintain housing and related infrastructures. In 1993, Ukraine started mass housing privatisation, a cornerstone of housing reform in Ukraine. Privatisation ultimately involved an enormous transfer of wealth that benefited those fortunate enough to be occupying a state-owned unit at the end of the communist era. Privatisation of multifamily structures also brought with it the need for new common property regimes such as condominiums and owners’ associations. Laws prescribing responsibilities for common property form an important element of property rights, but in Ukraine such laws were absent in 1993. In some cases, existing tenant organisations were able to fulfil some of the functions of condominium associations in the short term.
At the initial stage, privatisation allowed families to choose their own homes and encouraged them to do more in maintaining them and using communal services more efficiently. During 1993 alone, a total of seven hundred and twenty-eight thousand apartments were privatised under the new law. In the following years, the rate of privatisation increased significantly, and by the end of 1997 the total number of privatised apartments was five point four million, 53.7% of the total number slated for privatisation (Ukrainian State Committee for Housing and Municipal Economy, 1999). However, it should be noted that from 1998 to present, the rate of privatisation has decreased – by the end of 1999, the figure had climbed only to 63.5%. Of the many issues confounding observers about this decreasing rate, the question of “why now?” has gone unanswered. The reason is probably related to the Ukrainian population’s misunderstanding of the goal of privatisation. While the majority of the population experiences benefits from privatisation, the rest still believe that it is only a governmental attempt to get rid of responsibility for housing maintenance and raise the rents for privatised apartments. Residents are uncertain over the future taxation of privately owned property and are unclear about the responsibility for major repairs in the future (Mouliar, 1997). In addition, the current legal status of private ownership is not clear to the majority of the Ukrainian population.  
Housing privatisation had a significant impact on the housing market. With privatisation, more units are being sold, rented, transferred or given away. Markets and market institutions are developing ahead of national policy changes. In 1994, there were more than thirty thousand notarial registrations of transfers of ownership. In 1998, there were more than eight hundred thousand such transfers registered in Kiev alone (Mouliar, 1997). Housing prices are increasing – especially in central areas of large cities. Formal housing "exchanges" are springing up, including the posting of housing prices and an emergence of small property brokers. Transactions are conducted in cash, however, and are usually registered at prices far below the actual price in order to avoid taxes. As of 1 January 1998, more than ninety exchanges and agencies operating as intermediaries in the housing market were registered. In addition, private publications on local real estate activities have appeared in many urban areas. An active and widely accessible housing market also presupposes the presence of a fair, functioning long-term credit system and a stable legal environment. The absence of legal development continues to thwart the development of housing markets. In the absence of a legal framework, participants in the new housing markets must beware of fraud and incompetence within the real estate industry. 
Unilateral housing privatisation without significant government regulation may cause serious problems in the future. The absence of a housing code forced Ukraine’s National Housing Committee to issue some governmental regulations, which had no legal status but facilitated some changes in the current situation. The Housing Committee actively worked with policy makers to increase the understanding of the role of real estate and the need for national real estate reforms. The ongoing need to be concerned about the healthy operation of the real estate sector and how public polices affect real estate assets remains important and immediate – precisely because real estate plays such an integral role in the nation’s economy. Combined with positive economic and market factors, fair, rational government policies on the real estate sector should help to ensure that the nation is able to obtain the potential rewards of a vital, healthy national sector. The fundamental goal of the initiatives of the National Housing Committee regarding housing policy is to help create a stable climate in which real estate and the national economy can indeed function efficiently and rationally over the long term. 

Shelter Sector Reform Project 
The United States Agency for International Development (USAID) offered significant assistance in implementing housing reforms. USAID assistance was provided in accordance with the Memorandum of Cooperation, signed by the American and Ukrainian governments on November 10, 1992 (USAID, 1992). Following up with a memorandum in 1993, USAID launched the Shelter Sector Reform Support Project, which included a number of programs related to developing the condominium system, maintenance subsidies and private housing management. In addition, however, the situation required a stable legal environment, but the present post-Soviet system of governing real estate transactions, mortgages, short-term credit for housing construction, property insurance and taxation did not corresponded with current requirements (Mouliar, 1997). Therefore, USAID activities were concerned with reforms both on the local and national levels with emphasis on technical assistance in policy development and conducting a number of pilot projects in selected cities. 
Initially, the Shelter Sector project foresaw collaboration between local and national governments, enterprises and residents to advance the process of privatisation and to identify cost-effective reform alternatives in the areas of housing, real estate and communal economy. The project also offered post-privatisation support for apartment owners, private maintenance firms, utility companies, state-owned industries and other real estate-related enterprises. In addition, it offered assistance through information dissemination, management consulting, legal advice and the provision of training with the following goals: 
•	improving the quality of housing and communal service in Ukraine;
•	transferring housing stock and utility infrastructures to private ownership;
•	changing the attitude of residents from passive to involved consumers;
•	ensuring maintenance and service contracts are awarded on a competitive basis;
•	recovering costs for services rendered;
•	working closely with government officials at all levels; 

With USAID assistance, the State Committee drafted the Housing Policy Concept, which was adopted by the Ukrainian Parliament in June 1995. The document outlined actions for reforming legal and institutional relations in the housing sector, including means of implementing housing policy for economic stabilisation. It also established guidelines for citizens' rights to housing. As set out in the parliamentary resolution, the Housing Policy Concept served as the underlying basis for legislative acts regulating legal relations in the housing sphere and should be taken into account in drafting regional and sectoral housing programs. However, the Concept only outlined the main government efforts related to housing reform, and a housing law that could legally solidify government regulations is needed for tangible results. 
Following the adoption of the Concept, the State Housing Committee drafted the Housing Law (Code) of Ukraine (PADCOb, 1996).  In January 1996, a draft of this law was submitted to the Cabinet of Ministers of Ukraine for consideration for presentation to the parliament in 1996. The draft included a number important features, including: social funds for housing tax incentives; loans at favourable rates, subsidies for building or buying homes; greater accountability for citizens for the use and maintenance of their housing in terms of paying for public utilities on time; regulation of payments for communal services; rent for recipients of social protection benefits, etc. However, parliament rejected the law as not corresponding to the actual needs of the national economy. Since 1996, fifteen versions of the law have been drafted, but to date none of them have been adopted. In fact, at present, Ukraine has no housing law and governmental officials are still guided by Soviet legislative provisions with some government-issued “patches,” e.g., the decree on the formation of condominiums.
Despite the absence of a housing law, reforms have been implemented on a local level. Since Ukrainian cities were responsible for housing ownership and maintenance, current legislation allows them to initiate reform efforts unilaterally. However, while housing privatisation was considered “normal,” the idea of private property management privatisation has had a direct and often painful impact on both the population and the local government. The word “private” was associated with “higher prices” by the majority of residents. From another point of view, state housing officials on all levels were not well informed on the benefits of private housing management and had no experience in the field. In some cases, they even resisted the management privatisation process as it could reduce their power in governmental structures. Therefore, at present the government maintains housing itself, where local bodies carry out both the functions of customer and contractor. Even after the adoption of the Concept, the critical problems of private housing management and maintenance have not been overcome. A proper legal framework for the private ownership and housing management has yet to be established, and capital markets lack either the structure or the experience to provide long-term or even medium-term financing for residential projects. 
This paper will address some issues related to USAID’s “Private Housing Management and Maintenance Program,” administered by the Housing and Municipal Reform Support Centre in the Southern region of Ukraine. The program anticipated the development of housing management and maintenance through the creation of non-governmental structures or other alternatives to traditional state enterprises. The program also sought to develop a network of private companies for several housing maintenance purposes: a) to divide the functions of the customer and contractor, and b) to introduce competition, the essential element of a market economy (Reshetov, 1999). These efforts will allow the provision of housing maintenance on a competitive basis, which is – in most countries of the world – a pledge of increased work efficiency and the rational utilisation of resources.

Innovative Housing Management for Local Governments
One of the most pressing problems facing municipal governments in housing reform is the lack of sufficient resources for municipal service delivery, infrastructure maintenance and the promotion of economic growth and development. Localities that once received the bulk of their financial support from the Soviet government have experienced dramatic reductions in these resources as new governments struggle to organise themselves and to address pressing national problems. The sudden loss of financial subsidies from the centre has hit local governments hard and has forced them to reorient to the realities of a market economy. While many municipal officials are willing to change direction, they lack a basic understanding of the economic and management tools necessary to operate in the context of a market-oriented economy. For local governments, this reorientation has an unseen benefit: greater independence in decision-making and flexibility in problem solving. There is now a growing recognition in the Ukrainian government that the problems of local development and the financing of local services cannot be solved from the centre, but rather must be addressed at the local and the regional levels by actors who know the needs of their communities. The manner in which municipal officials address housing management reform in one city may not work in other cities given regional, cultural, economic and political differences.
Historically, the management and maintenance of municipal housing services have been rendered exclusively on a monopoly basis by small state enterprises (known as " Zheks"). A permanent lack of funds in local budgets resulted in the rapid deterioration of housing management and maintenance standards; ZhEK’s failed to implement numerous projects essential for housing maintenance and repair. As rents were held at artificially low levels,  Zheks required large subsidies from the state and municipal budgets. As a result, the nearly twelve thousand  Zheks in Ukraine consumed approximately twenty-five percent of municipal budgets. Despite such large subsidies, the quality of maintenance services remained low. As a result, the physical condition of residential areas in almost all cities has become quite poor. With the advent of housing privatisation, the poor maintenance of these common areas diminished the value of the housing and served as a disincentive to ownership.            
	The only possible solution to these problems is to introduce competition and a contractual basis capable of considerably raising maintenance standards and, in the future, of reducing costs. The objective need to identify new structures capable of operating efficiently in a competitive market environment implies the transfer of  functions performed by state housing organisations to private companies through competitions and contracts on a competitive basis.

Odessa Pilot Project 
In 1994, with the assistance of USAID, the city of Odessa targeted the privatisation of housing management and maintenance as the initial area of study. The city entered a one-year pilot program (hereinafter referred to as the "Pilot") to demonstrate the feasibility of providing high quality private management and maintenance services in the housing sector (Odessa City Council, 1995). The main goals of the project were:
•	to demonstrate the real possibility for competitive and high quality private management and maintenance of the housing stock;
•	to control and assess the quality of work of a private contractor; 
•	to conduct “before” and “after” private maintenance satisfaction surveys among residents;
•	to improve the aesthetic and sanitary state of the city through the introduction of private management and maintenance in the housing sector.

An American company, PADCO, Inc. (Planning and Developing Collaborative International), provided technical assistance to Odessa’s Executive Committee under a contract with USAID (12). One part of the work plan was to test the feasibility of providing high quality private management and maintenance to the city's municipally owned housing stock. This demonstration was called "The Privatisation of Management and Maintenance Pilot Project." On June 1, 1994, after conducting competitive bidding, the City Executive Committee signed a one-year, renewable contract with a private company to serve municipally owned housing. The contract represented a funding commitment from the Odessa City Government, and the Pilot was implemented on schedule, after six months of planning and training. 

Project Background 
In 1994, rents in Ukraine were frozen at the level of 0.1 HRV ($0.2) per apartment square meter per month. City rents currently pay for only one-half of one-percent of the operating costs of the housing sector, thus requiring the city to provide enormous annual housing subsidies. The current inflationary trend in the economy also puts additional strain on the city's limited resources. Odessa is considering a policy that would raise rents so that future operational costs will be self-sustaining. Improving the management of municipally owned housing will be an important "quid pro quo" in any introduction of higher rents. The Pilot explored private and competitive alternatives to traditional public management and maintenance. The premise of the Pilot was that private management was less expensive and would lead to a better quality of life for the tenants. 
The elaboration of the project for the transfer of a part of housing maintenance to a private contractor required joint municipal bodies and PADCO advisors collaborating to: 
•	identify a site for the demonstration and define the roles of the private firm and the city for the project;
•	develop documents that specified the formal relationships and requirements of both the private firm and the city;
•	train city employees and potential management contractors in private property management practices;
•	solicit bids, select a private management contractor and implement the management work.

A section of the city’s central district with a total of one thousand six hundred flats was selected as the site for the demonstration. These units had previously been served by the municipally owned state enterprise ZhEU-32. Therefore, the demonstration removed these flats from city management to involve them in the Pilot program and transfer them to private management. All of the buildings were, in general, of the same age, type and form of construction. This diversity provided for a sample that was representative of all building types in Odessa, and insured that the Pilot was easily replicable on a city-wide basis.
At the initial stage, PADCO specialists conducted a two-week training session in real estate management and maintenance techniques used in the United States. The trainees were selected from higher-level housing staff and some bidders. During the training, all participants obtained workbooks to be used as reference guides during the project. The training course also covered the following real estate management topics: Introduction to Private Business and Real Estate Management; Planning and Budgeting; Financial Management; Planning, Cost Estimating, and Bidding.
Before a bidding procedure was initiated, Odessa’s officials studied ongoing private property management demonstration projects in Moscow and Novosibirsk to select the model to be applied in Odessa. In principle, officials selected the Novosibirsk demonstration as the basis for Odessa’s project, however with local adaptations. Key features of the Odessa model included:
•	use of the management contractor functioning in the position of “administrative director” of the Housing Maintenance Unit (ZHEU) employees;
•	including rent collection as part of the contractor’s responsibilities;
•	a very simple bidding process, which, in fact, was an application process rather than a full bid preparation process.

Implementation
The procurement of contractors was patterned after an American-style "Request For Proposals (RFP)" (Graham, 1994). The City Council Executive Committee and USAID representatives conducted a press conference announcing the demonstration, and each of the local newspaper articles was positive although somewhat sceptical. During the bidding period, flyers were posted at all ZHEUs in the city requesting that interested bidders contact the PADCO office or Housing Department officials. A radio interview with the Vice Chief of the Housing Department was held, and several short articles describing the project and requesting calls from interested bidders were published. Work products included: Invitation to Bid; Request for Proposals; a Model Contract; Budget Formats; Interview/Selection Guidelines; Rating Work Sheets; and an Announcement to Tenants. In conjunction with the procurement process, various activities were coordinated: a Pre-Bid Conference; Property Inspection Tours; Tenant Briefings; Bid Opening Meeting; and Interviews of Bidders.
The Board Commission, appointed by the City Executive Committee, conducted a competitive bidding procedure. All applicants were given the chance to examine the buildings participating in the demonstration. The board considered each applicant’s potential, material basis and long-term plans for housing maintenance and allowed all bidders an equal chance to describe their experience, qualifications and plans. The “Renaissance - 92 Ltd.” Firm, which had the best rating, ultimately was selected as the contractor. The Housing and Municipal Board (UZHKH) acted as the owner for the purpose of the Pilot. In August 1994, a contract for ZhEU-32 housing maintenance was signed with the selected firm for a one-year period with the possibility of renewal. Control over the private contractor’s work was assigned to the Housing and Communal Economic Board. Importantly, the introduction of private maintenance did not mean that ZhEU-32 was dissolved – all ZhEU staff were included in the firm as a subsidiary enterprise, and the private manager made only the most urgently needed changes in the staff structure.
The Pilot is specific to management and maintenance tasks and includes non-management tasks with which the UZHKH had been encumbered (e.g., passport control, communal services, charge calculations and draft registration). This specificity allowed the private managers to concentrate on the management areas of greatest need, such as security; routine and emergency maintenance; rubbish and snow removal; cleanliness of the common areas; removal of hazardous conditions; preventive maintenance and landscaping.

Monitoring 
Evaluation was a key component of the Pilot, as the program was more oriented towards "results" rather than "process." Performance was measured against the contractor's approved work plan and budget. Monthly budget reports (cumulative, year-to-date) had to be submitted to the owner. In addition to holding regular meetings with the contractor, the owner made regular inspections to assess and verify site conditions. In addition, the satisfaction of the tenants was a critical measure of the Pilot's success. Surveys of five hundred units included in the programme were conducted to measure baseline, short-term and long-term results. 

Survey Results 
In order to determine the residents’ satisfaction with the quality of maintenance, two satisfaction surveys were conducted among the residents. The first was conducted in June 1994, before the transfer of housing management and maintenance to “Renaissance - 92 Ltd.” The housing units transferred to the firm were typical for Odessa and cannot be regarded as better or worse as compared with other housing maintained by state-owned companies (PADCOa, 1995).
The goal of the first survey was to gauge the residents’ general attitude towards the services provided by ZhEU-32. As expected, the results proved that residents were wholly unsatisfied with municipal services and illustrated the generally negative attitude towards city housing as a whole. According to the first survey, the residents of the pilot buildings were extremely dissatisfied with ZhEU’s maintenance efforts. Only one percent of the residents stated that they were satisfied with ZhEU’s work, and eighty-four percent expressed an extremely negative attitude towards ZhEU’s. The results showed the need for housing maintenance reform aimed at improving common people’s living standards and the creation of conditions for making increasing rent acceptable to residents.
The second survey was conducted in June 1995, after the private firm took over building maintenance. The results vividly showed that residents were more satisfied with the private firm, and the number of residents who initially objected to the project had decreased considerably. The total number of flats selected for the survey was five hundred in both 1994 and 1995, and both years the flats were selected at random.
According to the results, the level of satisfaction with Renaissance - 92 Ltd.’s maintenance efforts significantly increased over eight months in various criteria (see Table 1). Residents stated that the services rendered by the firm were much better than before and that the firm’s staff – including workers, technicians and controllers – was more diligent in addressing the residents’ complaints. Satisfaction with the work of plumbers and electricians, which was seriously criticised everywhere, considerably increased. 

Table 1: Result of the Resident Satisfaction of Services Survey
Provided by the State and Renaissance - 92 Ltd.

Questions

Reply
1994

Reply
1995

Changes

Awareness of the experiment | 9 | 42 | Positive
Acknowledged positive changes | - | 72 | Positive
Satisfied with the firm’s work | 7 | 56 | Positive
Addressed the firm for services | 58 | 26 | Positive
Addressed the firm with plumbing problems | 48 | 18 | Positive
Positive evaluation of the plumbing service | 3 | 26 | Positive
Positive evaluation of the plumber’s work | 14 | 30 | Positive
Paid for the plumber’s service | 5 | 14 | Positive
Paid for the plumber’s service in dollars | 14 | - | Positive
Encountered electrical problems | 16 | 5 | Positive
Positive evaluation of the electrical service | 16 | 41 | Positive
Positive evaluation of the electrician’s work | 2 | 42 | Positive
Paid for the electrician’s work | 61 | 42 | Positive
Satisfied with the water supply | 14 | 10 | Positive
Encountered water supply problems | 37 | 7 | Positive
Satisfied with heating | 24 | 47 | Positive
Approached the firm with heating problems | 30 | 10 | Positive
Negative evaluation of the state of porches | 56 | 35 | Positive
Positive evaluation of the porches’ sanitary condition | 16 | 17 | Positive
Evaluation of the cleaning of porches | 5 | 12 | Positive
Problems with rodents and insects | 73 | 45 | Positive
No problems with rodents and insects | 2 | 24 | Positive
Positive evaluation of the adjacent territory | 13 | 26 | Positive
Number of complaints addressed to the city authorities | 22 | 2 | Positive

Pilot Project Summary
The results clearly illustrate “Renaissance-92” did a considerable job in maintaining ZhEU-32’s housing stock. The survey results demonstrate the success of the firm’s activities as well as the benefits of private housing maintenance and management (Odessa City Council, 1996). At the same time, the “Renaissance-92” firm was the first to enter the private housing maintenance market in Ukraine. Its main source of financing was commercial rent from various enterprises for premises transferred to the firm by city authorities. Lack of experience in housing maintenance, non-traditional manners of raising revenue and the lack of financial support from city authorities did not contribute to the firm’s success nor have a negative impact on the quality of services. Despite difficulties, over eight months, the Renaissance-92 demonstrated the real possibilities and benefits of alternative private maintenance and management. The success of the firm was achieved, first of all, due to an efficient approach, efficient use of financing, the use of non-traditional means of raising revenue and demonstrating concern for the well being of the residents. 

Key Features and Concepts Introduced by the Pilot Programme
	The success of the Pilot Programme was responsible for introducing several new concepts to the housing sector:
1.	The first time that private management was used successfully in municipally owned housing in post-Soviet Ukraine.
2.	The first time that a "Request for Proposals" processes was used to solicit services for the municipal housing sector. 
3.	New concepts introduced include: advertising for proposals, freedom of information, open meetings, equal opportunity employment, deadlines for the submission of proposals, objective rating criteria, the use of a "Notice to Proceed," and termination for non-performance of contracted duties.
4.	The first time that real estate management contracts used performance factors such as "clean and attractive," "removal of hazardous conditions," and "preventive maintenance." 
5.	The City Councils’ functions in the housing sector being limited to selecting and hiring firms, i. e., to act as customers, not contractors.
6.	The quality of housing maintenance and management was considerably improved without an increase in financing.
7.	Higher quality of maintenance due to competition among the firms for contracts.
8.	Creation of conditions for the further reduction of the municipal budget for the housing sector.
9.	Implementation of the present program facilitated the improvement of the shelter sector, reduced municipal budget costs for housing problems, met the residents’ requirements concerning the quality of housing maintenance and improved the sanitary state of the city.

	In 1995/96, two other pilot projects demonstrating the feasibility of private housing maintenance were successfully implemented in Ukraine (Kharkiv and Kiev). Both residents and local governments positively accepted the projects and their results. Private management and maintenance showed a number of advantages, specifically (Housing and Municipal Reform Centre, 1998).
For residents private maintenance offers higher quality services, a more convenient system of service requests and efficient responses to requests, performed by polite and attentive personnel. Sociological surveys conducted in Kharkiv and Odessa before private companies started their work and after a year showed positive changes in the form of higher satisfaction with almost all types of services provided.
1.	A privatised unit is an asset, which has a market value. One of the factors affecting the unit value is the standard of maintaining common areas and the general building structure. The best way to maintain the value of a property is to ensure its quality private maintenance.
2.	Private maintenance provides ample opportunities for real self-government (condominiums) when residents decide for themselves how to spend their money or what should be done to improve their housing and the adjacent territory.
3.	With rents rising, it is natural to expect higher standards of management and maintenance services. A unit resident in a building maintained by a private company can be more confident that the job will be done adequately in a reasonable period of time; that the servicemen will be civil; that common areas will be clean and safe; and that it will be possible to receive additional services.

For local government bodies, participation in the program is beneficial as it contributes to a stable situation within cities, and their function changes to that of customer and controller. The competitive selection of contractors allows opportunities for lowering maintenance costs (which is especially important at present due to local budget deficits) and for improving the quality of maintenance, which means reducing complaints from residents.
1.	Developing the services market is an economic necessity and objective reality. Consequently, the specialists who adjust to competition as early as possible will have considerable advantages in terms of the successful and profitable operation in a market economy.
2.	Participation in the private housing maintenance program will affect dramatic changes in the specialists’ mentality. The expertise gained from participating will be useful when working with prestigious companies or for opening a business of their own.

For private companies, housing maintenance is a constant job and a source of stable income, as housing will always exist, and the need to maintain and repair it will only increase as the housing sector grows. In addition, it is a new market that is just forming, and many firms realise that the time to enter it is at present.
1.	Housing maintenance has always been in demand and is likely to remain so forever. High standards and competence will guarantee a firm being in business and continually making a profit;
2.	Working in the housing sector offers a number of attendant benefits, such as direct contact with clients (residents), enabling firms to solicit additional orders, access to real estate transactions, etc.;
3.	Successful housing maintenance efforts will enhance the company’s image, thus providing additional advantages with respect to obtaining loans, concluding contracts, developing partnerships, etc.

For housing owners (local governments, enterprise-owned housing, condominiums):
1.	Housing owners retain ownership, but their functions are modified as they become a client only. Thus, the current controversy over situations when the same organisation acts both as a client for and a performer of services may be resolved. The redistribution of these functions promotes better efficiency since it leaves the housing owners free from servicing, enabling them to focus more on management and control. 
2.	Private maintenance contributes to improving the public image of executive committees. At present, residents suffer from low-quality services provided by the conventional system. Higher service standards ensured by private maintenance will reduce complaints and increase public satisfaction.
3.	Private maintenance will promote urban and/or regional economic development. With housing and housing services markets in place, the local councils will have advantages in terms of attracting foreign and domestic investments and loans.
4.	Competition in housing maintenance will force traditional state enterprises (ZhEK’s) to raise their performance standards. Competition is bound to result in the reduction of maintenance costs, which will make it possible to cut, and eventually stop, budget allocations to the housing sector;
5.	Private structures will develop the infrastructure in the districts where they are operating. Based on previous data, crime rates (e.g., thefts, cases of vandalism) is considerably lower in districts with private housing maintenance.

The success of the pilot projects have proven to be useful for other Ukrainian cities, and currently over eighty-six cities are implementing the program. At present, two versions of private housing management exist in Ukraine: “at fixed price” (the “Kharkiv model”), “for interest” (the “Odessa model”).   
	In the case of “fixed price” contracts, the municipality dedicates funding in the form of a payment in HRV for each square meter per month. The actual figure is calculated on the basis of the amount of work to be performed by the contractor. Contractors may not demand more than this maximum. There is no doubt, however, a competitor who can offer a lower price will enjoy some advantage in the selection competition. In addition, “the Kharkiv model” leaves monthly rent collection to the municipality. Contractors receive their fixed payments on a monthly basis with the inflation rate factored in periodically (Reshetov, 1999).
	In the case of the “Odessa model,” a private contractor is charged with collecting rent for residential units and lease rent for commercial units. The contractor’s profit consists of interest from rent collected (the interest rate in Odessa is up to one hundred percent), which provides a direct incentive for the company to collect the rent in full. This scheme works only if commercial structures pay enough to finance the contract. This model may not be successful in city suburbs with few non-residential units. If this model is used, the municipal government should also delegate the functions of unit lessor for commercial structures to the private contractor and allow the contractor’s bank account to receive commercial rent payments. If this model is relied upon, the contractor acts as an intermediary between commercial structures and the municipal authorities. 
As of December 1999, one hundred and twenty-eight private contractors have been selected through competitions. Over three hundred thousand units are under private maintenance and, according to the plans of the local governments, this number is going to increase twofold by the end of 2000. In the cities that implemented the program, local governments acquired additional opportunities to increase the quality of services and the efficiency of housing maintenance and management through involving private management companies. It is now possible to more effectively use governmental resources due to the improved system of administrative and financial management, the regulation of operating expenses and reasonable general planning.

Figure 1: Number of Units under Private Management in Ukraine
from 1994 to 1999

Difficulties in Housing Management 
The process of transferring housing management to private companies is slow, and many companies encountered difficulties when they tried to initiate operations in Ukraine’s housing market. The majority of private enterprises still are unable to recover, although their microeconomic bases are in place, budget deficits have been cut, inflation is down and exchange rates have stabilised. Some reasons for this might include a lack of micro-level liberalisation, excessive taxation, suffocating regulations and omnipresent bribery, all of which are paralysing to business activity.
A number of the participating private management companies denied that they had benefited from the actual reforms. Recently established private enterprises continue to see excessive taxation, unstable legislation and trade and regulatory constraints as serious impediments. The practice of bribery – tax or health officials or fire inspectors, for example – to obtain a license or avoid or reduce taxes is widespread, and payments are sizeable. These payments have not declined since the reforms started in 1994. 

Economic Issues
Throughout 1997, the government continuously strengthened its regulation of production, pricing and bank credit. Real estate management companies felt the burden of such constraints as the discretionary application of licensing rules, the spread of corruption, a fragile banking system and legal and regulatory instability. Some common difficulties might be summarised as follows (Shapiro, 1997).
1.	Commercial, taxation and land codes are lacking. Consequently, few business contracts are regarded as final or binding. 
2.	Tax laws, customs regulations and specialised licensing procedures are cumbersome and ambiguous. This leads to the arbitrary implementation of regulations and corruption. 
3.	Bankruptcy law permits companies to accumulate debts and then simply close down, but prevents restructuring.
4.	Resident or non-resident companies can withdraw only a limited amount of cash from bank accounts (most enterprises are allowed to keep only a single account). Bank accounts are arbitrarily frozen.
5.	Corporate profit taxes vary extensively. Tax exemptions are significant and discriminatory. Local tax offices exercise considerable discretion, resulting in abuses and corruption.
6.	Payroll taxes, which include social security contributions, the Chernobyl fund, and withholding taxes, are prohibitively high. Personal income taxes are also high.
7.	Company registrations are not transparent and are time-consuming. 
8.	Foreign currency purchases and private foreign currency loans are under administrative control and are subject to discretionary and bureaucratic licensing procedures. 
9.	The Antimonopoly Committee is authorised to intervene in broad and often inappropriate areas of the economy. 

Another group experiencing difficulties are those politicians and bureaucrats who try to control the private housing sector through administrative measures and regulations. This gives rise to side payments, directly raising the cost of conducting business within the official economy. Given the degree of oversight bureaucrats and politicians have over the housing sector in Ukraine’s economy, an endorsement is required to operate unofficially. That comes at a private price, probably less than the extra cost of operating in the official economy. Thus, the overall cost of conducting business (whether officially or unofficially) increases when a tax or regulation is imposed. Nevertheless, operating officially becomes relatively more costly than operating unofficially. The absence of micro-liberalisation and competitive relationships in the housing sector has two effects on the transition:
•	It slows overall output recovery as higher operating costs deter some firms from starting businesses; others may get started but then stagnate or go bankrupt. 
•	It encourages businesses to operate in the unofficial economy, where the added operating cost is relatively less than in the official economy. 

Legal Issues
1.	Unwillingness on the part of some local governments to introduce competition in housing maintenance results in violating basic provisions of the approved National Housing Policy Concept. In addition, executive bodies and local governments do not normally have departments to deal with the implementation of housing policy, which is currently entrusted to housing and municipal economy departments and other units interested in perpetuating the existing system of housing maintenance.
2.	The lack of approved procedures for the competitive selection of housing maintenance and repair companies and standard contracts for housing maintenance between local governments and selected companies. Due to this lack, the current competitions remain at the pilot project stage without any official status. 
3.	The state’s failure to pay target subsidies, salaries, pensions, scholarships, benefits, etc. on time results in the rapid deterioration of the physical condition of housing and in living conditions.
4.	The draft Housing Code of Ukraine makes no provisions for housing maintenance procedures.
5.	The current law does not prohibit private enterprises from being a customer of communal services, however, de facto, state enterprises hold a monopoly in this sphere.
6.	The Law of Ukraine “On the Privatisation of Small Enterprises” envisions the privatisation of Zheks. Practice shows that selecting enterprises on a competitive basis positively affects housing maintenance; in particular, housing maintenance costs are reduced while the quality of services increases. However, it is impossible to introduce competition through merely changing the Zheks’ form of ownership. 
7.	A provision in the Law of Ukraine “On Privatising Public Housing Stock” (the amount of annual tax levied on the individuals’ real estate goes into a special housing construction fund with the appropriate local council) places housing construction and housing maintenance under unequal conditions. Given that most housing is in poor physical condition and that no money has been allocated for timely preventive repairs for years, it would be advisable to allocate funds for preserving housing and to develop a housing construction program.
8.	The lack of a legal status for condominiums complicates the relationship between condominiums and maintenance companies in matters relating to housing maintenance. 
9.	No statistical records are kept by local governments or executive bodies on the number of condominiums or on the participation of private companies in housing maintenance.
10.	The lack of norms and regulations for housing maintenance in cities and villages of Ukraine complicates control over the physical condition of buildings and structures considerably, including the need for repairs and their regularity.
11.	There is no legal framework regulating the use of utility meters and establishing utility fees on the basis of these meters, resulting in substantial discrepancies between the expenditures of a facility for providing utilities and the payments made by unit (building) residents. Furthermore, the issue of paying for utilities in a case where one meter is installed for a multifamily building is not regulated. 

Means to Improve the Management of Housing in Ukraine
1.	A major deregulation program should be launched. There must be a housing law that creates equal opportunities for new enterprises, thus increasing the competition in the housing sector and eliminating most enterprise licenses and permits while keeping those that are absolutely necessary. 
2.	Abuses of discretionary government powers should be eliminated. Export registration requirements and indicative export pricing should be eliminated, along with inter-regional trading restrictions and region-specific export barriers. 
3.	At the sectoral level, the deregulation of the energy and power sectors should be carried out, exposing gas and other subsections to competition. More generally, the whole housing and communal structures need to be de-monopolised. 
4.	Privatisation should be accelerated. To date, less than one-third of medium-size and large enterprises have been privatised, with about seventy percent of their shares sold. Many of privatised assets have been transferred to former managers, who are in full control of the enterprises. This trend, coupled with the absence of deregulation, has worked against the restructuring of enterprises. Housing management privatisation is urgent. 
5.	Tax rates should be reduced and the tax regime simplified. Excessively high payroll taxes need to be cut. An improved tax administration should oversee a new tax structure that is simple, moderate and transparent. 
6.	The municipal public sector needs to be restructured. The legions of bureaucrats, currently setting and monitoring prices, authorising licenses and permits, and otherwise regulating enterprise activity would be more productive collecting corporate taxes, teaching or starting their own businesses. 
7.	Similarly, accelerated privatisation in the housing sector would substantially relieve overburdened civil servants, enabling them to focus their activity where public sector involvement is really needed, such as reforming local governments and relations between local and central governments.
8.	The Cabinet of Ministers should adopt the resolution “On the Competitive Selection of Companies for Housing Maintenance and Repair and their Operation.”
9.	The Law of Ukraine “On Levying Taxes on Enterprises’ Profits” should be amended so as to stipulate that utility suppliers and maintenance companies could be exempt from tax payments for a sum equal to the state’s indebtedness to them. Housing maintenance companies should be also exempt from paying value-added tax.
10.	The draft Housing Code of Ukraine should be amended so that it would stipulate housing maintenance by state housing maintenance enterprises or by private companies on a contractual basis.
11.	The Cabinet of Ministers should adopt the resolution “On the Competitive Selection of Housing Maintenance and Repair Companies and their Operation” or in a relevant ordinance issued by the State Committee for Construction, Architecture and Housing Policy of Ukraine (Olson, 1996).
12.	Amendments should be made in the Cabinet of Ministers resolution of October 5, 1995 no. 786 “On Methods for Calculating and Procedures for Spending the Rent for Public Property” to the effect that local governments should be able to transfer Zhek’s property to private companies engaged in housing maintenance and repair for free use. The same provisions should be made in the law on municipal property.
13.	It is necessary to amend and supplement the Law of Ukraine “On Privatising Public Housing Stock” to include the fact that tax proceeds shall go to a special housing construction and maintenance fund established with the appropriate local council.
14.	The Ukrainian Parliament should adopt the Law of Ukraine “On Multifamily Buildings Co-owners’ Associations and Condominium Associations,” which provides for regulating relations between condominiums and maintenance and utilities companies.
15.	The State Committee of Ukraine for Construction, Architecture and Housing Policy of Ukraine should develop appropriate norms and regulations for housing maintenance in cities and villages of Ukraine.   
16.	The Cabinet of Ministers should adopt the resolution “On Paying for Utilities in Accordance with Meters’ Readings.”

Conclusion 
In spite of all efforts to reform the housing sector in Ukraine, there is much work to be done in order to improve the current situation. The Pilot Project began in Odessa in 1994, and its positive results around the country have introduced a market relationship in the super-monopolistic housing sphere of the Ukrainian economy and the public sector. As Ukraine recently started implementing local government reforms, the results of the Odessa Pilot Project may play a positive role in reforming the municipal sphere, increasing the citizens' ability to control and monitor public institutions, and ensuring that public monies are spent effectively. Hopefully, the Ukrainian Parliament will be able to address current legislative problems so that municipalities may fully implement and complete housing reforms on the way to a “real” market economy. 

References  
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