Communism is Over- Now What?

Communism is over.  Now what?  I can imagine that is what the leaders of Estonia thought as the massive structural changes begin to take place in the country.  Estonia more than many other former Warsaw Pact countries pulled this transformation off while maintain a steady increase in the quality of live for years on end.  But, yet the housing situation differs from other former communist countries in Eastern Europe.  Little of the housing stock in Estonia is rental housing.  In Estonia, the definition of  “social housing“ includes apartment buildings and housing associations.  Estonia privatized a large number of their dwellings after the fall of communism.  A large number of less advantaged people are actually owners of their dwellings.  They live in condominiums organized into housing associations.  Almost 60% of the total population in Estonia belongs to such an association. “Social rental housing in Estonia currently represents only about 1% of the total housing stock in the country and the rental sector is small. About 96% of the dwelling stock is currently in private ownership.”

In March of 2015, I visited Eesti Korteriühistute Liit or the Estonian Union of Co-operative Housing Associations (EKÜL).  The organization acts as an umbrella trade group for co-operative housing associations throughout Estonia.  Membership to the organization is voluntary but they represent over 1400 members currently on a local, national and international level.  The membership base represents over 15% of the total housing stock in the country.  EKÜL cooperates in partnership with state institutions, municipalities, universities, private companies and NGOs. Its goals are to progress and market the housing association effort and to advocate and share in legislation by being an active voice in the shaping of legislative policy on housing in Estonia.  Another important part of their work is to provide training, consulting and collaboration with the management and administration structures of Estonian housing associations.

On this day I met with Anu Sarnet the Head of International Relations and Project.  We discussed the structural change of housing in Estonia and their organization’s role in both the advocacy and professionalization of the industry.   Anu said there are 3 steps involved in the history of Estonia’s Housing Reform.

2. Privatizing of Apartments- The communist government nationalized most of the land and the buildings in the 1940-1950 times.  Owners were almost never compensated as the state controlled all the housing, construction and maintenance.  In 1991, more than 65% of all  the housing in the country belonged to the state.

The transformation back to privatization grew from several causes.  The privatization movement went hand and hand with the mindset of the population.  Residents completely rejected the former collective behavior used in a communistic state.  Instead, the people wanted individual solutions with the right for more responsibility and liberty.  On top of the peoples will to control more of their rights, the state could not maintain the units and had failed in providing quality housing to the citizens.  Lastly, the state wanted to return property back to owners that had experienced the injustice of a land seizure during the period of collectivization.

The actual process of privatization took place in 1991.  “The right of first refusal belonged to pre-nationalization owners or their successors.”[1]   When the state did not find a past owner; the sitting tenant could privatize the unit for their own use.   When a prior owner made a claim, the current sitting tenant could not keep the unit.  In all, around 150,000 former owners exercised this right.  The government completed the process using vouchers provided to tenants.  98% of the compensation paid for the housing came from vouchers provided by the government.

1. Establishing of apartment associations:  A need for a new structure to organize and manage the housing associations came about.  This is how apartment associations came into existence.  About 65% of Estonian population lives in apartment associations. Apartment associations are the most accepted way of management of residential buildings and cooperation. Each co-operative housing association is self-financing not-for-profit organization managing one multi-apartment building.   A housing association can be as small as a few units or as big as a few thousand units depending on the size of the building or complex.   In total there are 10,100 different associations active in Estonia today.

Key characteristics of the Estonian housing co-operatives or apartment associations are:

• Formed to manage the common areas.
• Non-profit organizations managed by a board of directors.
• The board can hire real-estate manager if needed.
• Units belong to the individual members.
• Sale of units is regulated at market.
• Owners pay according to the actual costs.
• At the beginning of privatization, one housing co-operative had to be established for each building. The rule changed and apartment associations / housing co-operatives can have many buildings.
• Units built during the soviet era (1960s to 1980s) are of poor quality and have high energy costs (30% more than compared to other European countries). The portfolio is in need of major renovation.
• 3. Creation of an industry:  To help professionalize and advocate on behalf of the housing industry, the Estonian Union of Co-Operative Housing Associations came into existence.  The organization established in 1996 and its main office is in the capital city of Tallinn.  All the members are co-operative housing associations or apartment associations established after the privatization reform of the 1990’s. All together, they represent 1400 members covering 56,000 units and work with many partners to advocate and train on behalf of the industry.

Creating a Structure:

What is fascinating about this monumental change in housing policy is the management structure.  Estonia went from a country where the government provided most of the housing and maintenance to a country where the residents needed to provide both the management and upkeep of these shared buildings.   EKÜL plays an important role in helping these owners.  Imagine a building with 50 people who now own a share of the place.  They must all work together for the common good of the building.  This radical shift is not easy and makes EKÜL’s work invaluable.  Situations arise where an owner may not want to pay a fee, or a dispute with a construction company comes about.  EKÜL helps with legal services, representation in courts, bookkeeping and training of managers.   EESTI also brings together housing associations to share best practices in the form of meetings and conferences.

Estonian Union of Co-operative Housing Associations’ training system does the following:

• Gives cooperative housing associations strength and the power of knowledge
• Cooperative housing associations comprehend the co-operative movement as a part of society and take active part in the process influencing the society- they donate and receive as well
• Offers an advance to cooperative housing associations to support each other and enable the progress
• Affect the development of the housing economy of the whole in national as well local level
• Improves the quality of living-environment
• Gives a possibility to participate in the development processes taking place in the society

Current Issues:

Housing Associations face numerous challenges in the upcoming decades.  One of the biggest challenges as mentioned earlier is the professionalization of the industry.  Many associations suffer from a low amount of awareness and motivation on the part of many owners.  The government once took care of management and maintenance.   The drastic change to home ownership made involvement of new owners important.    Many are not interested in this which makes it more difficult to make important changes to a building in either renovation or energy efficiency upgrades.  The knowledge base of owners is also varied so the expertise of property management and asset management is often not high.    As with property management and asset management, technical knowledge of energy efficiency is not always available in a housing association.  Associations need both help in the realm of training and consulting.

Another large challenge is the condition of the housing units themselves.  The construction of the units took place during soviet times or before the war.  The construction of 60% of the units happened between 1960-1980.  The construction of a further 30% took place before 1960.  That means the quality of the units and the energy efficiency is  low.   There is a need for reconstruction and renovation across the housing stock in Estonia but the current rate of renovation is below 1% of the existing stock.  If a housing association wishes to upgrade energy efficiency; the lack of financing in the country makes it  hard.  The average life expectancy of a dwelling is 70 years so the need to lengthen the lifespan of existing housing through repair is high.  Again, the problems of both capital and knowledge make this problem of renovation more complicated.  The country created several mechanisms to support the implementation of energy efficient investments.  An example is loans for renovations in residential buildings, another is an investment scheme to support energy upgrades for housing associations only.

The Future:

According to Anu Sarnet, the future of the housing sector in Estonia depends on the continued improvement of not only the housing stock but the continued improvement in management and technical expertise.  The amount of new construction in Estonia will not make up for the number of residential units that will leave the housing market because they reach the end of their usability.  That means Estonia as a country must continue to find creative ways to repair renovate and lengthen the existing buildings lifespans.  In her estimates, the country will need to increase renovations by several times the current rate reaching upwards of 8,000 units a year.

Members must also improve their knowledge base.  EKÜL created a series of trainings and seminars to help housing associations.  The elements of the training system are short term training sessions, seminars and information days for the boards, bookkeepers and executive directors of housing associations all over Estonia.   One example is recently the 37-hour trainings of renovation for representatives of housing associations in 7 towns all over Estonia.  EKÜL also provided 120- hour supplementary training for executive directors of housing associations and issued diplomas. EKÜL organized training in the  5 biggest towns in Estonia.

The privatization of housing in Estonia has been one of the biggest in all post-Soviet countries.  The majority of the public tenants wanted this change and the possibility of owning their property.  When examined, the transfer itself was favorable to the tenants in most cases.  Some owners received the right of ownership to units that are better than others.  That is a point of contention for some.  The lack of the government’s ability to keep up with maintenance and management made many believe this was the right way to handle housing in the future.  The housing association sector filled the void left by the national government in managing and maintaining housing throughout the country.  The current state of the industry is one of constant improvement.  The continuation of training staff and advocating for greater funding for renovations are both necessary to ensure the housing stock in Estonia continues to meet the needs of the population while also transitioning towards energy efficiency.

[1] Kährik, Anneli- Housing privatization in the transformation of the housing system-the case of Tartu, Estonia (Norsk geogr. Tidsskr. Vol. 54, 2-11. Oslo)