Social Housing Project Feasibility Study February 2011
Introduction
This document presents a feasibility study for a social housing project in Moldova, proposed by the Ministry of Construction and Regional Development (MoCRD) and submitted to the Council of Europe Bank (CEB) for financing. The project aims to address the severe housing supply and affordability gaps in Moldova by providing affordable housing to vulnerable populations and young professionals through rental and mortgage schemes. The study also examines the socio-economic context of Moldova, the project’s objectives and beneficiaries, its financial aspects, and associated risks, offering recommendations for effective implementation.
Project Context and Objectives
The social housing project is set against a backdrop of numerous unfinished buildings in Moldova, reflecting past economic downturns and the immaturity of the privatised housing sector. Moldova, described as the poorest country in Europe, is recovering from economic shocks since its independence in 19914. The project seeks to deliver affordable housing to those who cannot access satisfactory housing due to supply and affordability issues. It will target the poor and vulnerable, as well as young professionals and families, to help retain them in provincial cities. The project also aims to enhance capacity within the MoCRD and participating local authorities6.
Project Components and Beneficiaries
The project consists of three components with different financing modalities:
- Component 1: Aims to provide rental housing through the completion of unfinished structures or the construction of new apartment blocks. This component will target vulnerable populations in Chisinau and nine other provincial cities, delivering 271 housing units.
- Component 2: Focuses on a mortgage scheme to provide entry-level flats for young families and graduates, aiming to deliver 276 units8. This scheme is designed to help retain and attract young professionals to provincial cities.
- Component 3: Involves buying back unfinished building structures from private developers, with the aim of delivering 829 housing units through a mix of rental and mortgage schemes.
Socio-Economic Context
Moldova has faced significant economic challenges since 1991, including high unemployment and emigration. A large portion of the Moldovan population seeks livelihood abroad, with remittances significantly contributing to the GDP. The housing sector has seen a deterioration of collective housing due to a lack of investment and efficient cost-sharing mechanisms. Housing production is largely concentrated in Chisinau, catering to high-income households, while most of the population struggles to access housing. The state’s withdrawal from the housing sector has further compounded the issue16. The project aims to address these challenges by providing housing solutions for various income groups.
Financial Aspects and Costs
The total project value is estimated at 65.4 million Euros for components one and two, with an additional 11.3 million Euros for component three. The CEB is requested to provide a loan of 42.5 million Euros for components one and two, and 11.3 million for component three. The project includes a mix of CEB financing and local contributions from participating authorities1. Local authorities will provide in-kind contributions such as land and unfinished buildings, as well as financing project documentation. The study found inconsistencies in cost breakdowns, specifically noting that the local contribution exceeded the expected 35% while the CEB contribution also exceeded expected costs20. The mortgage component will be managed through selected Participating Financial Intermediaries (PFIs).
Project Management and Implementation
The project will be centrally managed by the Project Implementation Unit (PIU), within the MoCRD, which was established for the first CEB loan. A Supervision Committee will oversee implementation. Participating local authorities will be responsible for the reimbursement of the loan and the day-to-day management of the housing units. Tenders are organised by the PIU with ad hoc tender commissions. The project’s expansion to include mortgage and buyback schemes requires additional capacity within the PIU.
Risk Assessment and Recommendations
The project faces risks related to the financial sustainability of the rental component, the mortgage component’s uncertainties, and the buyback scheme’s potential for overpayment. The feasibility study recommends:
Carefully assessing the creditworthiness of local authorities.
- Exploring options to generate income from apartment blocks, such as mixing rental and commercial units.
Conducting a thorough assessment of the mortgage market and the income of potential beneficiaries.
- Implementing a rigorous audit and survey process for the buyback component.
- Consider a rent-to-buy scheme instead of a mortgage scheme.
- Separating the three components into distinct projects for better management and focus.
- Exploring a housing savings fund fed by remittances.
- Developing distinct projects for social housing for different needs and means, rather than combining them into a single project.
The study highlights the need for a clear housing policy in Moldova, which is lacking despite previous framework documents. The project offers an opportunity to address the needs of various income groups and contribute to a more effective and equitable housing system.
For further reading:
Feasibility Study For 5 Hectare Socialized Housing