The Functioning and Requirements on Housing Markets in Central and Eastern Europe

The Canadian Urban Institute was commissioned in 1992-93 by the Canada Mortgage and Housing Corporation to undertake a study that assessed the potential involvement of the Canadian housing sector in the rebuilding and development of Central and Eastern Europe (CEE). The main objectives of the study were to describe the essential features and functioning of the CEE housing market and to identify the housing needs in CEE countries that Canada’s housing sector had the capacity to address. The study was also to provide guidance on how to strategically approach CEE markets in the areas that have been identified as having significant potential. The study identifies that the potential for Canadian organizations to participate in the restructuring and development of the CEE’s housing sectors can generally be divided into short and long term. In the short term, opportunities exist within niche markets and involvement on government and multi-lateral assistance projects, whilst in the long term opportunities will exist in the mass "affordable" market, once it emerges. The study was presented as a background paper for CMHC’s national Workshop on Housing Opportunities in Central and Eastern Europe in Montebello, Quebec on April 19-20, 1993.

Funding Agency
Canada Mortgage and Housing Corporation (CMHC)

Timeframe
1992-1993

Geographic Focus
Countries of Central and Eastern Europe (CEE)

Background
Housing-related problems are at crisis proportions and the countries of the Central and Eastern European region have neither the capital nor the practical knowledge needed to address these problems effectively. Officials in the CEE countries lack an adequate understanding of the processes of property development and modern construction technologies and practices. Consequently, if the housing problems of the region are to be resolved, investment and technology must come from Western countries such as Canada. Furthermore, due to the similar climatic conditions between Canada and the CEE countries, technology transfers have great potential for success. In 1990, the World Bank reported that there is substantial potential housing demand for which the current housing producers are unable to provide in sufficient quantity. If cost-effective housing that reflects household demand were to be produced in the CEE, it could alleviate severe problems and be profitable. There are many opportunities for Canadian involvement. The study assists in identifying export and investment opportunities for Canadian firms in the housing markets of CEE.

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Project Description
The purpose of the study was to describe and analyze the functioning and requirements of the housing markets in CEE countries in order to guide and facilitate Canadian participation and investment.

In particular, its objectives were to:

• Describe the essential features and functioning of the markets related to housing in the CEE countries.
• Identify housing needs in CEE countries that Canada’s housing sector has the capability of addressing.
• Provide guidance on how to strategically approach CEE markets in the areas that have been identified as having significant potential.
• Indicate Canadian and foreign resources that are potentially available to Canadian providers of housing technology, products and services that wish to do business in CEE.

The study found that the potential for Canadian organizations to participate in the restructuring and development of the CEE’s housing sectors could generally be divided into short-term and long term opportunities.

Short-Term Opportunities:

• Opportunities are centred around satisfying niche markets and participating in government assistance projects, usually providing consulting services related to the development of a market-based housing sector.
• CEE housing construction markets offer limited possibilities for suppliers of products and services utilized directly in the construction process.

Long-Term Opportunities:

• Opportunities in the long term include products, services and technologies related to the mass "affordable" market. This is centred on the development of new housing units as well as the renovation of existing housing units.
• It is expected that market opportunities related to the provision of "affordable" housing will not occur until there is effective demand on a mass scale.

Conclusions:

• Canadian firms must compete against European developers, who are closer situated and could offer prospective buyers relatively low-level financing, based on credit obtained from their respective governments.
• Most of the European Community governments, recognizing the CEE market’s growth potential, are facilitating entry for their domestic companies. This level of support far exceeds any Canadian government initiatives to date.
• Assistance in creating institutions such as CMHC, builders' associations and efficient real estate and financial services could provide Canada with initial projects necessary for fuller participation in the market.

• In order to capture a significant slice of the future CEE market share for housing, Canadian firms must be willing to participate in the creation of a market. This means a long term commitment is necessary as well as large upfront costs.

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Approach
The study was guided by two considerations. On the one hand, the study was to be used by the industry in its broadest sense. Therefore, the approach had to be general enough to cover all segments of the housing industry. On the other hand, the study had to provide the industry with specific and practical information. Most of the information and data was collected through primary research, such as interviews and fact-finding missions. A large number of individuals and institutions from across Canada, the United States and Western and Eastern Europe participated in the creation of this study.