12 Upscale housing in post-Soviet Moscow and its environs Yuri Medvedkov* and Olga Medvedkov† *Geography Department, Ohio State University, Columbus, Ohio †Geography Department, Wittenberg University, Springfield, Ohio 12.1 Introduction At the dawn of the twenty-first century, Moscow offers an impressive variety of residential neighborhoods – from a conglomerate of monotonous apartment complexes inherited from the Soviet era to upscale downtown condominiums and spectacular compounds at the edge of the city and beyond. The topic of this paper is directly inspired by three circumstances of Moscow’s housing market: 1) the inadequacy of the housing stock of Soviet origin for meeting the needs of the rising upper and middle class households; 2) the rising demand for upscale living as a result of the new wealth generated by the market economy; and 3) the appropriation of the city space by the “New Russians” not only as consumers but also as investors. The hot market for upscale housing in the Russian capital captured our attention while we examined how the city has shifted from a production to a consumption mode. The land-use patterns have reflected this transformation accordingly, with more space allocated to residential uses and less to manufacturing.1 The majority of the existing literature on post-Soviet changes in Moscow’s urban geography has been concentrated primarily on the issues surrounding the recon- struction of the city center, which has lead to a new functional specialization inside the urban core (Kolossov et al., 2002). Scholarly discussions of revenue growth due to the commercialization of the downtown districts (Vardomsky and Mironova, 1999) confirm the validity of the classic bid-rent concept (Cadwallader, 1996: 53). Moscow’s government prods such studies as justification of its big construction programs, including the development of a new “Business City” three miles away from the Red Square. The arrival of global business services to Moscow (Gritsai, 2004) has heightened the sense of urgency for securing financial backing for such mega projects. In addition to the economic analysis of city center developments, a number of recent studies have explored issues related to the processes of gentrification, which have arisen as a result of Moscow’s intense downtown restructuring2 (Khazanov, 2005). Numerous publications examine the context of post-Soviet urban planning, noting the difficulties with “realistic development opportunities” for private ventures (Alden et al., 1998: 369) related to complicated land law provisions separating ownership 245 K. Stanilov (ed.), The Post-Socialist City, 245–265. © 2007 Springer. 246 Medvedkov and Medvedkov of land from ownership of buildings and users rights. The Master Plan, approved by the city government in June 1999, spurred an avalanche of publications on Moscow’s city planning initiatives. While some of these articles concentrate on monitoring the implementation of the plan, others highlight the negative developments in the spatial structure of Moscow, raising concerns about the emerging ethnic ghettoes (Vendina, 2002; 2004) and pockets of urban poverty (Krasheninnikov, 2003). In the context of the existing literature on Moscow’s urban development, our study examines a relatively under-documented process of urban restructuring in the post-socialist period related to the diffusion of upscale housing3 in the Russian capital. The first part of our text explains the outburst of new luxurious housing developments in Moscow by outlining the underlying economic factors. The second part of the text describes the spatial patterns of Moscow’s upscale housing, while the concluding part discusses the scarcities and uncertainties in the supply of this type of dwellings in the Russian capital. Moscow’s elite dwellings are expensive and prices are skyrocketing. In August 2005, the Guild of Realtors reported prices at the entry level of the elite housing category starting at around $2,500 per square meter, reaching twice that amount for larger units (Beatrix, 2005). Within only a year, housing values in this sector more than tripled, reaching, by August 2006, the astronomical $17,000 per square meter4 (Harrison, 2006). 12.2 Underlying factors Moscow tops the other capitals in Central and Eastern Europe in terms of population size and the magnitude of wealth creation. The city has more residents than the capitals of the eight recently accepted members to the EU combined, and, unlike them, Moscow has an upward trend in population growth (Table 12.1). The Table 12.1 Moscow population compared to other CEE capitals Capitals Population in 1,000s Population Change, in 2006 2001–2006 Moscow 10,473 Up 1. Budapest 1,700 Down 2. Warsaw 1,634 Down 3. Prague 1,168 Down 4. Riga 738 Down 5. Vilnius 542 Down 6. Bratislava 422 Down 7. Tallinn 392 Down 8. Ljubljana 254 Down Total 1–8 6,850 Down Source: The World Gazetteer, 2006 Upscale housing in post-Soviet Moscow and its environs 247 population of Moscow, nearly 10.5 million in 2006, is comparable only to the largest European conurbations of metropolitan Paris (11.6 million) and London (12.5 million) (World Gazetteer, 2006). In the post-Soviet time, Moscow has become a focal point of unprecedented wealth. According to the 2005 Forbes roster, 20 billionaires reside in Moscow compared to 14 in London and 12 in Paris (Forbes, 2005). The Russian capital has 30,000 households with a net wealth of over $1,000,000 and over 1.5 million households in the city could be qualified as middle class by Western standards (Medvedkov and Medvedkov, 2005). This unprecedented for Eastern Europe concentration of wealth can be attributed to two main factors – the current circum- stances of Russia’s economy and the commanding position of Moscow in Russian history. 12.2.1 Current economic circumstances Moscow’s size offers definite competitive advantages, which the city has used successfully in its transition to a market-based economy (Medvedkov and Medvedkov, 2005). At the beginning of the twenty-first century, Russia’s economy has successfully recovered from its initial disarray following the collapse of the socialist regime. In 2006, Russia entered its eighth consecutive year of economic growth. Improvements have come steadily, prompted by the import substitution realignment in manufacturing after the financial crises of 1998. From 1999 to 2005, Russia’s real growth in GDP rose from $196 billion to $725 billion. A large part of this growth has come from the lucrative oil industry, accounting for over 40 percent of the increase in industrial production. Moscow thrives on Russia’s surplus in foreign trade ($100 billion in 2005), with its customs offices handling over a third of Russia’s imports and a quarter of Russia’s exports (Goskomstat 2005a; 2005b). The majority of jobs in the Russian capital are in the sectors of science, education, culture, administration, health care, and services (Figure 12.1). This characteristic of Moscow’s economy is confirmed by an economic base analysis,5 which reveals the high degree of the capital’s specialization in the sectors of: (1) construction; (2) commerce and catering; (3) science, education, and culture; and (4) finances, insurance, and real estate (included in the “others” category) (Figure 12.2). Major socio-economic indicators for Moscow are positive, with output growth demonstratedeveninthesectorsexperiencingemploymentdownsizingsuchasmanu- facturing (Table 12.2). Significant growth has occurred in the military-industrial complex where arms exports have doubled during the 1999–2004 period, reaching 5 billion USD in 2004 (Golts, 2005). Moscow has benefited substantially from this growth as its region concentrates almost half of Russia’s production in this sector and over two thirds of the R&D workforce (Ananina and Schukin, 2005). The tremendous concentration of profitable economic activities and wealth in Moscow since the mid- 1990s has pushed the Russian capital to the top of the world’s most expensive cities 248 Medvedkov and Medvedkov Others, 14% Manufacturing, 12% Administration, 3% Construction, 14% Science, Education, Culture, 16% Transport, communication 7% Healthcare, 6% Commerce, Catering, 28% Fig. 12.1 Employment structure in Moscow, 2003 Source: Goskomstat, 2005b 3.0 2.5 2.0 1.5 LQ 1.0 0.5 0.0 Manufacturing Construction Transport, Commerce, Healthcare Science, Administration Others Communication Catering Education, Culture Fig. 12.2 Moscow specialization according to LQ Source: Goskomstat, 2005b Upscale housing in post-Soviet Moscow and its environs 249 Table 12.2 Moscow Socio-Economic Indicators Indicators 2002 2003 Comments Population (million) 10.38 10.39 Slow growth GDP ($, billion) 53.1 63.7 Growth (8%) is above average for Russia (7.1%) Industrial Output ($, billion) 12.7 14.8 Growth (16.5%) sets the record in Russia. Unemployment (%) 1.4 1.3 Unemployment is stably low Average monthly salary ($) 203.7 281.6 The highest in Russia. Most incomes are undeclared FDI ($, billion) 8.44 13.88 Over 50% if the total FDI flows to Russia Source: Goskomstat, 2005b in 2006, based on an analysis of more than 200 items including housing, public and private transport, food, clothing, and entertainment (Mercer’s, 2006). 12.2.2 Moscow’s “exceptionalism” In comparison to the rest of Russia, the share of the FDI flows to Moscow illus- trates what in our earlier study we labeled as “exceptionalism” (Medvedkov and Medvedkov, 2005). According to the General Manager of Moscow International Business Association, “…every year Moscow attracts 40 to 60 percent of all foreign direct investment in Russia. Today, its share is about 20 billion USD out of a total of almost 40 billion USD investments received by the country during the last 10 years” (Borisov, 2003). Two components boost Moscow exceptionalism. The first one is related to its location in the densely populated heartland of Russia, which gives Moscow undis- putable benefits unknown elsewhere in the country. The Moscow Capital Region (in the boundaries of Moscow Oblast) is the most populated part of Russia with 20 million residents.