State program of assistance to young families in purchasing housing in Ukraine

Paul Gauguin. The Family in the Garden Rue Carcel. 1848-1903

Of course, in the 90s, due to significant economic difficulties, very little was done to resolve this issue. The State Fund for Assistance to Youth Housing Construction was established in Ukraine back in 1994, but until 2000 this organization could not fulfill its main functions due to the complete lack of funding.

The state program of assistance to young families in buying their own home began to work in Ukraine only in 2002, and its peak of popularity fell on 2005. Indeed, the lending conditions that were offered at that time to young families (the age of parents should not have been more than 35 years old) were quite attractive.

Thus, the program “Concessional long-term lending”, which is supervised by the State Fund for the Promotion of Youth Construction, implies the purchase of an apartment with a minimum down payment of 6% and the remaining 94% of the cost by installments for up to 30 years at only 3% per annum. Moreover, if children appear in the family during this period, then borrowers can expect to receive additional benefits. For example, one child already gives the right to receive an interest-free loan, the second reduces the loan repayment amount by 25%, and families raising three or more kids have the right to reduce the mortgage loan repayment amount to the Youth Fund by another 50%.

Thus, a large family gets the right to purchase an apartment not just in installments for a considerable period, but also for only half the price..

If a loan is taken from a commercial bank at 18% per annum, then 8% of them were compensated by the state.

The second direction of the program of assistance to young families, adopted in Ukraine, operates under the name “Partial compensation of interest on loans to young families” and provides for the acquisition of real estate with the participation of a bank. In this case, a young family takes a mortgage loan to buy a house or apartment, part of the interest of which is paid by the state. So, if a loan was taken from a commercial bank at 18% per annum, then 8% of them were compensated by the state and only 10% was paid by the borrower himself.

Such favorable conditions for the purchase of an apartment and mortgage lending could not fail to attract Ukrainian young families. If in 2004 only a little more than 1,000 agreements for such youth loans were concluded with Ukrainian banks, then in 2005 their number reached 15,000..

Zinaida Serebryakova. Family portrait. 1910

And if this tendency was observed in the future, it is quite possible that the problem of housing for young families would not be so acute in Ukraine now. However, concessional lending for young families has become an excellent pretext for various violations. Often, such loans were issued simply due to personal connections, queues of people wishing to get a preferential mortgage loan formed, and in order to get into the queue, a young family had to repeatedly prove that it needed to improve housing conditions, while relatives and friends of officials could apply for several such soft loans. It is interesting that the inspection by the State Prosecutor’s Office did not find traces of violations of the law in this area. But young families, who had previously registered and were waiting for their turn to receive a youth mortgage, were surprised to learn that the line was not only not moving forward, but the number of people standing in front of them was constantly growing.

To deal with the stream of complaints from those wishing to get a mortgage under the program to help young families, the government completely suspended the program and decided to tighten the conditions for selecting those families who could benefit from state assistance.

The financing of the issuance of mortgage loans to young people was also reduced – the state budget of Ukraine did not bear such a burden and in 2006 only 646 soft loans were issued for the purchase of real estate to young families.

Young families can get a loan at 10.75% per annum if they are registered as needing housing.

After the 2008 crisis, the situation worsened again – the government suspended the payment of compensation for its part of the interest on the loans received, as a result, young families who managed to take advantage of the state’s privileges had to pay the entire amount of interest on their own, hoping in vain that these costs would be compensated in the future.

The program of concessional lending for young families in Ukraine was renewed only in 2010. Now young families can get a mortgage loan at 10.75% per annum and only if they are registered as needing housing. The initial payment is 10% per annum, the loan can be issued for up to 30 years, but no later than one of the family members reaches retirement age.

Currently, in Ukraine, the State Target Social and Economic Program for the Construction (Acquisition) of Affordable Housing for 2010-2017 is also operating in parallel. That is, the government decided to approach the solution of the housing problem for young families from the other side – to build houses with cheap apartments, which, moreover, can be purchased on preferential terms..

Anton Grzhibovsky. Odessa courtyard. 2009

According to the terms of this program, a Ukrainian family (there are no more age restrictions) registered as in need of better housing conditions receives compensation in the amount of 30% of the cost of housing. However, compensation is calculated only for the cost of living space, which does not exceed 21 square meters per person plus 10.5 square meters per family. But this is not the most important limitation – you can buy housing only in those residential complexes that take part in this program (and their number is very limited) and for an amount not exceeding the established norms for the cost of 1 square meter. The state believes that 1 square meter of housing in Kiev should cost no more than 7990 hryvnia (about $ 1,000), and in the Kiev region – no more than 6435 hryvnia (about $ 800). The family pays for the amount that exceeds the established norms.

In 2010, only 590 young families were able to use the state’s help, in 2011 – just over 1 thousand. New residential buildings erected under this program were commissioned only in Kiev, Donetsk, Sumy, Kharkov and in the Kiev region.

In Ukraine, from 300 thousand to 1.1 million young families need to improve housing conditions.

So it’s impossible to say that now young people have a real opportunity to purchase affordable housing. According to various sources, from 300 thousand to 1.1 million young families in Ukraine need to improve their living conditions. Such a spread in figures is due to the fact that some sources are based on data obtained as a result of a survey of the population, while others are based on dry numbers showing how many square meters are per person. In any case, the number of young families in need of housing is very large, and the funding provided from the budget in the amount of UAH 150 million (about $ 18 million) for the entire Affordable Housing program is clearly insufficient.

But there are other obstacles that impede the implementation of the program. And first of all, this is the main condition on which a young family can use a preferential mortgage loan – registration with the local government as a family in need of better housing conditions.

In Ukraine, it is actually very difficult to prove that a family really needs square meters and cannot acquire them on their own. The criteria for registering as an applicant for state aid are not only square meters per family member, but also monthly income.

Standards for square meters of living space for 1 person are set separately in each region of Ukraine and can vary from 7.5 square meters in Kiev to 6 square meters in Ternopil. As a result, in order to be recognized as a family in need of housing, at least 4 people must live in an apartment of only 30 square meters..

The second difficulty – when registering, it is necessary to prove that the average monthly total income of all family members per person does not exceed four times the average monthly salary in the region according to the State Statistics Committee. For example, in Kiev, this amount in May 2011 was 3861 hryvnia (about $ 480), and in Ternopil – only 1839 hryvnia (about $ 225). If the family’s income is higher than the established amount, therefore, according to officials, it can purchase housing on its own and does not need government assistance. At the same time, the big question remains how, then, a young family, having proved that their incomes are not too high, will be able to pay their part of the cost of an apartment or interest on a mortgage.

Such restrictions, combined with a completely insufficient amount of compensation for the cost of an apartment, lead to the fact that the state programs “Affordable Housing” and “Preferential Lending” in Ukraine are currently not in great demand among young people. Most of the potential participants in the program are very skeptical of real government assistance, cannot register as a family in need of better housing conditions or are unable to pay off the remaining cost of an apartment on their own.