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Collective Management of Residential Housing in Russia: The Importance of Being Social

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Ekaterina Borisova, Leonid Polishchuk, Anatoly Peresetsky1
Collective Management of Residential Housing in Russia: The Importance of Being Social
Performance of Russian homeowners associations established to manage common property in residential housing is assessed using the stochastic frontier technique. Observed performance variations are explained by tangible and intangible assets, especially tenants’ social capital required to resolve the collective action problem and ensure accountability of managing bodies and outside contractors. Without sufficient civic competence homeowners associations become dysfunctional or prone to capture by vested interests. Voluntary creation of HOAs is a credible signal of tenants’ ability to utilize the benefits of joint ownership and management of housing infrastructure.

Keywords: common-pool resources, collective action, social capital, homeowners associations, transition region, Russia.


Transfer of ownership and management of common-pool resources from public agencies to communities of users has been a global trend across the developing world. User communities possess strong motivational and informational advantages over governments in operating common-pool resources (Araral, 2009). Community members have powerful incentives to properly manage an asset essential for their livelihood and well-being, whereas public management of the commons is often hampered by a hard-to-resolve agency problem. Community ownership of the commons is fully consistent with the normative prescriptions of the property rights theory (Grossman & Hart, 1986): efficient property rights regimes allocate control rights over assets to the parties which are most directly affected by asset performance and are the immediate beneficiaries of good management. Similarly the users have valuable grassroots knowledge of the resource; it would be costly, if at all possible, to acquire such knowledge by a “remote” public agency.

Community management of common-pool resources (and, similarly, community provision of local public goods) is not however a win-win solution. Indeed, massive implementation of such regimes in various countries, societies, and areas of economic activity produced mixed results which do not demonstrate an unqualified advantage of communities over governments (Dietz, Ostrom & Stern, 2003; Ostrom, 2010). The main liability of community governance is the collective action problem: unrestricted access of community members to common pool resources or local public goods is not conditional on bearing the necessary costs, and such non-exclusion could lead to massive free-riding (failure to contribute funds and personal efforts, resource overuse, etc.). Coordination and cooperation among community members which are required to resolve the collective action problem could be insufficient due to the weakness of extrinsic enforcement and intrinsic motivation. In such cases public management, its well-known shortcomings and failures notwithstanding could still be the second-best regime, superior to community governance. Success of transferring the responsibility for common-pool resources and local public goods over to communities depends on resolving the tradeoff between stronger incentives and better information, on the one hand, and the collective action problem, on the other. Multiple factors which affect this trade-off can be aggregated in three main groups: (i) physical characteristics of the resource/public good; (ii) characteristics of the community of users; and (iii) institutions of collective ownership and management (Baland & Platteau, 2000; Dietz et al., 2003; Poteete & Ostrom, 2004; Araral, 2009; Ostrom, 2010). These factors are often intertwined; in particular institutional choice and performance could depend on the community size, wealth, cohesion, etc. Of special significance are such community traits as trust, shared norms and values, and grassroots networks, often considered as ingredients of social capital. Social capital’s relevance for self-management of common-pool resources is consistent with its commonly accepted definition as the capacity for collective action (Woolcock, 1998), and the key role of collective action in averting the “tragedy of the commons”. Social capital is imbedded in culture which is a slow-moving informal institution; if culture and prevailing social practices and customs are out of sync with a faster-moving institutional reform, the latter could fail to deliver the expected outcomes (Roland, 2004). In particular, insufficient social capital could become a bottleneck hampering community management of common-pool resources.

While physical, societal, and institutional factors are almost invariably significant for grassroots management of common-pool resources and provision of local public goods, their relative roles and impact are highly context-specific, as is evidenced by a large number of case studies — see e.g. Baland and Platteau (2000); Bardhan and Dayton-Johnson (2002); Ostrom (2005, 2010). Magnitude and even direction of the impact of such key attributes as resource salience, community size and inequality, market access and development, institutional environment etc. exhibit broad variations from one case to another (Dietz et al., 2003; Araral, 2009). Such lack of conclusive evidence can be in part attributed to imperfect measurement, biased sampling, and research design flaws; however, it also reveals the inherent complexity of the problem, where the “effect of even a basic characteristic such as user group size or heterogeneity depends on a range of other contextual and mediating factors” (Agrawal, 2002, p. 38). Case studies which shed light on the nature and the working of such factors contribute to better understanding of the collective action problem in the commons.

In this paper we present an empirical analysis of Russian homeowners associations (HOAs) which implement collective ownership and management of common property (facilities) in apartment buildings where individual apartments are privately owned by tenants. Such common property (building exterior, hallways, elevators, piping and wiring, parking, security etc.) combines features of common-pool resources and local public goods. Under the command economy a bulk of residential housing in Russian cities, including apartment buildings which housed nearly all of the country’s urban population, was publicly owned and managed. In the early 1990s ownership of apartment units was en masse transferred from the state to tenants; however joint facilities of apartment buildings for almost a decade remained under public (mostly municipal) ownership and management. Massive transfer of such rights and responsibilities to tenant communities organized in homeowners associations began in the early 2000s, and presently close to 90,000 such associations operate across the country comprising about 20% of urban residential housing stock.

In this paper we measure the performance of Russian HOAs and relate the observed variations to physical, socio-economic, and institutional factors which normally affect outcomes of community management of common-pool resources. While such analysis is important in and of itself for understanding the prospects and limitations of the ongoing reform in the Russian residential housing sector, it also illuminates a number of cross-cutting issues central for the common-pool resources literature.

First, the generic nature of HOAs which exist in tens of thousands alleviates the notorious “small N” problem which often precludes rigorous statistical estimation and hypotheses testing in common-pool resource analyses (Bardhan & Dayton-Johnson, 2002). HOAs thus offer a natural testing ground for various theories and conjectures regarding collective action in the commons.

Second, HOAs present a still relatively rare case of urban commons (Ostrom, 2000), whereas most of the literature in the field deals with natural resources (forests, fishery stocks etc.) and rural settings. In modern megapolises communal and associational ties required for collective action in the commons are usually weaker than in more traditional settlements (Putnam, 2000). Residents of an apartment building more often than not are socially disconnected from each other and form what is known as “planned communities” (Lehavi, 2010) bound together by a physical structure and a pre-established legal and regulatory framework, rather than by interpersonal ties and cohesion. Such communities are not faced with institutional supply failures that often beset common property regimes (Ostrom, 1990; Bardhan, Dayton-Johnson, 2002), but need to show the capacity for making proper use of the available institutions of collective ownership.

Third, this joint capacity in its turn requires a special kind of social capital which could be distinct from more traditional generic forms. HOAs are formally established organizations with decision-making procedures and governing bodies and their performance hinges on the ability of the tenants to bear necessary responsibilities and make full use of collective ownership rights. Of particular significance is the quality of governance (Halpern, 2005) which depends on the accountability of HOA executives and managers to the tenants. Governance breakdowns occur when tenants do not take part in HOA decision-making and absolve HOA administrators of grassroots control. Particular traits, customs, and practices in the community of tenants could be required to avert such outcomes.

Fourth, given the growing value of urban real estate, large financial flows originating in the residential housing sector, and significant market power of local utilities and management companies, HOAs could be attractive targets for capture by various vested interests. As long as common property of residential housing remains under local governments’ care, public sector rules and control procedures provide some protection of tenants’ interests from potential captors. HOAs do not have such third-party protection, and if tenants’ capacity for self-organization is weak, these entities become “sitting ducks” for takeover and subversion (Polishchuk, 2012). A closely related issue is HOAs’ access to professional services of management companies. When such companies have a near-monopoly power, HOAs operate in a captive market, which adversely affects their performance. Our analysis contributes to the literature by highlighting the threat of capture of common-pool resources transferred to users, and the importance of access to input markets — in this particular case to the market of management services.2

The paper is based on a survey of 82 Russian HOAs conducted in the late 2008; 40 HOAs in the sample were located in Russia’s capital Moscow, and the rest — in a major industrial city of Perm in the Northern Urals. Performance of the sampled HOAs was measured by the stochastic frontier technique (see e.g. Kumbhakar & Lovell, 2000).We demonstrate that physical and socio-economic characteristics of resp. apartment buildings and tenant communities are indeed highly relevant for collective management of residential property. While conventional social capital measures reflecting interpersonal communications, mutual help, and trust among the tenants are predictably significant for HOA performance, their impact is considerably milder than the relevance of special kind of social capital, called in the paper technical civic competence, which characterizes the ability of tenants to operate the institution of HOA and in particular to exercise effective control over its governing bodies. Governance is shown to be the main transmission channel between social capital and HOA performance.

The main institutional variable in our analysis is the presence of a management company contracted by an HOA. Management companies are expected to improve the performance of HOAs by offering specialized professional services; however our data indicate that management companies make matters worse, which as an evidence that such companies are often turned from service providers into instruments of capture. Overall we find strong complementarity between institutional reform, social capital, and market development in Russian urban commons.

The paper proceeds as follows. In the next section we present a general analysis of collective management in urban commons, which leads to hypotheses brought to data later in the paper. Section 3 provides an overview of HOAs development in Russia. In Section 4 we describe our data and empirical strategy. Efficiency measures of surveyed HOAs are obtained in Section 5, where the relations between such measures and physical, social, and institutional factors are established and discussed. Section 6 deals with governance and outsourcing in HOA operations. Section 7 concludes.


Common property in residential housing combines features of common-pool resources which can suffer from overuse and disregard of others, and of a local public good which generates a stream of services for tenants and depends on their financial contributions.3 The collective action required to jointly operate such common property encounters two possible types of free-riding, material and political — in the first case tenants do not make required contributions in cash and in kind, and in the second they shun their decision-making responsibilities. The political free-riding (Bengtsson, 1998) could be no less damaging for community interests than the conventional material one: in the latter case HOAs lack funds necessary for their operations, whereas in the former they suffer from the same unresolved agency problem that plagues public management of residential infrastructure and motivated the establishment of HOAs in the first instance.

Both types of free riding are in principle preventable by extrinsic and intrinsic motivation. Extrinsic motivation in the case of material free riding could be the threat of legal sanctions against delinquent tenants, or community pressure and rebuke, which can also be applied to those who fail to take part in collective decision-making. Intrinsic motivation is rooted in tenants’ pro-social norms and values, which are essential ingredients of social capital.4 Salience of social capital for HOA performance is natural: transfer of residential common property from public management to tenants is in many respects similar to the devolution of resources and decision-making power from national governments to regions and localities. HOAs are “micro-jurisdictions” reproducing in miniature many elements of larger-scale public sector governance (Bengtsson, 1998). Massive theoretical and empirical evidence assembled since Putnam’s (1993) groundbreaking work demonstrates the importance of social capital for outcomes of political decentralization, and the same should be expected of HOAs.

The role of social capital for self-organization in residential housing is discussed inter alia by Lang and Hornburg (1998), Halpern (2005), Saegert (2006), and Vihavainen (2009). Temkin and Rohe (1998) find evidence of social capital’s contribution to the stability of residential neighbourhoods, and observe tangible payoff to social capital in terms of housing conditions and market values of residential properties, which could be comparable in its significance to physical conditions of apartment buildings. Saegert and Winkel (1998) demonstrate the importance of social capital for the success of self-management of revitalized apartment buildings. Di Pasquale and Glaeser (1999) argue that “homeowners are better citizens” — they have greater interests in public policies and stronger incentives to participate in community affairs, because homeownership creates longer-lasting ties to the community, and market values of residential real estate capitalize the quality of public policies. Glaeser and Sacerdote (2000) observe closer social connections between neighbours living in apartment buildings than between those residing in single-family detached homes. These findings suggest that apartment buildings with privately owned units could indeed be natural reservoirs of social capital required to power homeowners associations.5

However, the above referenced literature also shows that the stock of social capital in many apartment buildings is low, and furthermore the available social capital could be of “wrong type” (Rose, 2001). The earlier views of social capital as a generic commodity that improves performance of every organization, economy, or society, have been refuted in the recent literature, and available evidence leads to the conclusion that performance-enhancing forms and kinds of social capital could be highly context-specific (see e.g. Halpern, 2005; Bjornskov, 2006).

Of particular salience is the impact of social capital on governance (Tabellini, 2008); good governance, in its turn, improves economic outcomes (Kaufmann, Kraay & Mastruzzi, 2005). Social capital which enhances government accountability nurtures the sense of responsibility for community affairs and political participation driven by community interests. One should expect that the above traits, known as civic culture (Almond & Verba, 1963) would be required in the tenant community to ensure good HOA governance. Furthermore, to make a tangible difference, such views should be sufficiently broadly shared.6

Other factors that could be relevant for collective action in residential housing are the size and homogeneity of tenant communities. The impact of group size for community management of common-pool resources is discussed by Poteete and Ostrom (2004). On the one hand, according to Olson’s (1965) theory, the collective action problem is easier to resolve for smaller groups; on the other hand, larger communities have the advantage of the economy of scale in public goods provision. The impact of economic inequality on self-management of common-pool resources, including residential common property, is similarly ambiguous (Bardhan, Dayton-Johnson, 2002): on the one hand profound inequality could facilitate private provision of local public goods, when a few wealthiest individuals take the matters in their own hands and ignore the rest of the community, on the other, in unequal communities it is more difficult to reach consensus over community affairs, and associational activities as a result suffer (Alesina, Ferrara, 2000).7 Empirical analyses are required to reconcile these counteracting arguments (Araral, 2009).

Finally, operation of infrastructure of modern apartment buildings requires professional expertise which is rarely available in-house, and HOAs are expected to seek help of specialized for-profit management companies. Competition in the market for building maintenance services thus becomes a potentially important factor of HOAs performance. Such competition could alleviate a lack of social capital (Chen & Webster, 2005), and these two factors therefore could substitute for each other. This explains why in industrially developed countries reasonably smooth operation of HOAs is possible even with limited involvement of tenants (Bengtsson, 1998). On the other hand, excessive market power of management companies poses serious threat for HOAs which have to seek professional help on a captive market. Insufficient competition on a vital input market could undermine an otherwise efficiency-enhancing residential housing reform.8

The above analysis leads to the following research questions and hypotheses that will be addressed in the empirical part of the paper. First, social capital of certain types should be essential for HOAs performance. Second, conventional ingredients of “generic” social capital, such as interpersonal trust and communication, are not necessarily the only contributors to HOAs performance; what might be also required is “civic competence” that enables tenants to properly exercise their collective ownership rights and could or could not be reduced to the traditional social capital perception. Third, the main function of civic competence-type social capital is to ensure accountable governance of HOAs and protect such community organizations from capture. Fourth, the threat of capture could come inter alia from management companies if they have abnormal market power. Fifth, building size, measured by the number of tenants, and inequality in the tenant community, could be relevant for HOAs performance, but the magnitude and even direction of their impact cannot be established a priory and, as it is often the case with common-pool resources, could be context-specific.


When Russia embarked on its economic transition, less than 15% of its urban residential housing was privately owned (Yassin, 2006). As a part of the across-the-board privatization that started in the early 1990s, a bulk of residential housing was transferred at nominal costs into private ownership of the tenants; this “gift” was expected to solidify grass-roots political support of the new economic order (Boycko, Shleifer, & Vishny, 1995). Most of the new construction was offered thereafter for sale at market prices.9 As a result, presently over 80% of the urban residential housing stock in the country is privately owned, and vibrant real estate markets sprang up in Russian cities.

84% of Russian urban population live in apartment buildings (Yermishina & Klimenko, 2010). In contrast with sweeping privatization of apartment units, local utilities and maintenance of building infrastructure for over a decade remained in the public sector. This proved to be an increasingly heavy and ultimately untenable burden for Russian municipal budgets, claiming up to 1/3 of local governments’ expenditures. As a result of poor management, lack of performance incentives, absence of competition and massive corruption and theft, the costs of utilities and building maintenance as a share of disposable household income nearly doubled between 1997 and 2006 (Yassin, 2006). Escalating tariffs were beyond the means for many households, and cost recovery in the residential housing sector remained insufficient throughout the last two decades.

These mounting problems prompted in the early 2000s the second wave of the residential housing reform which shifted the responsibility for apartment building maintenance to the tenants, and replaced municipal housing service providers by private management companies. The creation of homeowners associations was fully endorsed and strongly supported by the government which was interested in de-politicizing the housing sector and relieving the state of the growing fiscal burden of building maintenance. To expedite complete privatization of residential housing, the government enacted in 2005 a comprehensive Housing Code, which supplied a binding legislative framework for HOAs. In addition the government offered monetary incentives for the creation of HOAs in the form of cost-sharing of capital repairs of apartment buildings with newly established HOAs.

The availability of HOA legislation largely eliminated the institutional supply problem in common property management in the Russian residential housing. Government recognition and support is one of the key design principles for successful self-organization (Ostrom, 2000); most of the remaining principles, including immediate and powerful material incentives to take good care of collective property; relatively stable and compact groups of tenants with clear boundary rules; opportunities for frequent face‐to‐face communication; and the ability to set internal rules of the organization and elect governance bodies, were also met. All of the above gave reasons to expect a robust response of Russian homeowners to the opportunity to take apartment buildings in their own hands.

These expectations were only partly fulfilled. The growth of HOAs was indeed impressive (Figure 1), but the adoption of HOAs so far has been limited to apartment buildings with about 20% of the total living area of Russian urban residential housing. Furthermore on many occasions these HOAs were pre-established by developers or imposed by municipal governments without proper consultations and consent of the tenants. Municipal governments were rushing the creation of HOAs in order to meet the central government’s targets necessary for obtaining additional funding for capital repairs of tenant-managed apartment buildings. Construction companies — another “third party” — had the incentive to control the creation of HOAs in newly completed development projects in order to transfer the buildings to affiliated management companies, often by resorting to irregularities and fraud, and collect thereafter hefty maintenance fees and rental payments for leasing basements and ground floors as business premises and making outer walls available for commercial advertising (Glazunov, 2008).

Figure 1. Russian HOAs dynamics

The performance of Russian HOAs has been a mixed bag where success stories coexist with common failures (Glazunov, 2008; Vihavainen, 2009; Yermishina & Klimenko, 2010). There are no comprehensive data sources yet on the Russian HOA sector, but anecdotal evidence, including media and internet reports highlights the institutional environment as well as HOAs’ tangible and intangible assets as factors underlying the observed outcomes (Borisova, 2010).

On the institutional side, the Russian HOA legislation suffers from ambiguities and omissions, and courts have not been consistent in closing such legal lacunae. A questionable provision of the law makes HOA membership optional for apartment owners, but HOA’s decisions are mandatory for all tenants of the apartment building irrespective of their membership. Furthermore, tenants are not properly informed of the law and its meaning and implications, and are concerned that HOA membership would entail unpredictable financial and legal liabilities — hence the widespread apprehension that the only practical outcome of the residential housing reform will be higher cost of building maintenance (Vihavainen, 2009). These expectations could be rational, given the near-monopoly power of management companies; more often than not such companies have been established by privatizing municipal enterprises which maintain close relations with local governments and use their clout to prevent entry of would-be competitors.

Tangible assets of HOAs are apartment buildings which often suffer from significant wear and tear — according to the Russian Chamber of Industry and Commerce, the average depreciation rate of the Russian residential housing stock exceeds 60%.10 Many apartment buildings in Russian cities were built in the 1950–1970s period using mass production technologies, such as prefabricated panels. Those buildings had the expected life span of 50 years and less, and usually are at present in urgent need of capital repair and upgrade to modern housing standards. Poor building conditions not only make ongoing building management more complicated and costly11, but also require expensive capital repairs.

Social norms and customs required to collectively manage common residential property are in short supply in transition countries, including Russia (Hegedüs, 2011). Russia’s limited experience with self-rule and democratic institutions has left a paternalistic culture with insufficient capacity for collective decision-making and general preference for greater government control over economy and society, including residential housing. Thus, 86% of apartment owners surveyed in (Yermishina, Klimenko, 2010) believe that government should be responsible for their buildings conditions. Ironically, widespread disappointment with past government performance does not diminish the yearning for government involvement and control (Aghion, Algan, Cahuc, & Shleifer, 2010).

The flip side of such attitudes is massive non-participation in HOA decision-making. While the conventional free-riding in the form of delinquency on housing bills had declined by the late 2000s to less than 6% of the total due (Sivaev, 2009), more than 2/3 of respondents surveyed in Yermishina and Klimenko (2010), believe that their responsibilities as apartment owners are limited to timely bill payment and do not require any further involvement in HOA governance and operations. Commonly observed in Russia general preference for informal arrangements and self-help instead of reliance on formal institutions (Rose, 2001) further reinforces such attitudes.

When HOA members en mass abstain from taking part in the organization’s affairs, the HOA becomes susceptible to subversion and capture, and such incidences are indeed common; in particular management companies which are expected to provide professional serviced to HOAs are often misused as capture tools (Borisova, 2010; Polishchuk, Borisova, Peresetsky 2010).12 Releasing a building from capture by an opportunistic management company and/or unscrupulous HOA board or chairperson is not a simple task, as it also requires a collective action of the very same tenants whose low capacity for cooperation and indifference to community affairs made the capture possible in the first instance.

Quite a few Russian HOAs were able to avoid the above pitfalls and demonstrate impressive results of collective ownership and management of residential housing (see e.g. “Best practices in apartment building management”, 2009), while others linger in squalid conditions. The subsequent empirical analysis sheds light on root causes of such successes and failures.

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