housing studies centre
on housing: research
is housing in Armenia affordable
original publication: https://urbanista.am/affordable-housing-eng
Similar to the race for sustainability of the 2000s' and 2010s', the third decade of 21st century seems to be marked by the catch-all term "affordable". Even though both terms are context-dependent (what would be deemed sustainable and/or affordable in one environment does not always function as such in another), the topic of housing is a highly political one being perceived as a matter of basic rights on a par with healthcare and basic education.
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Throwing resources into designing a brick-and-mortar envelope that is below market value, without the national umbrella system organizing the full chain of housing provision, is only a localized palliative solution. The ultimate goal is to ensure that the housing system is designed and consciously maintained to afford livable dwelling units to most of the population.
If left to its own devices, the unfettered housing market naturally tends towards inflated speculative prices unattainable for most first-time homebuyers.
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The global trend of growing house costs has affected the Armenian market as well, despite the long-lasting effects of the Covid 19 crisis and the war of 2020. In March of 2022, the prices have seen an unpredicted spike in increase due to another war which drove tens of thousands of temporary migrants from Russia, Ukraine and Belarus to reside in Armenia. The event rattled the local housing market – with landlords doubling rental prices and forcing previous tenants out and going on a selling spree in the hopes to offload beat-up properties for well above their true asking price.
Speaking in numbers: defining affordability
Prices per square meter in Yerevan and the provinces, February 2022 / source
The universally accepted formula for both rental and ownership affordable housing is one wherein shelter costs consume no more than 30-35% of monthly disposable income of a household. In this definition, expenses for rental housing include utilities, whereas expenses towards affordable ownership are the sum of all mortgage-related payments and condominium fees. This approach is notably flawed for several reasons: it does not account for the size of households and the per-capita expenses; lowest-income households may still struggle to cover their non-housing needs with the remaining 70 per cent – that is assuming they do find a housing option within the 30% ratio of their income; in higher-income areas, housing often costs way over 30 per cent of income.
In light of undeniable preference for ownership among the Armenian society (showcased by one of the highest home ownership rates in the world at 99.8% and the social stigma associated with renting, the latter is, in most cases, a last resort families are forced into by being priced out of the ownership market. In recent years, the relatively active labour environment ushered in a more tolerant attitude towards long-term renting, but it is still reserved to the outsiders representing the well-paid segment who can access the higher-priced units in the “elite” buildings.
Looking at the data from February 2022, the range of median per square meter prices across the country is rather broad –with as low as AMD 22,100 (around $45) in the city of Tumanyan in Lori region, and an average of AMD 690,550 (around $1381) for a square meter of an apartment in the Kentron district in the capital. However, several factors need to be pointed out prior to cross-comparing income and housing prices and the elasticity thereof. First, the available data on income – one collected and provided by the Statistics Committee of RA based on the data from the State Revenue Committee of the RA – is accrued from the reported incomes and does not necessarily represent the actual national mean.
And second, the availability of dwelling units is not reflective of its quality: the housing stock in Armenia is old – with much of what would be deemed affordable requiring major repair. In addition, living conditions in certain provinces as well as concerns over border security are major factors affecting population’s willingness to pay and reside in those communities.
Affordable is not all that matters: the housing stock in Armenia
Most of the housing stock currently in exploitation in Armenia are the Soviet-era multi-apartment buildings. Around a third of the stock was built in the two decades between 1951-1970, another 46% was constructed in the following two decades – between 1970-1990 – preceding the collapse of USSR, and only 16% were added in the three decades following the independence.
Dangerous buildings in Armenia by degree / source
Housing stock by decade of construction / source
A portion of the housing stock was badly damaged in the 1988 Spitak earthquake. The numbers demonstrate that the pace at which market economy in Armenia is able to produce housing (on average, an increase of 497 multiapartment buildings every five years) is much lower than that of the Soviet planned economy (on average, 1938 new multiapartment buildings every five years).
Additionally, the output has considerably suffered as a result of the global financial crisis of 2008 – with a decrease of over 80% in the subsequent decade. Considering this and the average life span attributed to the buildings in the country, it is now that a housing replacement/repair strategy needs to be outlined.
There is no recent comprehensive study revealing the current state of all the multiapartment buildings in the country, leaving us to make do with bits of data coming from private organizations and researchers put together. As of 2019, there still were a total of 614 confirmed dangerous buildings of 3-rd and 4-th degrees. The latter is considered damaged beyond repair and can only be demolished. In addition, the buildings built prior to the 1988 Spitak earthquake were constructed to seismic codes designed for lower magnitudes.
Housing stock change 2001-2020 by total area, number of single-family homes and multi-apartment buildings (data on single-family homes prior to 2016 are not comparable / source
A preliminary analysis suggests that a fifth of the nearly 4800 multi-apartment buildings in the capital are bound to collapse in case of a strong seismic event, another 60% can be reinforced to achieve resistance, while only the remaining 20% are expected to withstand the earthquake without collapsing.
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According to the housing census data for 2020, the housing stock totals 98,642 K sqm of dwelling area, around 27% of which is in Yerevan.
During 2000-2020, the supply has been slow, with the overall trend going downward even in the most prolific decade preceding the 2008 housing crisis, which is explained by the abatement of the dangerous buildings. There is no accurate data regarding the occupancy rate of both old- and new built multi-apartment houses, but the seeming shortage along with the disproportionately larger amount of the new units being built in the capital is continuously driving the prices up.
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Residential property purchase transactions volume in Yerevan and the provinces, 2016-2021 / source
​These numbers do not necessarily reflect the demand for newer housing in other provinces but rather stem from greater profitability from land development in the capital along with lack of access to mortgage subsidy programmes for households wishing to improve their housing circumstances elsewhere in the country.
Statistics for residential property transactions volume (both in multi-apartment buildings and single-family homes) show a growing trend both in the capital and other provinces. However, in most years, the volume of transactions in the capital alone exceeds the cumulative volume in all other provinces. The uncertainties brought about by the chain of events of 2020 are perfectly reflected in the plummeted activity in the housing sector, which, however, picked up almost to the 2019 mark by the end of 2021.
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In terms of operational affordability, around 30% of households in the country are considered energy poor (wherein over 10% of income goes to cover bills for energy).
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A case-based investigation by Hetq observed that during the heating season, the lowest-income households in Yerevan spend over 70% of their income towards utility bills, with the average being around a third of the monthly income in all income groups. Among other factors, such inflated numbers are also due to the poor energy performance of the housing stock.
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In most of the multi-apartment buildings, the external walls do not meet the national requirement for heat-flow resistance set at 1.8-3.4 m2ËšC/W, depending on climate zone and heating period: 23.1% of the buildings are constructed with prefabricated panels that provide a thermal resistance of 1.58m2ËšC/W at best, and another 69.2% have stone walls wherein a 600mm “midis” wall provides an R-value of 1.144 m2ËšC/W.
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Several pilot projects carried out by UNDP demonstrated a potential for reducing energy consumption by up to 50% by retrofitting prefabricated panel buildings.
The affordable price tag: the Calculation
Similar to the rest of the world, the median salary increase in Armenia is outpaced by the growing housing prices, though not by much compared to most developed and developing countries. Given the significant difference in prices in Yerevan and provinces, a province-based cross-comparison of income and home prices will be carried out below – arriving at values that reflect better the affordability threshold for each locality.
A remarkable observation here is that despite a significant drop in residential property transactions in 2020 (a nearly 22% decrease across all cities), property prices kept growing steadily.
The trend has persisted into the year 2022 – with further potential for increase being unprecedented if, at some point, the temporary migrants penetrate the residential ownership market as well. So far, the most recent data for both median salaries and national average per-square-meter prices is from February 2022 and does not yet show the “premium” imposed by this growing demand for dwelling space.
Trend of housing and salary increase over the years
The apartment The calculation will be made for a generic case of a single household wishing to purchase a one-bedroom apartment of 57 sqm (the median area for a one-bedroom apartment in the country), with a realistic interest rate of 12% and a loan term of 20 years. The average price for such an apartment would amount to AMD 20,746,700 (around USD 41,493) in Yerevan, and AMD 6,215,679 (USD 12,431) in other cities. Considering the national average at 33.3 sqm of floor area per dweller, a family of even two would, on average, be looking at an apartment of above 60 sqm.
The household income The assumption made here will be of a double-income household – not accounting for the higher unemployment and lower salaries among females (about 65% of their male counterparts). In this case, the generic household would be earning a median net income of AMD 368,500 (USD 737) in Yerevan and AMD 239,300 (USD 479) in other cities.
The rent-to-income ratio To pay off mortgage on the 57 sqm apartment, a double-income household would give away 62% of their collective disposable income in Yerevan and about 29% elsewhere in the country. For a single-income household, the ratio would double to 124% and 58%, respectively.
A reverse calculation: how much income is enough?
Since the data on province-based per square meter prices is more reliable as opposed to the reported income values, a reverse calculation may be more informative – revealing the net incomes at which a household could affordably purchase a dwelling. In this way, the minimum net income – the 30% from which would be enough to pay a mortgage – is AMD 761,460 (USD 1,523) or two net salaries of AMD 380,730 (USD 761) in Yerevan, and an income of AMD 228,130 (USD 456) or two net salaries of AMD 114,100 (USD 228) in the provinces.
Housing cost to household income ratio in Yerevan and the provinces, as of February 2022
Housing cost to national median household income ratio
The calculations above do not, however, take into account the question of down payment or another property for collateral – a marker of wealth distribution rather than income, and the supportive policy of income tax return.
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As for rental prices in Yerevan (so far, the most affected by temporary in-migration), the values were parsed from list.am – the most popular real estate advertising platform – and hence
reflect the current offering prices as opposed to the actual going price. In this way, the average rental price for a one-bedroom apartment ranging from 35-60 sqm in the capital amounts to AMD 362,720 (around USD 725) – which equals two reported incomes in Yerevan. This explains the widespread evictions by landlords, who, even if do ultimately let their properties at lower rates, are still pricing the locals out.
To conclude...
Based on the reported incomes, housing in Armenia is barely affordable. If the average nationwide gross income of AMD 206,511 (USD 413) is any indication, a double-income household residing in the capital would be investing over half of their disposable income to purchase a 57 sqm apartment. As for the rest of the country, housing in eight out of ten provinces would be deemed affordable as per the 30-percent ratio rule – with four provinces being below the 30% mark, and other four within the 30-35% range. At the same time, a single-income household anywhere in the country would not be able to afford a housing.
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The data from years 2016-2022 demonstrate that the events of
2020 have somewhat reverted the growing unaffordability of the housing-to-income ratio in Yerevan but remained consistent in the provinces.
Nevertheless, these values are extremely approximated given the drawbacks mentioned above: underreported incomes, size of the dwelling used in the case study being below what a family would necessitate for comfortable living, the assumption of two full median salaries making up the income. In addition, to realistically understand the housing market in Armenia it is necessary to look further into exogenous factors affecting it, such as speculative practices, hedonic pricing, number of residential properties per household.
Housing-to-income ratio, 2016-2020 February: calculated for a mortgage on a 57 sqm apartment and two net incomes
At the moment, the unusually higher dwelling demand is a classical “symptom” of an exponential growth of city population with unprepared infrastructure in place. Most of the burden is borne by Yerevan, with less of the implications experienced in the provinces. It is true that if the influx of temporary migrants were more evenly distributed across more cities, the price-spiking effect would be mitigated. Yet the thing to keep in mind is that a growing demand for dwelling in the provinces is very likely to price out (read, lead to evictions) local renters and prospective homeowners very fast.
The current residential market situation is another reminder that making a profit on private property is the underlying theme of the supply-and-demand game – the business mentality if you will – which does require restraining levers in place to level the field for the haves and have-nots.