Property Rights and Real Estate Privatization in Russia

Russia has attempted to develop property rights institutions to facilitate the development of private real estate markets since 1991. As of 2008 only one city (Veliky Novgorod) of 171 medium and large municipalities has adopted a fully integrated real estate registration system. Legal rules established for land reforms are unclear and incoherent. What explains Russia’s failure to establish private land ownership? Bertrand Renaud, Joseph K. Eckert, and R. Jerome Anderson argue that the absence of a tradition of secure private property in Russian history is paramount. The government has never been perceived as an impartial guarantor or protector of private property, and the concept of reciprocal obligation between ruler and citizens also did not exist. This legacy examining land policies from a property rights perspective creates mistrust of the polity as an effective institution to enforce private property rights. Other, nonhistorical disabling factors include the lack of incentive for property owners to register their land, local fiscal dependency on land rents, an underdeveloped real estate financing system, and high property taxes.

Renaud, Eckert, and Anderson also compare the Russian experience with the process of private property reforms in Estonia. Unlike Russians, Estonians experienced a short period of private land ownership between the two world wars. The authors argue that this history, albeit brief, allowed Estonia to develop a coherent legal system for land privatization immediately after independence. Real estate market development was also carefully organized to support the larger strategy of enabling Estonia to achieve full independence from Russia, reenact a modern Estonian constitution, develop an open market economy, and become a member of the European Union. These linked objectives motivated the government to ensure the success of land privatization. The comparison of Russia and Estonia illustrates the importance of past institutions in shaping the development of new property rights regimes in transitional economies. This finding accords with the experiences of the United States and China. History matters in contriving property rights institutions.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2008 and is Chapter 5 of the book Property Rights and Land Policies.