Habitat for Humanity Armenia (HFH Armenia) has recorded the first success in its advocacy efforts in reforming the legislation on residential buildings management in Armenia. In December 2020, the Government of Armenia approved “Decision on Bank Account Opening and Servicing Procedure” for the implementation of mandatory and other payments set by the “Law on Residential Buildings Management”. What does it mean in practice? Each building shall have a separate bank account for the management of its funds, which will increase the overall transparency of the fund management for each building. In addition to this, by the decision of the homeowners assembly, they can set up a separate reserve fund account for each building to be used to cover the expenses related to the unforeseen accidental renovation works in the building, as well as other expenses related to the operation and betterment of the buildings.
Until the end of the last year, Armenian homeowners had been suffering from the lack of proper and systemic regulation on maintenance of residential buildings and its commonly owned shared spaces. The recommendation proposed by HFH Armenia had been advocated since 2015, accompanied by many side events and activities. Let’s see together what stands behind this housing problem by looking at the history of its residential buildings maintenance system, its weaknesses and negative impacts and the benefits resulting from a successful policy change that has come into power just at the end of 2020.
Buildings in Yerevan, Armenia
Before 1990, Armenia was part of the USSR, the communist block of countries. The collective housing dwellings under the communist era were both state-owned and state-managed. In practice, this meant that the state was not only the owner of the residential multi-unit buildings but it was also responsible for the maintenance of these buildings. State building maintenance companies were in charge of these maintenance services and works.
In Armenia, with the fall of the communist regime, a huge wave of privatization took place and transformed not only the economic system but also the housing ownership structures. Due to this process, the ownership of the housing stock went from the hands of the state to the hands of the homeowners who formed homeowner associations or other management bodies for the management and maintenance of the buildings. However, due to the lack of proper management of the buildings, low collection rates and certain gaps in the respective legislation, the technical condition of multi-apartment buildings has been continuously deteriorating.
In numerous countries of the former Soviet Union, the former state building maintenance companies turned into private entities and continued with the maintenance services for these buildings, reporting to the newly established homeowner associations consisting of private owners of housing units. Each building established its own bank account and was in charge of its own financing, accompanied by the assistance and services provided by the private maintenance companies.
However, in Armenia, the legislation did not set requirements for opening and maintaining a bank account for each building separately, which often created uncertainty in the minds of homeowners regarding the use of their funds set by mandatory norms.
Hence, lacking regulation and rules on the responsibilities and competencies of buildings’ management bodies, and lack of loyalty of homeowners towards the management body of their building resulted in a rather unsystematic collection of money. This became the main issue to the actual maintenance of the Armenian residential multi-unit building stock.
HFH Armenia identified this issue and started to develop recommendations that would solve the problem of misfunctioning financing and capacities within the home-owner associations, their position and their role in the system. They referred to the need of specifying minimum mandatory norms for management, maintenance and exploitation of the multi-unit housing stock and the establishment of the control system improvement mechanisms. In this way, the implementation of mandatory norms and renovation works, maintenance and servicing would become more accessible for the homeowners.
HFH Armenia saw it essential to create a law that would make it mandatory to open a separate bank account for each building by the residential building management body. Thanks to this step, it would allow even for opening a savings account for each building managed. Therefore, a portion generated from maintenance fee collection for the maintenance fund could be transferred to this saving account and contribute to the overall financial stability of buildings’ owners.
The most significant result of such an action is making the residential building management bodies a reliable player, possessing its own finances and with the ability to manifest its spending and savings upon the need, or for example, when applying for a loan for reconstruction works.
Building in Yerevan, Armenia
In order to actually realize the proposed policy change, HFH Armenia has been working hard to advocate for these changes since 2015. The work has started with the support of the Visegrad Fund thanks to which the resources were allocated to the preparation of the primary research paper about the housing situation of residential multi-unit buildings in Armenia. Then, HFH Armenia developed and submitted a set of recommendations to the State Development Urban Committee, organized two roundtable discussions with the government representatives in Yerevan. The Armenian case was presented also during one of the roundtable discussions organized under the UN-Energy Summit in Yerevan in 2015. Moreover, they contributed to the REELIH regional conference organized by Habitat for Humanity International and USAID in Brussels in 2017 where several government representatives were present as well. Additionally, they participated in the three Working Group meetings set to develop the reform of the residential building management law in Armenia.
UN-Energy For Sustainable Development Forum 2015
With the change of the residential building management law, numerous benefits for the homeowners and their homeowner associations are coming. Thanks to the fact that each building, from now by law, has to have its own finances managed on a separate bank account, the process of maintenance works and renovation of the buildings becomes easier and more accessible. Among the main benefits are:
Before and After of muti-apartment building renovation
In Habitat for Humanity, we believe that for homeowner associations, mixed financing schemes are the best and most effective solutions for maintenance and renovation works of the commonly owned spaces of the buildings. The mixed financing consists of three elements:
The three mentioned ways of financing are only possible when the homeowner associations have direct power over their own resources. Thus, thanks to this policy change, the Armenian homeowner associations are becoming more stable, self-sufficient and in the end, fully-fledged market players.
Along with the work done in advocating for the change of the law on the national level, HFH Armenia has been working on a local level, too. As the current system resulted in huge mistrust in the maintenance companies, it was inevitable to start developing a sense of ownership between the flat-owners towards the shared space of their properties. This activity was done in order to develop trust among the owners and their deepened willingness to contribute to the funds and being supportive of the investment into their buildings once the law changes.
In this respect, HFH Armenia advocated for the creation of mechanisms for awareness-raising on housing stock energy efficiency. The prefabricated buildings that were built during the communist era are highly energy inefficient and have a further negative impact on people who spend a high amount of money on energy bills. Through the introduction of training courses related to housing stock energy efficiency in primary, and education programs in secondary, the citizens would become aware of their possibilities and motivated to invest in their buildings.
In 2019, as part of its awareness-raising activities, HFH Armenia has conducted training for homeowners on energy efficiency measures in the buildings. The post-training behavior change monitoring survey showed that 72% of respondents started saving energy in their apartments after participating in the training through:
This activity demonstrates the efficiency of trainings on the behavior change of the tenants towards a smarter use of energy at home and implementation of other energy-saving measures.
It will take some time for the new law to fully bring its benefits as there appeared new challenges in the implementation process. Change in the payment system from cash to online brings about one of the biggest issues. It now requires homeowners to make non-cash payments directly to the bank account and most tenants simply do not pay, because there is no one going and knocking on their doors for collecting the fee, as they were used to in past. Moreover, especially pensioners are not used to going to banks to make payments, as well as they are not even aware of the possibilities of online payment methods. Hence, in the short run, the collection rate of maintenance fees has dropped but is expected to grow after the change is well communicated with the homeowners. HFH Armenia has already started discussions with the Yerevan Municipality to run awareness-raising campaigns to make the transition to the new payment method faster and smooth.
Yerevan Municipality Roundtable
To add, it is necessary to create new, effective enforcement mechanisms for payments of mandatory fees, as the current one proves not to be that efficient. Therefore, as a next step, HFH Armenia has started advocating for having a better enforcement mechanism for mandatory payments via submitting its recommendation to the State Urban Development Committee.
The last remaining, and probably the biggest challenge, is the creation of the saving accounts for the buildings. Under the current law, the homeowners of the buildings have to create their basic bank accounts and store their funds there which allows them to have control of their spending in the first place. The additional saving accounts would give even more reliability to the homeowner associations, but unfortunately, this recommendation was accepted only as a voluntary and recommended action. HFH Armenia plans to further advocate to make the creation of the saving fund mandatory to ensure even more financial stability for the multi-unit buildings, as well as advocate for setting more efficient enforcement mechanisms towards the betterment of the collection of mandatory fees.
The Armenian advocacy success is proof that hard and systematic work and dedication can really make a change. Fingers crossed for HFH Armenia in their future work.
Find more information about HFH Armenia here.