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Monday 20.01.2020 | Name days: Aļģirds, Orests, Oļģerts, Alģis
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Economist: high rent prices in Riga contribute to emigration

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Citadele, Riga, rent, housing, housing fund, emigration, life in RigaThe high rent prices may be the reason why in spite of low unemployment levels and shortage of labour force people from Latvia’s regions depart to foreign countries, not Riga, says Citadele Bank’s economist Mārtiņš Āboliņš.

«This means the housing matter in the capital city and certain other cities may have become one of the narrowest places in Latvia’s economy,» says Āboliņš.

«Apartment rent prices in Riga may be one of the highest among all EU capital cities. This is the conclusion that comes from comparing rent prices, wages and living costs in Riga and other EU capital cities,» explains the economist.

Citadele Bank’s expert says Riga plays a much bigger role in Latvia’s economy than capital cities of other European countries. He reminds that more than half of Latvia’s residents live in Riga and they produce nearly 70% of GDP. The economist adds that IT technologies and other forms of business services rapidly develop in Riga, with average wage having exceeded EUR 1 1000 before taxes, GDP per capita is close to the average EU level, unemployment only at 3.7%, and companies suffer a shortage of employees, which is why there are more and more talks about attracting foreign labourers.

There are objective and major factors for domestic migration

Āboliņš says people from regions are more likely to leave the country than go live in Riga.

Data from the Central Statistical Bureau of Latvia shows that between 2016 and 2018 a total of 9 500 residents had moved from Latvia’s regions to the capital city, whereas the number of people who had left for foreign countries reaches 13 000.

Āboliņš explains that, considering birth and death rates, the number of people in Riga’s surrounding area has not changed, whereas the population outside Riga region has declined by more than 30 000.

«It is hard to believe people unable to find jobs in regions have sufficient skills to work elsewhere in Europe and not enough to find work in Riga,» comments the economist.

«This allows for the possibility that there are objective factors that prevent people from moving to Riga or any other economically active city. There are many reasons, but I believe the rent market in Riga and the situation on the housing market may be a notable factor,» says Āboliņš.

Emigration is the more economically rational decision

Āboliņš says it is cheaper to rent housing in Riga then it is in other capital cities. However, wages in Latvia are low but living costs are high.

«If we compare rent prices not with average wages but with free funds left after covering basic needs, it turns out rent prices in Riga are some of the highest in Europe,» explains the economist.

«Basically rent takes away all income of a family with two children after paying for basic needs. This means saving up for housing purchase is very difficult for residents,» says the economist.

«At the same time, rent of equal housing in one of Western Europe’s capital city would cost about half of residents’ income. This means a family of four is able to afford more long-lasting use products, travel, rent a bigger home and make savings,» says the bank’s expert.

He says such a situation present in Latvia’s economy means employers have a hard time filling vacant jobs the pay in which is below average in Riga, because unless a person owns housing in Riga or the employer is unable to provide housing, emigration becomes a more economically rational decision.

The economist reminds that the expensive nature of the housing market is a global phenomenon that is contributed to by urbanization and the effect that economic activity is largely concentrated in capital cities. This is no exception for Latvia – over the past 30 years the population in the country has declined, whereas the population around Riga has remained stable for five years.

More organized legislation would stimulate construction of new housing

«Wages in Latvia continue growing, construction volumes will change in the next decade, as will demand to housing, because very low birth rates in the 90s has caused the reduction of new families,» predicts Āboliņš.

«Nevertheless, migration flow towards Riga will likely continue, and after decades the apartment homes built during the Soviet era will be 60 – 70 years old. Unfortunately, nowadays we do not invest in this fund’s renovation, nor are we actively building new homes to replace old ones,» the expert predicts.

He also notes there are no quick and simple solutions to combat this problem. Nevertheless, the state may become involved by adopting a new law on rent to improve construction processes, and more actively contribute to renovation of the housing fund. It is also necessary to think about the state’s more active involvement in construction of housing.

«Lasting and unpredictable construction process increases costs, whereas flaws with legislation do not motivate the private sector to cooperate,» reminds Āboliņš.

The economist admits a more organized legislation would stimulate construction of new housing. Nevertheless, it is also necessary to think about attraction of investments to help restore the existing housing fund. EU funds have made heating more accessible. However, Riga does not use this tool often. This is because there is fractured structure of housing owners and the complicated decision-making process.

«The established management model has not been able to resolve the matter of housing renovation. This is why the state should consider a more active approach, such as transitioning from an opt-in approach for at least standard projects to opt-out for projects in which renovation is compulsory and automatic unless owners decide to reject it,» explains Āboliņš.

The economist also proposes considering a more active involvement of the state or municipalities in the construction of the residential fund. Specific examples show this is possible, and the economist is confident it is possible to find solutions, considering the programme is outside the state budget and does not affect funding for other industries.


Leave a reply to Psy

  1. From Abroad says:

    And the ruling elites say we need to import immigrants from third world countries (primarily Ukraine) to fill in these staff shortages. Where on earth are they going to live?

    • Guest says:

      A country can not need more workers, companies might need extra workers. What most of the world (outside EU) does is to give temporary work permits to skilled workers, and when work is done; they will return home (or go work somewhere else)

      • From Abroad says:

        The practice in developed countries has shown that there’s nothing more permanent than “temporary” workers.

  2. Psy says:

    Nicely written and partly true, in Riga there are more immigrants and then again they live somewhere, right?

  3. Bob says:

    Finally a true article about the “shortage of skills” (shortage of jobs paying enough, that is)

  4. Krotow says:

    Honest conclusion about real housing situation in Latvia. Living in Riga is expensive even when you’re renting a miserable flat in Soviet era building. Rent in new project buildings is exorbitant and not for average folk’s income. Most paying jobs in Latvia also are concentrated inside Riga or at city limits so anyone who works there still need a living place somewhere in Riga or nearby. Living in other cities in Latvia is cheaper, however there are not much to do. So no surprise why average folk decide to flee away to western Europe where he can earn at least enough to pay bills and still have something left.

    • Arthur says:

      If I had to choose either to work at supermarket or go abroad. More likely that I would go abroad. Government is eating most of my income! Social insurance, Personal income tax and valua added tax combined eats more than 60‰ percent of my income!
      Others who buys alcohol and fuel are even worse off.
      Meanwhile companies spend less money on Taxes. Black hat guys pays likely under 10% in tax.
      I would suggest to cut budget drastically, run schools primarily online, use eink displays split shifts to two per day in order to

      • Plus says:

        minimize hardware costs. Since most stuff would be on internet we would need much less teachers. Supermarkets could reduce packing and provide ingredients online straight to customers house preferably by using low CO2 transport like electric rail or electric cargo bike, also using logistics. We should support OpenSource software – could even open nonprofit for this. Actual improvements in software could be done more somewhere like in Bangladesh for instance. So we could do more for less!
        Other things we would need to encourage would be to…

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